Investigating the relationships among sales, management control, sales territory design, salesperson performance, and sales organization effectiveness

International Journal of

ELSEVIER

Intern. J. of Research in Marketing 13 (1996) 345-363

Research in Marketing

Investigating the relationships among sales, management control, sales territory design, salesperson performance, and sales organization effectiveness Emin Babakus a, David W. Cravens b,*, Ken Grant c, Thomas N. Ingram Raymond W. LaForge e

d

a Unirersity of Memphis, College of Business, Memphis. TN, USA b Texas Christian Unil'ersity, M.J. Neeley School of Business. P.O. Box 298530, Fort Worth, TX 76129, USA c Monash UnirersiO', School of Marketing, Wellington Rd, Clayton, Vic 3160, Australia d Colorado State Unit'ersity, College of Business, Fort Collins. CO 80523, USA Unirersity of Louiseille, School of Business, Louiscille, KY 40292, USA

Received 1 June 1995; accepted 5 June 1996

Abstract

A conceptual model is developed and empirically tested, examining the relationships among the sales management control system, sales territory design, salesforce behavior and outcome performance, and sales organization effectiveness constructs. A sample of 58 Australian chief sales executives and 146 field sales managers was used to test the model. The hypotheses based on the conceptual model were tested using LISREL 7. The test results were significant and in the direction hypothesized. Managerial implications and research directions are discussed. Ke3,words: Sales management control; Sales territory design; Salesforce performance; Sales organization effectiveness

1. Introduction

There are many indications that the turbulent and rapidly changing international business environment requires continual modification of sales management practices and sales territory designs in order to be competitive (Cravens et al., 1992; Corcoran et al., 1995). A recent study of European and U.S. compa-

Corresponding author. Tel.: 817-921-7555;fax: 817-921-7227.

nies with aggregate annual sales in excess of $1 trillion points to major changes in sales and marketing strategies and organizational structures (OstroLandau, 1995). For example, Intergraph Corporation (computer graphics and design hardware and software) redesigned its salesforce by replacing part of its field sales organization in Germany with distributors and value-added resellers, concentrating direct sales only on major accounts. Many other companies are changing how they deploy expensive field salesforces to reduce costs and improve profits. Changes made in the international salesforces of IBM and

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Procter & Gamble are illustrative (Dobrzynski, 1993; Lawrence, 1993). Normally these changes involve changing the salesperson's assigned accounts, product responsibilities, and other adjustments in sales coverage. For decades, the quest to improve sales performance and effectiveness focused on attempts to isolate the determinants of an individual salesperson's performance, typically resulting in low levels of explanation (Churchill et al., 1985). Much of this work has looked at the characteristics of salespeople as potential predictors of performance. While the impact of other variables not controlled by the salesperson is recognized, limited research has been directed at these factors. Moreover, only a few studies have examined the sales manager level of the organization, even though there has been considerable attention in international research to management styles and culture (Tixier, 1994). Increasingly, researchers and sales executives recognize the importance of situational contingencies, including the sales management control system and sales territory design, as moderators a n d / o r determinants of performance of salespeople and effectiveness of sales organizations (Weitz et al., 1986). The interest in such contingencies is reflected in a small, but growing body of research which focuses more on sales managers and sales organizations than on salespeople (Cravens et al., 1993; Ganesan et al., 1993; Darmon, 1993). Despite the extensive structural changes occurring in companies in Europe and the U.S. (due to restructuring, reengineering, mergers, acquisitions, etc.) and the acknowledgment of the importance of the design of sales and marketing organizations (Achrol, 1991; Cespedes, 1991; Ruekert et al., 1985; Ruekert and Walker, 1987; Webster, 1992), the design of sales territories has received limited research attention. Most of the work in this area consists of selling effort allocation models using allocation criteria such as workload and market potential, and market response models. Even less attention has been paid to the interaction between the nature and extent of sales management control and sales territory design on the performance of salespeople and the effectiveness of sales organizations. The emerging literature points to the importance of the salesforce control system and performance relationship (Anderson and Oliver, 1987; Cravens et

al., 1993; Oliver and Anderson, 1994). However, none of these studies considers the territory design/performance relationship. Given the significant role of salespeople in many organizations, the accompanying high expenditures on the sales function, and the salesforce's impact on customer satisfaction and financial performance of the firm, this indeed appears to be a significant oversight. The purpose of our research is to examine important relationships among sales management control, sales territory design, salesforce performance, and sales organization effectiveness. A conceptual model is presented and hypotheses are developed. The research methods and results are described, followed by a discussion of implications and future research directions.

2. Conceptual model and hypotheses The conceptual model guiding the research is presented in Fig. 1. The model replicates, extends, and integrates several sales management research streams. First, it builds on the general relationships formulated in the Walker et al. (1979) model, although in abbreviated form. This model has provided the conceptual framework in sales management research for many years. Second, the important distinction between the effectiveness of a sales organization and the performance of salespeople is maintained (Walker et al., 1979; Cravens et al., 1993). In addition, the performance construct is further subdivided into behavioral performance and outcome performance (Jaworski and

SALES MANAGEMENT CONTROL SYSTEM

SALESFORCE BEHAVIORAL PERFORMANCE

SALES

T

SALESFORCE OUTCOME PERFORMANCE

SALES

TER~TORY

ORGANIZATION

DESIGN

EFFECTWENESS

Fig. 1. Sales organization design framework.

