Valuation of the Concord and Associates Company - Case Study Example

Sales Management Report: An Analysis of Concord and Associates BY YOU YOUR SCHOOL INFO HERE HERE TABLE OF CONTENTS Introduction 2. An evaluation of Jose’s total performance 3. Jose’s client approach 4. Jose’s potential response to poor performance evaluation 5. Evaluating potential performance problems with other sales team members 6. Analysis of ratios for salesperson performance comparisons 7. A proposed narrative for Jose’s performance 8. Recommendations References Appendix EXECUTIVE SUMMARY Jose, a member of the sales team, is struggling to meet performance expectations for effective sales leadership. As the least contributing sales representative, it is necessary to determine what might be driving this poor performance and identify strategies that might better motivate Jose to achieve expected performance achievements. It is likely that Jose suffers from problems with extrinsic motivation, or maintaining a reliance on social recognition and rewards to be motivated as a salesperson. However, Concorde and Associates does not seem to facilitate this model, instead relying solely on an annual review. The company may wish to examine changing the bonus structure from an annual structure to a quarterly method to enhance motivations for those extrinsically motivated. Research indicates that there is another poor performer in the sales group, Robert, who may also be reliant on extrinsic motivational rewards. Based on all statistics and qualitative evaluations of performance, it is recommended that Concorde develop a training program that focuses on cost controls, lean ideology and production surplus to assist salespersons in reducing expenses that are contributing to a low average gross margin. Jose, especially, requires empathic yet assertive discourse about his performance to motivate and inspire Jose to take responsibility for his sales leadership deficiencies. An Analysis of Concorde and Associates 1. Introduction Concorde and Associates, a company specialising in the sale of computer peripherals to major computer manufacturers, achieved a marginal increase in sales which only surpassed sales forecasts by one percent. During the formal performance evaluation period, the regional sales manager began an investigation into the performance statistics of the sales team to determine which were over-performing and which staff members under-performing. Jose, a sales representative from the Arizona territory, had fallen short of achieving the sales expected in his established sales quota on three of the four main product lines offered by the company. Jose was the largest under-performer in the business, which requires a critical assessment of what strategies should be employed to improve his performance and, if appropriate, other salespersons not achieving expected performance goals. This report highlights what might have contributed to Jose’s poor performance, evaluates other salespersons that might have moderate performance issues, highlights the approach that should be taken to fairly and accurately evaluate Jose’s total performance and provides recommendations for training and development for the future. 2. An evaluation of Jose’s total performance Jose had experienced 16 different complaints whilst conducting sales calls in his territory, a figure much higher than any other members of the sales team. Concurrently, he was responsible for managing accounts in which there were over 10 rush orders, a figure dramatically higher than other sales team representatives. The qualitative metrics indicate that Jose was making unrealistic promises to customers about delivery dates and did not appear to be fully prepared with knowledge about his accounts, which may have led to a rush order situation in order to ensure that Concorde and Associates kept these valuable accounts; on the heels of Jose’s false guarantees about delivery capability. Jose did not appear to be motivated to be more diligent about procuring information about his accounts that would have prepared him for better relationship development and effectively servicing the needs of Concorde’s clients. Jose was likely not intrinsically motivated to be more competent with accounts management and accounts leadership. Intrinsic motivations are the inherent inspiration and encouragement that an individual experiences to perform an activity rather than being motivated by rewards that come from the external environment (Ryan and Deci 2000). Weinberg and Gould (2011) have identified three different types of intrinsic motivation, including the desire to improve knowledge, enhance one’s personal achievement, and general emotional stimulation. When an individual is not intrinsically motivated, they are less likely to take the initiative and work diligently to achieve high-level performance goals. These types of individuals are often reliant on extrinsic motivations, which include praise from management or peers, bonuses and other remuneration incentives, or even promotion. For many individuals, social recognition for accomplishment is a very important motivation and Vallerand and Losier (1999) assert that social persuasions are strong predictors of whether an individual will be motivated to achieve goals. With the recognition that the most primary motivational force for salespersons is routine meetings with supervision to discuss career issues and job problems, Jose might have been one of those individuals reliant on extrinsic motivations to achieve the pinnacle of his capability and talents. Concorde maintains a business model where performance evaluations are conducted on an annual basis. There is little evidence that performance-related discussions and general communications about work performance is part of Concorde’s leadership model. Hence, even though Jose was accompanied on some of