1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (1) 10 Evaluating the Effectiveness of the Organization Module 10 Evaluating the Effectiveness

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Copyright © 2000 by Harcourt, Inc. All rights reserved. (1)

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Module 10

Evaluating the Effectiveness of Evaluating the Effectiveness of the Organizationthe Organization

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Sales Organization Effectiveness Sales Organization Effectiveness vs. Salesperson Performancevs. Salesperson Performance

(Figure 10.1)

EnvironmentalFactors

OrganizationalFactors

SalesforceSellingBehavioralPerformance

SalesforceOutcomePerformance

SalesOrganizationEffectiveness

SalesforceCharacteristics

SalesforceControlSystem

SalesforceNonsellingBehavioralPerformance

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Sales Organization AuditSales Organization Audit

• A comprehensive, systematic, diagnostic, and prescriptive tool

• Purpose - to assess the adequacy of a firm's sales management process and to provide direction for improved performance and prescription for needed changes.

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Sales Organization Audit Sales Organization Audit FrameworkFramework

(Figure 10.2)

Sales Organization Environment• Extraorganizational Factors• Intraorganizational Factors

Sales Organization Planning System

Sales Management FunctionsSales Management Evaluation

Salesforce ManagementAuditor

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Sales Organization AuditSales Organization Audit Observations

• Performed on a regular basis

• Performed by someone from outside the sales organization

• Expensive and time-consuming

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Improving Sales Improving Sales Organization EffectivenessOrganization Effectiveness

Benchmarking

An ongoing measurement and analysis process that compares an organization’s current operating practices with the “best practices” used by world-class organizations.

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Benchmarking Process(Figure 14.3)

Plan Gather DataAnalyze &

CommunicateImplement &

Control

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Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations

Complex task because:– Separate sales analyses need to be performed

for the different levels in the sales organization– Many different types of analyses can be

performed to evaluate sales, cost, profitability, and productivity

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Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations Sales Analysis

Evaluation of sales generated throughout the sales organization

• Analyze sales dollars or sales units?

• Three critical decision areas: the organizational level of analysis, they type of sales, and the type of analysis.

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Sales OrganizationZonesRegionsDistrictsTerritoriesAccounts

Total Sales Type of ProductType of Account Type of DistributionOrder Size

Sales Analysis FrameworkSales Analysis Framework (Figure 10.5)

Sales Analysis

Organizational Level of Analysis

Type of Sales Type of Analysis

Comparisons• within organization• with forecasts• with sales quotas• with previous period• with industry/ competitors

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Example of Hierarchical Sales AnalysisExample of Hierarchical Sales Analysis(Figure 10.6)

Region 1

SalesOrganization

Region 2 Region 3 Region 4

District 1

Territory 1 Territory 2 Territory 3 Territory 4 Territory 5 Territory 6

District 5District 4District 3District 2

Sales

Sales

Sales

$62,000,000 $62,000,000 $56,000,000 $73,000,000

$11,000,000 $12,000,000 $13,500,000 $7,000,000 $12,500,000

$1,100,000 $1,300,000 $1,250,000 $1,400,000 $750,000 $1,200,000

AdditionalAnalysis

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Example of Type-of-Sales AnalysisExample of Type-of-Sales Analysis(Figure 10.7)

ProductType A

ProductType B

ProductType C

AccountType A

AccountType C

AccountType Sales

ProductType Sales

Sales $175,000 $275,000 $300,000 $290,000 $175,000 $285,000

AccountType B

Territory 5

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Types of Analysis Examples(Exhibit 10.5)

SalesDistrict 1 District 2 District 3 District 4 District 5

Sales Quota $11,250,000

Sales Growth 3% 9% 6% 3% 16%

Market Share 26 29% 29% 18% 27%

Effectiveness Index 98 104 102 70 109

$11,000,000$11,000,000$12,000,000

$10,000,000$7,000,000

$12,750,000$13,000,000

$11,500,000$12,000,000

Sales Last Year $10,700,000 $10,350,000$6,800,000$12,250,000$11,050,000

Industry Sales $42,000,000 $45,000,000$40,000,000$45,000,000$42,000,000

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Sales Organization Effectiveness Sales Organization Effectiveness EvaluationsEvaluations Cost Analysis

Evaluation of costs incurred in generating sales throughout the sales organization

• Comparison of actual to budgeted

• Comparison of actual to budgeted as a percentage of sales

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Establishing Selling BudgetsEstablishing Selling Budgets

• Selling Budget– The total resources earmarked for personal

selling

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Selling Expense CategoriesSelling Expense Categories