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Kohli, 1991; Cravens et al., 1993). Behavioral performance, outcome performance, and sales organization effectiveness are considered as separate constructs which is typically acknowledged conceptually, but often violated in sales management research and practice. Sales managers and sales researchers often focus only on the outcome (sales generated) aspect of performance. Salesperson performance and sales organization effectiveness tend to be used interchangeably by researchers and practitioners (Churchill et al., 1985; Walker et al., 1979; Cravens et al., 1993). Third, the salesforce management control system research stream is incorporated into the model. Anderson and Oliver (1987) categorize salesforce control systems as behavior-based or outcome-based. An empirical test of the Anderson and Oliver (1987) propositions identified two control dimensions: management control and compensation control (Cravens et al., 1993). The sales management control construct in our model represents an extension of the behavior-based management control construct. Fourth, sales organization research includes studies of sales organization structure, salesforce size, territory design, and the allocation of selling effort to prospects, accounts, and products (Beswick and Cravens, 1977; Ryans and Weinberg, 1979; Lodish, 1980; Zoltners and Sinha, 1983; LaForge and Cravens. 1985; Ryans and Weinberg, 1987; Rangaswamy et al., 1990). Our research focuses on sales territory design. However, salesforce size and effort allocation are closely related aspects of territory design. The conceptual model integrates the sales territory and sales management area into an overall sales organization effectiveness framework. Finally, most sales organizations employ field sales managers, but often have regional and other management levels. The specific concerns at each sales management level differ. For example, top-level sales executives are mainly interested in the overall structure of the sales organization, the total size of the salesforce, and the design of sales regions. Regional sales managers are most concerned with the design of sales districts and the number of field sales managers and salespeople in the region. Field sales managers typically focus on the design of sales territories for individual salespeople and the allocation of selling effort to accounts and prospects. The

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general relationships in our conceptual model apply at all levels, although measures of specific constructs may be altered to reflect the particular concerns at a given level.

2.1. Sales organization effectieeness and salesfigrce performance Sales organization effectiveness is defined as a summary evaluation of overall organizational outcomes (Churchill et al., 1993). This evaluation can be for the entire sales organization or for organizational subsets, such as specific regions, districts, territories, or customer groups (Lambert and Kniffin, 1970; Cravens et al., 1972; Cravens and Woodruff, 1973; Lucas et al., 1975; Beswick and Cravens, 1977; Ryans and Weinberg, 1979: LaForge and Cravens, 1981-1982; Ryans and Weinberg, 1987). Total sales volume is the most often used measure of sales organization effectiveness, but assessments of costs, profit contribution, return on assets managed, and residual income analysis have been used by some firms and researchers (Churchill et al., 1993; Dubinsky and Barry, 1982; Jackson et al., 1983; Schiff, 1983: Cron and Levy, 1987: Morris et al., 1991 ; Ingram and LaForge, 1992). Considerable empirical research (e.g., Cravens et al., 1972; Beswick and Cravens, 1977; Ryans and Weinberg, 1979; LaForge and Cravens, 1985; Ryans and Weinberg, 1987) consistently supports the notion that the variation in sales organization effectiveness is explained by environmental, organizational, and salesperson factors. This research suggests that sales organization effectiveness and salesperson performance are related, but different constructs. Effectiveness is a summary evaluation of organizational outcomes that can be partly attributable to the salesperson (Churchill et al., 1993). Salesperson behavior indicates what salespeople do in their job, whereas performance is an assessment of salesperson behavior based on its contribution to organizational objectives. The consequence of these constructs being different is that evaluations of salesperson performance should be restricted to factors under the general control of salespeople. Sales organization effectiveness assessments, in contrast, are overall results caused by any number of factors. The performance

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of salespeople contributes to, but does not completely determine sales organization effectiveness. Behavioral performance consists of an evaluation of the various activities and strategies salespeople engage in when executing their job responsibilities. Because salespeople can more readily control what they do, behavioral performance evaluations have been suggested and used by some researchers (Walker et al., 1979; Jaworski and Kohli, 1991; MacKenzie et al., 1993; Cravens et al., 1993). Behavior performance includes activities such as developing and making sales presentations. Anderson and Oliver (1987) identify sales support and planning as relevant dimensions of salesperson behavior performance. Salespeople use their efforts and skills to produce outcomes (results) for which they are responsible and can be largely attributed to them. These outcomes represent an outcome performance dimension. Salespeople produce results such as sales, market share, and new accounts. The distinctions between salesperson behavioral and outcome performance are consistent with conceptual work (Walker et al., 1979; Anderson and Oliver, 1987) and empirical studies (Behrman and Perreault, 1982, 1984; Jaworski and Kohli, 1991; Cravens et al., 1993; Oliver and Anderson, 1994). Our conceptual model considers salesforce behavioral performance, salesforce outcome performance, and sales organization effectiveness as separate constructs. The proposed relationships among these constructs are presented in the following hypotheses: H.1. The higher the level of salesforce behavioral performance, the higher the level of salesforce outcome performance. H.2. The higher the level of salesforce outcome performance, the higher the level of sales organization effectiveness.