his sales calls, he was likely not receiving the type of acknowledgement and praise for meeting particular job role goals. A person with a reliance on extrinsic rewards, with little motivation for self-regulated (intrinsic) performance might very well become de-motivated as they are not receiving the type of commendations they expect to be properly encouraged to achieve high performance. Additionally, Jose worked the least amount of days in the year as compared to the rest of the sales staff, only 210 days. During those days worked, Jose only made 68 sales, which were on the lower end of the spectrum compared to other salespersons with better sales records. This might indicate more de-motivation, not showing up for work more frequently, which could be a product of the lack of extrinsic rewards provided (other than an annual raise or potential bonus). Jose only made three sales calls per day, whilst other team members were actively making higher volumes of calls, which could again represent a motivational problem with Jose. 3. Jose’s client approach Jose was not giving appropriate consideration for relationship development in the business-to-business sales environment. According to Temporal (2006), B2B customers maintain significant concern over the ethical behaviours of their suppliers and the quality of relationships between buyer and seller. The dynamics of these relationships are founded on criteria such as quality compliance, pricing and the dependability of a business partner (Temporal). Customer relationship management is an effort to leverage a salesperson’s customer service, sales and marketing to maximise profit and enhance the quality of customer interactions (Chen and Popovich 2003). Instead, it would appear that Jose was more concerned about making sales by offering customers false promises simply to seal the deal. Instead of focusing on building trust and a perception of dependability, Jose allowed his reputation to become tarnished and receive numerous complaints for his selling tactics and false guarantees about delivery dates. Research indicates that customer relationship management is absolutely critical for long-term profitability and sales success (Peppers and Rogers 2004). Jose, by not leveraging client relationship development skills and being more candid about the realistic capabilities of Concorde to service customers, built an environment where Jose gained a poor reputation for dependability and reliability, two detriments identified by Temporal (2006) that impact sales success. 4. Jose’s potential response to poor performance evaluation If Emily provides Jose with a negative overall performance evaluation, his responses might be defensive. Based on the assumption that Jose is, in fact, extrinsically motivated, he may attempt to place blame on sales leadership that underpinned his poor statistics. Steenburgh and Ahearne (2012) state that when a firm opts for an annual bonus, rather than a quarterly bonus structure, it can be predicted that salespersons will experience measurable drops in sales performance. Jose might suggest, if extrinsically motivated, that the recognition and reward structure at Concorde is insufficient for achieving dedicated performance. Jose might even blame the accounts themselves, suggesting that his own client load is more difficult and demanding to service than his colleagues’ accounts. On March 18, Jose assigned blame to production for why he had promised an unrealistic delivery timeline, which might indicate a psychological tendency to not accept accountability for his actions and behaviours. This is a type of defence mechanism labelled distortion, whereby one deliberately exaggerates the reality of a situation to save face. It could also be a defence mechanism known as projection, assigning blame and resentment toward others rather than facing their own deficiencies (Kramer 2009). Emily might respond to these comments in two distinct ways. First, iterating that company policy has determined that an annual bonus is appropriate would reassert to Jose that he must comply with policy; a more assertive tone. At the same time, to avoid de-motivating or angering Jose, Emily can respond that she will work diligently to address the viability of this annual bonus policy to see if it can be developed for more quarterly incentive. This would show empathy for Jose’s situation and illustrate a genuine care for his motivational needs. If Jose has a tendency to use defence mechanisms by assigning blame to others for his deficiencies, Emily might address the content of the different complaints that Jose received, illustrating his own deficiencies in proper accounts management. Any comments that were directly related to Jose’s integrity or competency would provide valuable evidence that the problem is actually Jose. If there is still resistance in such a situation, Emily might respond with a blend of empathy and logic. A statement such as: “I understand what you are saying, however I can’t find evidence that this is true for others in the sales team. I have received no complaints or concerns from your colleagues about production. However, I will talk with production leadership and get their perspectives. In the meantime, I really believe you should think clearly about how to manage your account obligations since the relationship with the customer is so critical for the business and for your bonuses. At this time, I simply cannot authorize a bonus for you, Jose, until these complaints have been significantly reduced. We can work on this together and you always have my full support to help you achieve your best performance”. This blended empathic and rational response would not only show compassion for Jose’s concerns, but also iterate that the company’s data and experiences cannot support these allegations. It would serve as a potential foundation to motivate Jose to accept personal responsibility whilst also showing legitimate care and concern for Jose’s perceptions of reality. 