• Compensation Expenses

– Salaries

– Commissions

– Bonuses

• Travel Expenses

– Lodging

– Food

– Transportation

– Miscellaneous

• Administrative Expenses

– Recruiting

– Training

– Meetings

– Sales Offices

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Methods for Determining the Methods for Determining the Selling BudgetSelling Budget

• Percentage of Sales Method

• Objective and Task Method

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Region 1Region 2Region 3Region 4


Cost Analysis Examples(Exhibit 10.8)

Compensation Costs

Actual Cost$3,660,000$3,500,000

$4,200,000$3,150,000

Budgeted Cost$3,600,000$3,700,000

$3,900,000$3,400,000

+$ 60,000- $200,000

+$300,000 - $250,000

Variance

Training Costs

Actual Cost$ 985,000$2,110,000

$2,340,000$ 830,000

Budgeted Cost$1,030,000$2,040,000

$2,160,000$1,060,000

-$ 45,000+$ 70,000

+$180,000 - $230,000

Variance

Region 1Region 2Region 3Region 4

Compensation Costs

Actual % Sales6.1%5.8%

6.0%5.4%

Budgeted % Sales6%6%

6%6%

Training Costs

Actual % Sales2.9%3.1%

3.1%2.6%

Budgeted % Sales3%3%

3%3%

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Profitability AnalysisEvaluation of sales/cost relationships throughout the

sales organization • Income Statement Analysis

– Full cost approach - attempts to allocate the shared costs to individual units based on some type of cost allocation procedure

– Contribution approach - only the direct costs are included in the profitability analysis

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Profitability Analysis Example(Exhibit 10.10)

SalesCost of Goods Sold

Profit Contribution

Net Profit

Gross MarginDistrict Selling Expenses

Allocated Portion of Shared Zone Costs

Region Direct Selling Expenses

Region

$ 24,000,000

$ 8,000,000

$ 45,000,000$255,000,000$300,000,000

$ 11,000,000

$ 16,000,000

$ 10,000,000

Full CostApproach

$180,000,000

District 1 District 2 District 3

$ 6,500,000 $ 8,000,000 $19,500,000

$ 11,500,000 $11,500,000 $22,000,000$28,000,000$50,000,000

$58,500,000$70,000,000

$168,500,000

$ 2,500,000$ 3,500,000$ 5,000,000---------

Contribution Approach

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Profitability AnalysisEvaluation of sales/cost relationships throughout the

sales organization

• Activity-Based Costing (ABC)– Allocates costs to individual units on the basis of how

the units actually expend or cause these costs.

– Exhibit 10.11 - Activity-based Costing Example

• Return on Assets Managed Analysis (ROAM)ROAM = Profit Contribution % of Sales * Asset Turnover Rate

= (profit contribution/sales) * (sales/assets managed)

• Income Statement Analysis

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Return on Assets Managed (ROAM) Example

(Exhibit 10.12)District 1

8,000,000

12,000,000 12,000,000$24,000,000

7,200,000

$24,000,000


4,000,000 16,000,000

12,000,000 10,000,000 10,000,000 14,000,000$24,000,000

14,000,000$24,000,000

12,000,000

8,800,000 5,200,000 9,600,000Profit Contribution 4,800,000 2,400,000 4,800,000 1,200,000

8,000,000 4,000,000 16,000,000 16,000,000 8,000,000 32,000,000

4,000,000 4,000,000 8,000,000

20% 10% 20%1.5 3.0 .75

SalesCost of Goods Sold

Accounts Receivable

Gross MarginDistrict Selling Expenses

InventoryTotal Assets ManagedProfit Contribution PercentageAsset TurnoverROAM 30% 30% 15%

5%3.0

15%

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Productivity Analysis Evaluation of output/input relationships throughout

the sales organization

• Productivity improvements are obtained in one of two basic ways:– Increasing output with the same level of input– Maintaining the same level of output but using

less input

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Productivity Analysis Example(Exhibit 10.13)

SalesSelling Expenses

Sales/Salesperson

Sales CallsProposals

District 1

$ 1,000,000

9,000 2,000,000$20,000,000

200

$24,000,000


$ 800,000 $1,000,000

7,500 8,500 10,000 3,000,000$24,000,000

3,000,000$20,000,000

2,400,000

270 260 180Number of Salespeople 20 30 20 30

Expenses/Salesperson $ 100,000 $ 80,000 $ 150,000Calls/Salesperson 450 250 425

$ 800,000 $ 100,000 333

Proposals/Salesperson 11 6 13 9

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1 Copyright © 2000 by Harcourt, Inc. All rights reserved. (1) 10 Evaluating the Effectiveness of the Organization Module 10 Evaluating the Effectiveness