Anderson and Oliver (1987) propose that salespeople in behavior-based management control systems will come close to achieving the sales organization's goals than salespeople in outcome-based systems. There is empirical support for a positive relationship between behavioral and outcome salesforce

performance in sales organizations employing behavior-based control (Cravens et al., 1993). This same research found a positive relationship between outcome performance and financial effectiveness. 2.2. Sales management control system

The salesforce control system literature suggests a continuum with an orientation toward either behavior-based or outcome-based control systems. Anderson and Oliver (1987) define behavior-based control systems in terms of the amount of monitoring, directing, evaluating, and rewarding performed by sales managers. The more sales managers are engaged in these activities, the more behavior-based the control system, especially the management control dimension. Our sales management control system construct represents the management control dimension and includes sales management monitoring, directing, evaluating, and rewarding. Based on the Anderson and Oliver (1987) propositions and recent empirical results (Cravens et al., 1993), we offer the following hypothesis: H.3. The greater the extent of behavior-based sales management control, the higher the level of salesforce behavioral performance.

Anderson and Oliver (1987) argue that sales organizations employing outcome-based control systems are relegating most of the sales management tasks to the market. The more outcome-based a salesforce control system, the less sales managers are directly involved with salespeople. The major management tool is the reward system. If salespeople are not performing well, they will not be well rewarded. This, in turn, will motivate them to identify the changes needed to improve performance and receive better rewards. The level of sales management involvement is limited to adjusting the reward system such that salespeople will meet organizational goals through achieving the performance levels needed to earn desired rewards. In contrast, the more behavior-based a salesforce control system, the more sales managers are directly involved with salespeople. If salespeople are not performing well, sales managers work with them in

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various ways to improve performance. Sales managers are actively involved with salespeople in the field.

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territory design. Based on this logic, we propose the following hypothesis: The greater the extent of behavior-based sales management control, the higher the level of satisfaction with the sales territory design. H.4.

2.3. S a l e s territor3.' d e s i g n

The importance of designing effective sales organizations is widely supported in the accounts of organizational restructuring (Bailey, 1989). Moreover, marketing scholars continue to express concerns about the lack of attention given to the design of sales and marketing organizations. Dickson (1994), for example, suggests that rethinking the marketing organization should be centered on the design of the sales organization. Despite this importance, the factors and relationships associated with the development of effective sales territory designs have not received much attention. Sales managers employing behavior-based control of salespeople are likely to pay close attention to sales territory design. Salary compensated salespeople represent substantial investments and their productivity is directly affected by sales territory design. In contrast, outcome-based control, where a high proportion of compensation is commission/bonusbased and fixed costs are low, design issues such as territory boundaries and salesforce size are not as important, due to the focus on generating sales. For example, a commission-based organization may seek to expand its salesforce to capitalize on sales opportunities. Allowing the salesforce to grow too large may reduce average commissions for salespeople, but may generate more sales for the organization than a salesforce of optimal size. As noted above, the primary management tool is the reward system. Operating in a behavior-based control system, having the right structure, the optimal number of salespeople, effective territory designs, and the productive allocation of selling effort affect the performance of salespeople and the effectiveness of the sales organization. Managers' assessment of their sales territory designs help to guide them in improving the designs and results in greater satisfaction with the designs. The construct, satisfaction with sales territory design, indicates sales managers' assessment of the appropriateness of the structure. The more behavior-based the salesforce control system, the more emphasis on improving all aspects of sales

Many sales organizations operate with various sales territory design imbalances. Substantial empirical evidence indicates tremendous opportunities to improve sales organization structure, salesforce size, territory design, and allocation of selling effort decisions (Lodish, 1974; Beswick and Cravens, 1977; Zoltners and Sinha, 1983; LaForge and Cravens, 1985; Rangaswamy et al., 1990). These studies suggest significant increases in productivity from improvements in sales territory design. Since these productivity increases directly affect the entire sales organization or specific subunits, satisfaction with the sales territory design has a direct impact on sales organization effectiveness. We therefore propose the following hypothesis: The greater the extent of satisfaction with the sales territory design, the higher the level of sales organization effectiveness. H.5.

Sales territory design also affects the performance of salespeople. Ineffective structures, too many or too few salespeople, poorly designed territories, and unproductive allocation of selling effort influence what salespeople do as well as the results they can achieve. Some of these effects can be addressed in evaluating salesperson performance through the use of quotas or other means that control for the externalities not controllable by salespeople. But these approaches do not address the negative motivational and role perceptions impact of sales territory design imbalances on salespeople. For example, poorly designed territories can result in lower motivational levels. A firm may advocate customer-oriented relationship selling, yet assign too many customers to each salesperson, thus inhibiting the sought sales behaviors. This could lead to excessive role conflict, a psychological stressor that has been linked with lower levels of job satisfaction and performance (Sager, 1994; Siguaw et al., 1994; Churchill et al., 1985). This same design deficiency could lead to low

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expectancy estimates (perceived link between effort and results) thus decreasing overall motivational levels. The salesperson might conclude, " I can't establish strong relationships with this many customers ... why bother trying?" There is also empirical support for the positive impact that effective sales territory design can have on salesperson performance (Cravens et al., 1992). These research results suggest that effective sales organization design decisions can provide salespeople with the opportunity to perform well. Since sales organization design affects what salespeople can do and achieve, design impacts both behavioral and outcome performance. Therefore, we propose the following hypotheses: H.6. The greater the extent of satisfaction with the sales territory design, the higher the level of salesforce behavioral performance. H.7. The greater the extent of satisfaction with the sales territory design, the higher the level of salesforce outcome performance. 2.4. Sales management levels It is important to recognize the potential influence of the vertical management structure on the relationships in the conceptual model (Fig. 1). For example, the sales management strategy and the priorities of the chief sales executives are clearly important influences on lower level managers. Upper management has the opportunity to affect salesforce performance and sales organization effectiveness through the direction and coordination of the sales managers who directly supervise salespeople. Upper management also participates in the design of field units. Once the design of the field unit is determined, the unit manager is constrained in making design changes that affect other units (e.g., increasing the unit's geographical coverage). If there are too many field units, this impacts the effectiveness of each field unit and the salespeople assigned to the unit. Thus, because of these relationships, it is important to examine the Fig. 1 relationships at different management levels.