5. Evaluating potential performance problems with other sales team members Robert, in the New Mexico territory, seems to be the only other individual with some degree of performance issues. This salesperson barely made his quota by a margin of only $10, and made the lowest amount of total sales (59), with considerably high expenses associated with low sales numbers. Another team member, Marites, made 108 sales with the lowest expenses of $19,600, much lower than most teams. This means that Marites maximises his selling tactics and relationships with customers whilst being aware of cost controls that can deplete maximising return on investments. Though Marites barely made his quota, his sales coupled with low expenses made these sales more valuable for revenue growth and the ability to maximise economic capital at the business. Robert also received seven different customer complaints associated with his accounts leadership. Robert, much like Jose, might also be extrinsically motivated in a business environment where recognition and social praise for performance seem to be lacking from the leadership model. 6. Analysis of ratios for salesperson performance comparisons Gross margin is represents the difference between cost of goods sold and revenue achievement. Jose had the lowest gross margin of 29 percent with expenses at $30,500 for the 68 sales he had successfully closed. The main purpose of margin calculations is to determine the holistic value of sales and guide future pricing considerations and promotional strategies. The 29 percent gross margin indicates that Jose increased the cost of goods sold without properly offsetting this with higher sales volumes. The highest gross margin was experienced by Marites, at 35.5 percent, who had made 108 sales with the lowest cost of goods sold expenses of any team member. This is ideal as Marites, with his ability to control these expenses, made the sales revenues of his accounts more valuable to the firm for profitability and likely cash flow for Concorde and Associates. Bob, another high performer, had a gross margin of 35 percent with only 65 sales made, but the ability to control expenses that made his actual sales more profitable for Concorde. All those able to control expenses, such as Omar in the Anaheim territory, who had expenses of only $21,200, boasted a gross margin of nearly 35 percent. Those with higher expense totals, such as Susan in Los Angeles, boasted a lower gross margin. This is why it would be critical for Concorde to ensure that expense cost controls are promoted as this takes away from revenue availability for a firm. 7. A proposed narrative for Jose’s performance Jose, I have carefully reviewed all of your sales figures, expenses and other metrics related to your ability to meet quotas and improve sales volumes. I have to admit that the statistics do not speak well for your obligations as a high performer for Concorde. I am a bit disturbed that you maintained the highest amount of expenses over that of your team members. Though I understand sometimes such expenses are inevitable, especially when dealing with difficult accounts, it does appear that other salespersons in the mix were able to maintain control over these costs. Secondly, Jose, we really need to address the high volume of complaints you have received this past year. Clients have expressed concern that you are not giving them realistic delivery timelines and I have personally found that you are not always prepared with well-developed sales strategies by understanding the dynamics of your accounts and their needs. Perhaps this is a failing of Concorde’s leadership for not focusing on how to better prepare for accounts leadership, however based on your tenure with the company, I am a bit surprised that you seem, in some instances, unprepared to provide the level of service we expect to satisfy our very important customers. Jose, you are a very valued member of the team and I genuinely want you to develop as many competencies as possible so that you can receive the important rewards that drive many of your colleagues’ successes. I fear that as of late you have become somewhat unmotivated to achieve peak performance and I genuinely hope that if you have any issues or concerns about your job, your accounts or the company in general, that you will bring these to me right away so we can, together, iron out a solution. I am potentially concerned that these less-than-stellar statistics related to your yearly performance might be a product of a need for better communications between me and you, Jose. You continue to be a contributor to Concorde success, but we need to work on a few issues, namely control of expenses. You have also mentioned to me that there are issues in production which lead to the high volume of complaints from accounts, something I will evaluate in short order to determine if production needs new policies and procedures. However, in the interim, I cannot ignore these somewhat gloomy margins and sales figures that are underpinning your success. Whilst I think more personal mentoring would be valuable for giving you incentive to improve your performance, I cannot justify the provision of a bonus at this time with your high expenses, lower-than-average sales achievements. I will, however, re-evaluate a potential bonus in six months after we work together closely to get your numbers back to where they should be. Know that we genuinely appreciate all of your efforts, but you require some minor improvements if you are to be the top performer I know you can be. Let’s reassess potential remuneration opportunities in six months after we’ve had a chance to work together to identify any potential barriers that might have led to poor sales figures. 