Professor Mike Bourne.

The new collaborative selling environment demands innovative ways of measuring performance, setting targets and designing incentive plans. Performance targets, incentive plans and performance measures cannot be considered in isolation as they are highly interrelated, recent research from CRANFIELD SCHOOL OF MANAGEMENT has found.

Cranfield today (2 December) unveiled a new framework designed to support organisations in the target-setting process. Called the ‘Cranfield target-setting wheel’ it aims to help businesses ‘transform their existing performance management and incentive systems to reflect the sales environment that staff operate in and establish targets that will generate the expected behaviours’.

Funded by the Chartered Institute of Management Accountants (CIMA) and conducted by the Centre for Business Performance at Cranfield, the research demonstrates that most sales performance measurement and incentive systems still focus on the need to meet short-term sales targets and assume salespeople operate independently as ‘lone wolves’.  This is despite reality being very different with many salespeople working in teams where customer information must be produced and shared. 

Missing links

Commenting on the research findings, Cranfield’s Professor Mike Bourne told ModernSelling.com: ‘Setting high but attainable targets is one of the first rules in driving business performance.  However, so often companies fail because they miss vital links in the target-setting process.

‘Our research identifies the factors that influence how salespeople respond to targets,’ Professor Bourne claimed. ‘Often management’s view of role and performance clarity differed from the sales force due to failures in communication, capacity and performance planning.’

Non-participation

The research finds that management often wrongly suppose that the sales force has participated to some extent in the target-setting process, while salespeople simply believe that they have been handed their targets with little explanation. While the research shows that sales teams do not want full autonomy when it comes to setting their own targets, chiefly because they are not solely responsible for achieving them, better communication between the sales team and management is required.

The study is set against a background in which the sales environment is in the process of a fundamental transformation with the complexity of sales roles increasing, team selling now a critical sales capability as well as relationship selling, and customers becoming ever more demanding). The authors say that most of these transformations are not being reflected in the type of performance targets and rewards that managers use to motivate their salespeople. Most sales performance measurement and incentive systems still focus on the maximisation of product sales to meet short-term sales targets, and assume that sales people are still ‘lone wolves’ working autonomously in their own territories.

The current reality is somehow different, say the authors. At present, most salespeople work in teams where customer information must be produced and shared. Roles are increasingly complex with goals that are not only to maximise product sales from a list of assigned customers but also to engage in profitable and satisfactory relationships with existing customers and to identify, attract and acquire new customers with high lifetime value.

The target setting wheel

The study proposes a new framework and a ten-step process to help organisations meet the challenges of the new selling environment and set the type of targets that will generate the expected behaviours.

1. Review stakeholder expectations – ‘what do they expect from this organisation?’
2. Strategic objectives clarification/selection – a few clear statements about what the organisation aims to achieve, addressing those key stakeholders’ requirements.
3. Define the organisation’s success map – the cause-and-effect relationship that describes how the organisation creates value to their stakeholders.
4. Prioritise objectives.
5. Operationalisation – defining the KPIs (key performance indicators) used to measure each strategic objective.
6. Data collection – defining the data source, who measures and how often.
7. Data analysis – including both forecasting and capability analysis.
8. Set targets – deciding on specific performance targets for the organisation’s KPIs.
9. Action plan design – organisations need to spend time deciding on the actions that will help them achieve their targets.
10. Action plan discussion and agreement – targets must be communicated together with the action plan for delivering the targets. The action plan must be discussed and agreed with those accountable for reaching the targets.

Co-author of the report, Dr Monica Franco-Santos from the Centre for Business Performance added:  ‘Organisations need a holistic view of how performance targets, measures and incentive schemes link together. Our research enabled us to develop a framework for doing just that.’

Accountants

Research manager at professional accountancy institute CIMA, Naomi Smith stressed the importance of effective communication: ‘Communication is an extremely important factor in the whole target-setting process and can help overcome many of the difficulties that can arise when things don’t turn out the way they were expected to. Salespeople need to know what the target is, how it has been calculated, who is responsible for achieving them and how well they are doing against it. Each member of the team must accept and agree with their performance targets in order to be committed to delivering them.’

Staking a claim for accountants to be involved in the target-setting process, she added: ‘The target-setting phase is a key area for management accountants to get involved in, as their strategic oversight and general skill-set are perfectly suited to such a role.’ 

Click on The impact of performance targets on behaviour: a close look at sales force contexts to read the full report.

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