3. Research methods

A study of sales organizations from diverse companies was performed to test the specific hypotheses developed from the conceptual model. Data were collected by means of a mail questionnaire completed by the chief sales executive and the first-line sales managers in each participating company. The field sales units supervised by the sales managers served as the unit of analysis for the study. The questionnaires were developed and pre-tested in personal interviews with 18 sales executives. Since many of the scales have been used in prior studies, the primary objective of the pre-test was to ensure that the terms and wording were understandable to respondents and that completion time was not a problem. A summary of the research results was offered to each participating sales executive. The sales organizations were all located in Australia. Each participating chief sales executive was asked to complete one questionnaire and to distribute the second questionnaire to the first-line field sales managers who directly supervise salespeople. The completed questionnaires were returned directly to the research team by the chief sales executives and the field sales managers. The research focus is the design of field sales units which are typically made up of salespeople who report to a sales manager. These units, and the sales territory assigned to each salesperson, comprise the field sales organization. The number of levels between the chief sales executive and the first-line supervisors, and the staff positions in the sales organization are additional aspects of sales organization design. Since these aspects of design vary considerably across sales organizations, we selected the field sales unit as the basis of our research. This organization form is common to many types of sales organizations. 3.1. The sampling plan The objective of the sampling plan was to include a large number of sales organizations operating in different types of selling environments. The field salesforces represented in the study include those selling to organizational and consumer buyers. The

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approach used to obtain respondents from diverse selling environments was a judgment sampling methodology, similar to that used in other inter-company research studies (e.g., Cravens et al., 1993; Lilien and Weinstein, 1984). The procedure used to obtain study participants was as follows: A list of companies selling consumer and industrial products and services representing various size categories was identified with the assistance of industry associations and trade groups. Each company was contacted by phone to determine (1) if the firm had a field salesforce, and (2) if the chief sales executive would participate in the study. A total of 58 companies participated in the study, representing 51% of the firms contacted. The sample consisted of 58 chief sales executives and 146 sales managers. The response rate for the field sales managers was 42%. This response rate was not unexpected since completion of an eight-page questionnaire was required by each manager. The sampling approach satisfied the basic objective of generating respondents from different selling environments. The types of salesforces comprising the sample include generalists (12%), product/service specialists (39%), customer specialists (6%), and product/customer specialists (43%). Consumer products represent the largest portion of sales for 58 percent of the companies, compared to 7 percent consumer services. Industrial products account for 28 percent of the firms' sales, compared to 7 percent for industrial services. The sample profile indicates a substantial amount of variation for several salesforce characteristics. Since the research objective is to test basic theoretical relationships, limitations in being able to extrapolate research results to a defined population of salesforces are not critical.

351

using a scale anchored at 10 for 'to a great extent' and 1 for 'not at all'. The chief sales executive (CSE) used the same scale to indicate the extent to which sales managers in the CSE's organization perform each management activity.

3.2.2. Sales territor3, design This construct was measured using a multiple item scale based on the salesforce deployment and territory design literature. The sales manager indicated the level of satisfaction with the design of the sales territories in his/her sales unit. A seven-point scale anchored at 7 for 'very satisfied' and 1 for 'not at all' was used to measure the level of satisfaction (see Appendix A for specific items). A similar approach was used to obtain the level of satisfaction from CSEs concerning the design of the field units.

3.2.3. Salesforce pe(ormance

The constructs and measures used in our analyses, along with scale items and sources, are shown in Appendix A.

The salesforce performance constructs were measured using a modified and extended form of the multi-item scale developed by Behrman and Perreault (1982, 1984)). Each sales manager evaluated the performance of the unit's salesforce for each scale item using a seven-point scale anchored by 1 for 'needs improvement' and 7 for 'outstanding'. Since the Behrman and Perreault (1982, 1984)) original work, additional dimensions of salesperson behavioral performance have been identified (Anderson and Oliver, 1987; Cravens et al., 1993; John and Weitz, 1989; Spiro and Weitz, 1990). Our measures include technical knowledge, adaptive selling, teamwork, sales presentation, sales planning, and sales support. Salesforce outcome performance was assessed using a multiple-item scale. The CSE made a summary performance assessment of the salesforce. A single item was used to measure outcome performance. A multiple item scale measured behavioral performance (one item for each dimension such as technical knowledge). The items were scored using a seven-point scale (outstanding = 7 and needs improvement = 1).

