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Implementing Behavior-Based Salesforce Control

A case study at a MedTech company

Written by S. Ottestam, M. Andersson Albin

Paper category

Master Thesis

Subject

Business Administration>Management

Year

2020

Abstract

Master Thesis: Methods of Sales Control System As Anderson & Oliver (1987) determined, several main theoretical methods are related to sales force control. The three theories that will be introduced are organization theory, agency theory, and transaction cost theory, which provide a basis for discussing sales control systems that include different assumptions and variable sets. From these examples, a popular sales control system emerged. In these sales control systems, ideas from all three methods can be found (Benet-Zapf et al., 2018). Organizational theory (Ouchi, 1979) states that goal conflicts can be overcome through socialization (Krafft, 1999). It also states that behavior, results, or both cannot be measured (Eisenhardt, 1985). It recognizes that the BBC becomes more appropriate when the measurement of results is costly or inaccurate. In addition, it is recommended to use the BBC only when the conversion process from the salesperson's input to the result is known (Krafft, 1999). However, the company may have perfect information but does not know how to translate it into appropriate action strategies, which means that the manager may not know which behaviors will help achieve the desired results (Anderson & Oliver, 1987). Eisenhardt (1985) described agency theory as an analytical and standardized microeconomics/accounting method used to explain how to control the activities of agents, and they have the right to control the activities of agents. The core is the premise that principles and agents have different goals (Anderson and Oliver, 1987). Therefore, its focus is to coordinate the incentives and outcome goals of both parties (Krafft, 1999). Agency theory addresses the distribution of risks between the company and the agent, in this case the salesperson. In the BBC, companies take risks because salespeople are rewarded with actions rather than results. On the other hand, in OBC, the agent bears the risk because the salesperson is responsible for the result (Anderson & Oliver, 1987). In agency theory, the choice between OBC and BBC depends on; “(1) the relative cost of measuring behavior and results, and (2) various forms of uncertainty that generate risks in the sales environment” (Anderson & Oliver , 1987, p. 79). Transaction cost theory aims to determine organizational solutions that are cost-effective and focuses on "should transactions be conducted within the company or through market contracts outside the company's boundaries" (Krafft, 1999, p. 122). It represents the position where market competitiveness determines survival and rewards desired behavior (Anderson & Oliver, 1987). It questions the company's ability to improve market results by controlling behavior rather than results (Anderson & Oliver, 1987). Therefore, if it is easy to obtain an accurate result measurement method, it is inclined to suggest that companies should apply OBC (Krafft, 1999). 2.2. Sales Control System In this section, we will introduce the popular sales control system derived from the paradigm proposed in the previous section based on the ideas of Anderson & Oliver (1987) who introduced the BBC and OBC. Then, a hybrid system developed by Oliver and Anderson (1995) that includes the use of two types of elements is introduced. In addition, the typology suggested by Jaworski et al. (1993) proposed to consist of four control systems. Subsequently, Challagalla & Shervani (1996) proposed the concept of activity and capacity control that originated from the division of the BBC into two different types. The BBC and OBC are considered to be the two extremes of the continuum, with many mixed levels in between. The OBC is designed to control salespeople with some easily measurable result-based goals. Salary is usually proportional to measurable results, but the salary component is lower. The regulator’s focus is on the end result, which is usually a short-term goal. Therefore, the company's long-term goals and customer-oriented goals are at risk of being compromised. Since personal supervision and guidance are limited, the costs associated with this are very low. On the other hand, the BBC emphasizes the monitoring, guidance, evaluation and rewards of sales staff’s behavior. Evaluation is more subjective and complex, because managers need to decide which inputs produce the desired output. The BBC needs behavioral training for sales staff and sales managers, such as sales skills, sales planning, sales support, and product knowledge. A high level of control, guidance and supervision means increased costs. The enterprise takes risks in order to gain control. Again, it is possible for the company to position itself on the continuum and alternative elements of the two systems, namely the implementation of a hybrid control system (Oliver and Anderson, 1995). It is described as an intermediate system containing two element types (Oliver & Anderson, 1995). Studies have shown that control systems that combine BBC and OBC elements are the most common type (Oliver & Anderson, 1995; Jaworski, 1988; Ouchi & Maguire, 1975). According to the degree of dependence on formal and informal control, low control includes four control combinations (Jaworski et al., 1993). Formal controls include written controls initiated by management, while informal controls describe professional and cultural controls. The combination of low formal and informal control is called a low control system. Similarly, the combination of highly formal and informal control is called a highly controlled system. High formal control and low informal control are called bureaucracy, and the combination of low formal control and high informal control is called clan system. Read Less