8. Recommendations The main recommendation is an obligation of Concorde and Associates, itself, to facilitate better margins for the sales team. Emily should conduct a full-scale investigation into the dynamics of what constitutes normative expenses that salespersons experience during the sales process. Gaining an understanding of the inter-dependencies along the company’s entire value chain could identify deficiencies or variances that can be corrected to help with expense reduction. Through qualitative and quantitative research, new processes and procedures can be developed to facilitate an easier sales experience. This will illustrate the company’s commitment to helping salespersons raise their margins and show encouragement that motivates employees. Training on cost control methodologies in key areas of operations, not just with the sales force, will improve competency and establish a culture of efficiency that is needed to control sales-related expenses. Using benchmarks of lean systems as training tools, the entire organisational model can contribute to reducing sales-related expenses which have benefits for the firm and the salesperson that rely on positive gross margins to achieve an annual bonus. The following is a breakdown of the training and development ideology and schedule: 1. Roles and Training Requirements Role Name Instruction Required Production Manager John Smith Effective ERP and Inventory Surplus Strategies. Sales Team Members Entire Group Off-Site Expense Control Consolidation of Account Sales Calls 2. Skills Analysis and Needs Effective production strategy involves maintaining an appropriate surplus of products housed in inventory. The training course will consist of how to utilise enterprise resource planning software more effectively and designing strategies for maintaining adequate surplus without over-burdening the warehousing system. This course will be facilitated by the information technology manager at Concorde and will utilise best practice benchmarks for surplus production and review quantitative forecasting techniques to build competencies in proper production planning. To include experiential learning in quantitative analysis, using various frameworks such as statistical process control and use of Pareto charts to identify variances and potential weaknesses in manufacturing that raise expenses for the sales team. Priorities are ensuring production understands quantitative forecasting and its contribution to cost control. Timeline for course education: Six Weeks. The sales team will be given opportunities to discuss their many expenses in the sales process and what they feel are barriers. This will provide qualitative knowledge about what barriers require addressing first (based on majority sentiment) and a brainstorming session will be conducted to determine potential solutions to remove these barriers. Emily will provide a best practice methodology to consolidate sales calls by territory, hence reducing expenses related to transportation, lodging and other relevant expenditures. Formal training will include distribution of a video describing lean ideology and steps that sales representatives can take to reduce expenses throughout their daily job roles. Priority is changing cultural mindset to be more diligent in controlling expenses and ensure a focus on lean ideology. Timeline for course education: Six Weeks. References Chen, I.J. and Popovich, K. (2003). Understanding customer relationship management, Business Process Management Journal, 9(5), pp.672-688. Kramer, U. (2009). Coping and defence mechanisms: what’s the difference? – Second act, Psychology and Psychotherapy, 83(2), pp.207-221. Peppers, D. and Rogers, M. (2004). Managing customer relationships: a strategic framework. Hoboken: Wiley. Ryan, R.M. and Deci, E.L. (2000). Intrinsic and extrinsic motivations: classic definitions and new direction, Contemporary Educational Psychology, 25(1). Steenburgh, T. and Ahearne, M. (2012). Motivating salespeople: what really works, Harvard Business Review, July-August. Temporal, P. (2006). B2B Branding in Malaysia: A Guide to Building Successful Business to Business Brands. Selangor: Kanyin Publications. Vallerand, R.J. & Rousseau, F.L. (2001). Intrinsic and extrinsic motivation in sport and exercise: a review using the Hierarchical Model of Intrinsic and Extrinsic Motivation, in R.N. Singer, H.A. Hausenblas and C.M. Janelle (eds.) Handbook of Sport Psychology, 2nd edn. London: Wiley. Weinberg, R.S. and Gould, D. (2011). Foundations of Sport and Exercise Psychology, 5th edn. Leeds: Human Kinetics. APPENDIX A: EVALUATION OF CURRENT SALES FORCE PERFORMANCE Expenses Team Member $26,400 Bob $30,200 Susan $21,200 Omar $30,500 Jose $27,800 Robert $19,600 Marites $25,950 ($155,700 / 6) Mean Average Expenses Marites and Omar illustrated that expenses can be significantly reduced, with $19,600 in expenses and $21,200 in expenses; respectively. The main goal of the training program will be to get the annual mean average expense of $25,950 down to a mean average of $22,000; a realistic and feasible goal founded on new production-based training and sales team expense control tactics and focus on lean ideology. Source: Tanner, J.F., Honeycutt, E.D. and Erffmeyer, R.C. (2009). Sales management: shaping future sales leaders. Pearson Prentice Hall. Gross margin is total revenues divided by the cost of goods sold. There was an average of rush orders of 6.6 percent of total sales, which could be lowered with better performance by Jose and better production surplus strategies. However, the average gross margin of 33.58 percent requires improvement, which was illustrated by Marites, Omar and Bob as being feasible with better cost control methodologies. Maximisation of revenues whilst recognising controllable costs in the sales process will enhance these gross margin statistics. Read More