3.2.1. Sales management control system

3.2.4. Sales organization effectit,eness

The specific components of the management control system included monitoring, directing, evaluating, and rewarding. Sales manager respondents scored the extent to which they perform each activity

Sales organization effectiveness was evaluated using sales volume, market share, profitability, and customer satisfaction measures. The respondent evaluated each item relative to the sales organization

3.2. Instruments

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Table 2 for measures of the chief sales executive sample. The measures that were developed using the above two procedures were subjected to confirmatory factor analysis to assess their unidimensionality as recommended by Anderson and Gerbing (1988). Due to sample size restrictions with the number of measures included in the test, separate analyses were performed for subsets of the constructs, thus providing a conservative test of unidimensionality. Confirmatory analysis was also used to assess the discriminant validity of the measures and to assess the level of cross correlation of individual measures of each scale. Confirmatory factor analysis of each o f the subsets of dimensions indicated acceptable levels of fit and significant loadings o f all hypothesized measures on their respective dimensions. Results o f L I S R E L 7 analyses showed goodness of fit indices ranging from 0.80 to 0.92. A series of pair-wise confirmatory factor analyses were conducted to assess discriminant validity of the measures using chi-square tests (Anderson and Gerbing, 1988). Results of the analyses showed that organizational effectiveness did demonstrate discrim-

objectives and relative to the major competitor using five-point scales anchored by ' m u c h worse' (1) and ' m u c h better' (5). The chief sales executive assessed the effectiveness of the entire sales organization whereas the sales managers assessed the effectiveness of their units. Relative measures were used to enable comparisons across sales units and industries. 3.3. Reliability and validity

Exploratory factor analysis was performed on sets of items to see if they represented the distinct concepts o f interest. Analysis using Cronbach's alpha coefficient and item to total correlation was used to further refine the measures and eliminate items whose inclusion resulted in lower alpha coefficients. Tables 1 and 2 present the correlations among the measures and C r o n b a c h ' s alpha coefficients for the sales manager and CSE samples (Cronbach, 1970). An inspection of the sales manager alpha coefficients from Table 1 reveals that all coefficients are greater than 0.70, and 11 of the 15 multiple-item measures have coefficients greater than 0.80, indicating good reliability (Nunnally, 1978). A similar pattern exists in

Table 2 Measure intercorrelations, reliability estimates and descriptive statistics for the chief sales executive sample (n = 58) a Measures

1

Design Yi

0.89

2

Behavioral performance Y2 0.427

0.73

Outcome performance F~ 0.334

0.474

3

4

5

6

7

8

9

10

0.78 0.478 0.479 0.385 6.04 1.47

0.90 0.725 0.638 5.64 1.90

0.79 0.529 5.68 1.74

0.84 4.85 1.85

*

Effectiveness

]/4 Ys Y6 Activities XI X2 X3 X4 s

0.261 0.249 0.213

0.093 0.014 0.059

0.374 0.217 0.059

0.90 0.346 0.497

0.73 0.294

0.74

0.448 0.394 0.406 0.190 4.53 0.90

0.278 0.294 0.427 0.287 4.78 0.86

0.064 0.042 0.050 0.110 4.60 1.35

0.225 0.308 0.231 0.225 3.38 0.82

0.099 0.192 0.093 0.004 3.53 0.93

0.044 0.342 0.226 0.301 3.60 0.74

* Scale reliabilities (coefficient alpha) are on the diagonal. Outcome performance was measured using a single item scale (Y0.

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inant validity from each of the salesforce behavioral and outcome performance dimensions. In all cases, combining either of the sales organizational effectiveness dimensions with any of the salesforce performance dimensions resulted in a significant increase in the chi-square statistic. Individual measures that demonstrated acceptable reliability and validity for the dimensions were combined into scales by taking the arithmetic mean of the items measuring each dimension (Appendix A). While there is a long tradition of using factor scores in subsequent regression analysis, the issue of 'factor indeterminacy' has been a major concern. In other words, " I n exploratory factor analysis the factor solution is not unique. A number of different factor pattern loadings and factor correlations will produce the same correlation matrix for the indicators" (Sharma, 1996, p. 136). In addition, a comprehensive review of the use of exploratory factor analysis concluded that because alternative estimation methods produce different sets of factor scores, the "simple summing of the variables salient to a particular factor" should be used for subsequent analysis (Ford et al., 1986).

4. Research results The hypotheses based on Fig. 1 were tested using LISREL 7. First, we present the results of the sales manager sample tests. A discussion of the chief sales executive test results follows, and limitations of the study are presented. 4.1. Sales manager results

The empirical results provide strong support for the hypothesized model relationships shown in Fig. I. The sales management control system has a positive impact on sales organization effectiveness through salesforce behavior and outcome performance and through sales organization design. Design also has a positive relationship with behavior performance and outcome performance. The values of the overall model fit statistics (chisquare = 180.99, p = 0.000, GFI = 0.863, AGFI = 0.807, RMSR = 0.073, NFI = 0.82, NFI-2 = 0.90) indicate a mixed signal about the model fit. However, all of these measures are sensitive to sample size with the exception of NFI-2. The model has a

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good fit on the basis of the Normed Fit Index-2, suggested by Gerbing and Anderson (1992) as one of the most viable fit indices. The results of the empirical model tested (Fig. 2) are shown in Table 3. Each of the seven hypotheses is supported by the sales manager data. Each relationship (H.1 through H.7) is significant and in the hypothesized direction. Moreover, substantial proportions of variance in behavioral performance (R: = 0.171) and outcome performance (R 2 = 0.591) and effectiveness (R 2 = 0.428) are accounted for by the hypothesized antecedents. The relative size of the standardized coefficients is of interest. The results indicate that the sales management control system is related to both sales organization design and behavior performance. The coefficients for the management control system and design on behavior performance are similar in magnitude. Moreover, design has a similar effect on both behavior and outcome performance. Behavior performance is an apparent strong driver of outcome performance. 4.2. Chief sales executive results The hypothesis tests using the chief sales executive data also provide support for the conceptual model relationships shown in Fig. 1. As shown in Table 4, four of the seven hypotheses (H.1, H.2, H.4, and H.6) are supported. The model fits the data reasonably well especially on the basis of NFI-2

355

Table 4 ML estimates of structural parameters and model fit statistics (chief sales executives sample n = 58) a Model parameters

Hypothesis

Parameter definition

Standardized coefficient

t value

)t21 /332 "Yit

H~ Hi H4 H6 H7 Hz H5

Activities Behav ~ Activities Design ~ Design ~ Outcome Design ~

0.234 0.505 0.497 0.409 0.098 0.322 0.239

ns 2.73 2.98 2.35 ns 2.01 ns

/321 /33~

/341

~ Behav Outcome ~ Design Behav Outcome ~ Effect Effect

X 2 = 42.39; df = 31; p-value = 0.083; NFI = 0.80; GFI = 0.883; RMSR = 0.088; NFI-2 = 0.94; AGFI = 0.792. Variance explained ( R 2) in: Design (r/~)= 0.247; Behavior ( r / 2 ) = 0.317; Outcome (r/3) = 0.317; Effectiveness (774) = 0.216.

(chi-square = 42.39, p = 0.083, GFI = 0.883, AGFI = 0.792, RMSR = 0.088, NFI = 0.80, NFI-2 = 0.94). Substantial amounts of variance in the dependent constructs are accounted for by the predictor constructs. Importantly, the chief executive results reinforce rather than contradict those of the field sales managers. The proportion of explained variance in outcome performance and sales organization effectiveness accounted for by the hypothesized antecedents is 0.317 and 0.216, respectively. Since the CSEs used summary measures for salesforce performance, a direct comparison of the two models is not possible. 4.3. Limitations

Table 3 M L estimates of structural parameters and model fit statistics (field sales manager sample n = 146) a Model Hypoparameters thesis 'Y21 /332 'Ytl /321 /331 /343 /341

H.3 H.I H.4 H.6 H.7 H.2 H.5

Parameter definition

Standardized coefficient

t value

Activities ~ Behav Behav ~ Outcome Activities ~ Design Design --* Behav Design ~ Outcome Outcome ~ Effect Design ~ Effect

0.222 0.653 0.356 0.279 0.234 0.502 0.245

2.25 5.96 3.91 2.76 2.98 4.20 2.17

aX2=180.99; df=85; p-value=0.000; NFI=0.82; GFI= 0.863; RMSR = 0 . 0 7 3 ; NFI-2 = 0.90; AGFI = 0.807. Variance explained ( R 2) in: Design ( r h ) = 0.127; Behavior ( r / 2 ) = 0.171; Outcome ('q3) = 0.591; Effectiveness (774)= 0.428.

Our measurement of the construct 'sales territory design' does not consider all aspects of territory and field sales unit design. The multi-item scale employed in the study does not specifically consider factors such as product a n d / o r market specialization, major account and team selling sales approaches, and vertical organization structure. Nonetheless, the items included in the design scale were considered as the most appropriate aspects for examining a wide range of selling environments. Moreover, deficiencies in product a n d / o r market specialization, and other design problems are likely to be reflected in the responses to several of the design scale items used in the study. Our measure 'satisfaction with sales territory de-

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sign' is not an objective measure of the appropriateness of the sales organization design. While it seems reasonable to think that the field sales manager's level of satisfaction with various aspects of territory design have to be based largely on the true effectiveness of these aspects, the use of objective measures of sales design appropriateness should be considered in future studies. Our study results are probably more representative of behavior-based salesforce control systems. The average fixed salary for the sample firms was 90 percent of total compensation, which is characteristic of sales organizations utilizing behavior-based control systems (Anderson and Oliver, 1987). These compensation practices are typical for Australian companies with field salesforces. The conceptual model (Fig. 1) seems more appropriate for sales organizations employing behaviorbased control, since the design of field sales units is likely to be more important in behavior-based management systems. Design considerations in sales organizations where commissions represent the major portion of total compensation are probably less important compared to behavior-based systems. Relationships in the outcome-based systems tend to be transactional and sales management is less concerned with issues such as territory design and optimizing the salesforce size. Instead, the emphasis may be on maximizing sales. When salespeople are not satisfied with commissions earned, turnover occurs unless the compensation system is changed. While there is conceptual and empirical support for salesforce outcome performance and sales organization effectiveness being distinct although related constructs, our data were obtained from the same respondent. Future research should utilize another approach for the effectiveness information such as having the chief sales executive provide effectiveness measures for field sales manager units.

5. Managerial implications The general pattern in the findings suggests that the sales management control system plays an important role in both designing effective field sales organizations and influencing salesforce behavioral and outcome performance. The greater the extent of be-

havior-based sales management control, the more satisfied sales managers are with their field unit designs and the performance of the salespeople in their units. Good designs and high salesforce performance lead to favorable sales organization effectiveness. Importantly, these findings highlight the pivotal role of the field sales manager in salesforce performance and unit effectiveness. Researchers have considered elements of sales management processes such as supervisors' feedback (Jaworski and Kohli, 199 l), but there are no known published studies of how the sales management control system impacts design, performance, and organizational effectiveness. The strong relationship we found between salesforce behavioral performance and outcome performance also highlights a critically important sales management issue. Managers expect salespeople to perform well on both dimensions of performance. They see a positive link between behavior and results. Moreover, this finding contradicts the relationship proposed by Anderson and Oliver (1987) for behavior-based control systems, that the salespeople operating in these systems perform poorly on outcome measures of performance. Both this study and the Cravens et al. (1993) findings provide empirical support for a positive behavioral/outcome performance relationship. The key implication is that relevant salesforce behavior activities (e.g., sales planning, sales presentation, etc.) when performed well should lead to favorable outcome performance. The time frame for these outcomes may vary according to the type of selling situation (e.g., capital goods versus processed foods). The study findings provide important insights into how the sales management control system is viewed by both chief sales executives and the sales managers of field units. Prior research into sales management control has centered on describing management activities rather than examining the relationship of the control system with design, salesforce performance, and organizational effectiveness. It is important, of course, to recognize that certain sales management control activities in a particular organization may contribute more to performance and effectiveness than others. Our objective in this research is to show the relationship between the sales management control system and the other components of the model (Fig. 1).

E. Babakus et al. / Intern. J. of Research in Marketing 13 (1996) 345-363

The study results bring into sharp perspective the important relationship between the design of field sales organizations and salesforce performance. The relationships shown in Tables 3 and 4 indicate that salespeople perform better in sales organizations where managers are more satisfied with the designs. This suggests that when field units are well-designed, salespeople perform well and their efforts favorably impact sales organization effectiveness. These relationships provide insights into how design impacts both performance and sales organization effectiveness. Perhaps, most important, they provide empirical support for basic sales management principles previously supported only by observation and conventional wisdom. One of the few studies supporting the relationship between sales management control and salesperson performance is provided by a major empirical study conducted nearly four decades ago (Davis, 1957). The subjects were life insurance salespeople and field managers. Salespeople were rated as to their potential effectiveness using screening tests. Of those salespeople rated as potentially most effective when hired, 48 percent were considered successful when working under more effective managers, whereas only 27 percent were considered successful under less effective managers. A more recent assessment of the manager/salesperson performance relationship by a sales management consultant is that "the quality of first-line supervision has as much to do with the sales staff's success as the drive and ability they bring to the job" (Henry, 1983). Conventional sales management practice is often centered on motivating salespeople without fully assessing whether management has provided salespeople an opportunity to perform well. The drastic restructuring of organizations experienced during the early, 1990s attests to the problem. Many companies do not address the design issue until they get into trouble. Importantly, design is a sales management responsibility that must by assessed on a regular basis. Our study results indicate that sales organizations that are better designed are more effective. Finally, the study results strongly suggest, that in effective sales organizations, managers are highly satisfied with the sales territory designs and they have high performance salesforces. Achieving sales organization effectiveness requires both chief sales

357

executives and sales managers to recognize (and manage) the relationships shown in Fig. 1. The study findings have important manager selection and training implications. Managers are involved in several monitoring, directing, evaluating, and rewarding control system activities (see Appendix A for specific items). Sales managers perform many of these activities as shown in Tables 1 and 2 (X 1, X 2, X 3, and X4). The control system dimensions display two characteristics. First, the extent to which sales managers perform the four components is not substantially different. Second, all of the mean values for the four dimensions fall short of indicating that managers are involved in any of the activities to a great extent. Instead, the extent of involvement is more moderate since the mean values range from 6 to 7 of a high of 10 for the field sales managers (see Table 1). This suggests that the management activities do not involve close day-to-day supervision of salespeople.

6. Research directions

Several promising directions are suggested for future research on designing effective field sales organizations. First, the study results document the potential importance of considering uncontrollable factors in assessing salesperson performance. The evidence from prior studies at the territory level indicates that these factors are important (Cravens et al., 1972). Moreover, when these uncontrollable factors are not considered, performance assessments are not very useful (Churchill et al., 1985). The present study shows the impact of sales territory design on salesforce behavioral and outcome performance and sales organizational effectiveness. The scale used to measure satisfaction with design operationalizes various external and internal factors that seem to affect design. The study results bring into sharper perspective the direct role played by organizational design in the sales management process. Future studies of sales force performance and sales organization effectiveness should include consideration of the role and impact of additional design factors. In a sales organization context this includes the study of alternative methods of organizing the salesforce (e.g., customer, market, or product specialization).

E. Babakus et al. / Intern. J. of Research in Marketing 13 (1996) 345-363

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Second, recent research findings highlight the need to refine and extend the pivotal work of Walker et al. (1979) in conceptualizing the sales management process. This model is the foundation for much of the contemporary sales and sales management research. However, most of the research stimulated by this excellent conceptualization centers on salespeople rather than sales management. The relationships proposed in the model do not specifically address the relationships shown in our Fig. 1. Research attention can be given to more explicitly integrating the sales management processes of monitoring, directing, evaluating, and rewarding salespeople into the Walker et al. model. Also, sales manager performance is not included in the model. The important challenge is to expand the Walker et al. conceptualization to more fully identify and describe the sales management process. Third, we need to better understand the relative importance of sales manager monitoring, directing, evaluating, and rewarding activities. Our focus is on the overall sales management control system. The study results indicate that the greater extent the control system activities are performed is positively related to better sales territory design and salesforce behavioral performance. We need to know if performing more of certain activities or less of others will lead to better design decisions and higher behavioral performance. The conventional wisdom is that managers' coaching activities are very important.

Empirical support for this premise would be of value to both managers and researchers. Gaining a better understanding of the influence of sales management on design decisions and salesforce performance may be linked to explicitly incorporating sales manager effectiveness into the Fig. 1 conceptualization. The early work of Davis (1957) provides empirical evidence that supports the effectivehess/performance relationship. We feel that inclusion of sales manager activities in the model is important in order to show the effect of the type of control system. One possible avenue is to consider sales manager effectiveness as a moderating variable in the model. Both self and CSE ratings could be used. This would incorporate into the conceptualization both the type and quality of sales manager activities. Finally, the concept of sales territory design can be examined from the point-of-view of the salesperson. The purpose of this research would be to determine if salespeople perceive differences in territory design and understand how these differences affect their performance. There is some empirical evidence of more turnover occurring in less effective sales organizations (Cravens et al., 1992). One reason may be that salespeople in poorly-designed sales territories become frustrated and leave the company. Of course, this is more likely to happen when the territory design significantly constrains the salesperson's opportunity to perform.

Appendix A. Scale items a Scale

Items

Source

BEHAVIOR-BASED SALES MANAGEMENT CONTROL

To what extent do you: Monitor 1.

.

3. 4. 5. 6. 7. 8.

Spend time with salespeople in the field.

Make joint calls with salespeople. Regularly review call reports from salespeople. Monitor the day-to-day activities of salespeople. Observe the performance of salespeople in the field. Pay attention to the extent to which salespeople travel. Closely watch salespeople's expense accounts. Pay attention to the credit terms that salespeople quote customers.

Based on Cravens et al. (1993)

E. Babakus et a l . / Intern. J. of Research in Marketing 13 (1996) 345-363

Direct

1. ,

3. 4. 5. EL,a l u a t e

1.

2. 3. 4. 5. Reward

1. 2. . 4.

.

6.

.

359

Encourage salespeople to increase their sales results by rewarding them for their achievements. Actively participate in training salespeople on the job. Regularly spend time coaching salespeople. Discuss performance evaluations with salespeople. Help salespeople develop their potential. Evaluate Evaluate Evaluate Evaluate Evaluate

the the the the the

number of sales calls made by salespeople. profit contribution achieved by each salesperson. sales results of each salesperson. quality of sales presentations made by salespeople. professional development of salespeople.

Provide performance feedback to salespeople on a regular basis. Compensate salespeople based on the quality of their sales activities. Use incentive compensation as the major means for motivating salespeople. Make incentive compensation judgements based on the sales results achieved by salespeople. Reward salespeople based on their sales results. Use non-financial incentives to reward salespeople for their achievements. Compensate salespeople based on the quantity of their sales activities.

SATISFACTION WITH SALES ORGANIZATION DESIGN

My level of satisfaction with: 1. The number of accounts in my territories. . The number of large accounts in my territories. The sales productivity in my territories. 3. The geographical size of my territories. 4. The number of calls made in my territories. 5. The amount of travel required in my territories. 6. The market potential in my territories. 7. 8. The number of territories in my sales unit. The assignment of salespeople to my territories. 9. The equivalence in workload across territories. 10. 11. The overall design of my territories.

New Scale

E. Babakus et aL / Intern. J. of Research in Marketing 13 (1996) 345-363

360

SALESFORCE PERFORMANCE

How well are the salespeople in your unit performing: Outcome per1. Producing a high market share for your company. formance

.

3. 4. 5. 6. 7. .

Technical knowledge

. .

Adaptive ing

sell-

Based on Behrman and Perreault (1982) and Cravens et al. (1993)

Making sales of those products with the highest profit margins. Generating a high level of dollar sales. Quickly generating sales of new company products/services. Identifying and selling to major accounts. Producing sales or blanket contracts with long-term profitability. Exceeding all sales targets and objectives during the year. Knowing the design and specifications of company products/services. Knowing the applications and functions of company products/services. Keeping abreast of your company's production and technological developments.

1.

Experimenting with different sales approaches.

2. 3. 4.

Being flexible in the selling approaches used. Adapting selling approaches from one customer to another. Varying sales style from situation to situation.

1.

Generating considerable sales volume from team sales (sales made jointly by two or more salespeople).

.

Building strong working relationships with other people in our company. Working very closely with non-sales employees to close sales. Coordinating very closely with other company employees to handle post-sales problems and service. Discussing selling strategies with people from various departments. Listening attentively to identify and understand the real concerns of customers.

Based on Spiro and Weitz (1990)

Teamwork

.

4. . Sales presentation

1.

.

Convincing customers that they understand their unique problems and concerns.

John and Weitz JMR (1989), p. 13.

Behrman and Perreault (1982); and Cravens et al. (1993).

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E. Babakus et al. / Intern. Z of Research in Marketing 13 (1996) 345-363

4. 5.

Using established contacts to develop new customers. Communicating their sales presentation clearly and concisely. Working out solutions to a customer's questions and objections.

Sales planning

1. 2. 3. 4.

Planning Planning Planning Planning

Sales support

1. 2. 3. 4. 5. 6.

Providing after the sale service. Checking on product delivery. Handling customer complaints. Follow up on product use. Troubleshooting application problems. Analyzing product use experience to identify new product/service ideas.

,

each sales call. sales strategies for each customer. coverage of assigned territory/customer responsibility. daily activities.

New scale

New scale

SALES ORGANIZATIONAL EFFECTIVENESS

Sales and market share effec tiveness

1. 2.

Sales volume compared to your major competitor (past 24 months). Market share compared to your major competitor.

3. 4.

Sales volume compared to sales unit objectives. Market share compared to sales unit objectives.

Profitabili~

1. 2.

Profitability compared to your major competitor. Profitability compared to sales unit objectives.

Customer satisfaction

1.

Customer satisfaction compared to your major competitor.

2.

Customer satisfaction compared to sales unit objectives.

Cravens et al. (1993)

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