sales ch 4

Sales Organization Structure and Sales Force Deployment

Sales Organization Structure and Sales Force Deployment

Module Four

Ingram LaForge Avila

Schwepker Jr. WilliamsProfessional Selling:A Trust-Based Approach

Module 4:Sales Organization Structure and Sales Force Deployment

Learning ObjectivesLearning Objectives

1. Define the concepts of specialization, centralization, span of control versus management levels, and line versus staff positions.

2. Describe the ways sales forces might be specialized.

3. Evaluate the advantages and disadvantages of sales organization structures.

4. Name the important considerations in organizing major account management programs.





5. Explain how to determine the appropriate sales organization structure for a given selling situation.

6. Discuss sales force deployment.

7. Explain three analytical approaches for determining allocation of selling offer.

8. Describe three methods for calculating sales force size.





9. Explain the importance of sales territories and list the steps in the territory design process.

10. Discuss the important “people” considerations in sales force deployment.




STRATEGY AND SALES ORGANIZATION STRUCTURE:IBM

IBM has been in business for over 90 years, operates around the world, and has about 325,000 employees. The company expanded from computer hardware into the financing, software, and consulting businesses. It competes with the likes of Hewlett-Packard in hardware, Accenture in consulting services, and Microsoft in software. Sam Palmisano rose through the sales ranks to take over as CEO. His goal is to generate double-digit earnings growth at IBM by creating “a new era at IBM.” The cornerstone of this growth plan is a new strategy called business-ondemand. Customers can purchase technology solutions to their IT problems on a pay-as-you-go basis. Similar to utilities, companies pay only for what they use. This allows them the flexibility to adjust their computing power up or down, based on marketplace conditions. Several large companies, such as J.P. Morgan Chase and American Express, have responded favorably to this new strategy by signing multiyear, multibillon-dollar deals. Implementing the new strategy successfully requires several major changes in the IBM sales organization of about 35,000. One of the key changes is in the structure of the IBM sales organization. IBM salespeople typically focused on selling specific products to assigned customers. The salespeople now work in teams to sell complete solutions consisting of both products and services.




STRATEGY AND SALES ORGANIZATION STRUCTURE:IBM

The teams are organized according to customer size, industry, and location. Salespeople are part of a salesforce that serves three main customer groups: large, integrated accounts; clusters of aligned accounts; or small and medium-sized accounts. This type of structure requires salespeople to be industry experts with product and technical support provided by other members of the team. IBM is also trying to get more from its sales organization by having salespeople spend more time in front of customers in an effective way. Meetings between salespeople and sales managers are limited to one 30-minute meeting each Monday. No other meetings are required. The meetings focus on coaching and solving customer problems. This frees up more time for IBM salespeople to sell. The increased selling time is more effective, because a seven-step sales process was been designed based on best practices throughout the company. All salespeople follow this process, and progress is reported and tracked on one common information system. This allows sales management to track sales progress with customers around the world and more easily make comparisons over time and across areas. These are big changes for IBM. The company had become very bureaucratic and hierarchical, and was slow to respond to customer needs and marketplace changes. The new sales organization structure promotes teamwork and focuses on solving customer problems with complete solutions. Because everyone follows the same basic sales process, it is easier for IBM to monitor how well the new strategy is being implemented.




Setting the StageSetting the Stage

1. What is one of the key changes IBM made to the structure of its sales organization?

Strategy and SalesOrganization Structure: IBM




Setting the StageSetting the Stage

2. What change did IBM make to the way its salespeople and sales managers interact?

Strategy and SalesOrganization Structure: IBM




Sales Organization ConceptsSales Organization Concepts

SpecializationThe degree to which individuals perform some of the required tasks to the exclusion of others. Individuals can become experts on certain tasks, leading to better performance for the entire organization.

CentralizationThe degree two which important decisions and tasks performed at higher levels in the management hierarchy. Centralized structures place authority and responsibility at higher management levels.




Sales Force Specialization ContinuumSales Force Specialization Continuum

Some specializationof selling activities,

products, and/orcustomers

All selling activitiesand all products toall customers

GeneralistsGeneralistsCertain selling activities for certain products for certain customers

SpecialistsSpecialists




Flat Sales Organization

Span of Control

Ma

na

ge

men

t Lev

els

National Sales

Manager

District Sales

Manager

District Sales

Manager

District Sales

Manager

District Sales

Manager

District Sales

Manager

Span of Control vs. Management LevelsSpan of Control vs. Management Levels




Tall Sales Organization

National Sales Manager

Span of Control

Ma

na

ge

men

t Lev

els

District Sales

Manager

District Sales

Manager

District Sales

Manager

District Sales

Manager

District Sales

Manager

District Sales

Manager

Regional Sales Manager

Regional Sales Manager

Span of Control vs. Management LevelsSpan of Control vs. Management Levels





Regional Sales Managers

District Sales Managers

Sales Training Manager


Salespeople

Staff Position

Line Position

Line vs. Staff PositionsLine vs. Staff Positions




Line authority means that people in management positions have formal authority to direct and control immediate subordinates.

Staff authority is narrower and includes the right to advise, recommend, and counsel in the staff specialists’ areas of expertise.

Staff Positions V/S Line PositionsStaff Positions V/S Line Positions




OrganizationalStructure

OrganizationalStructure

EnvironmentalCharacteristicsEnvironmentalCharacteristics

TaskPerformance

TaskPerformance

PerformanceObjective

PerformanceObjective

SpecializationHigh Envir. uncertainty Nonroutine Adaptiveness

CentralizationLow Envir.Uncertainty Repetitive Effectiveness

Selling-Situation Factors and Organizational Structure

Selling-Situation Factors and Organizational Structure




Simple Product Offering

Simple Product Offering

Complex Range of Products

Complex Range of Products

Customer Needs DifferentCustomer Needs Different

Customer Needs SimilarCustomer Needs Similar

Market-Driven

Specialization

Product/Market-Driven

Specialization

Geography-Driven

Specialization

Product-Driven

Specialization

Customer and Product Determinantsof Sales Force Specialization

Customer and Product Determinantsof Sales Force Specialization




Sales Organization StructuresSales Organization Structures

• Geographic

• Product

• Market

• Functional

• Major Account




Factors Affecting the Size / Structure of Sales Organization

1.Nature of the product.

2.Area of Operation / Market Area: if the product is sold locally, sales

organization will be small. And if the market is large the organization will be large

3.Size of the Enterprise: Large enterprises have large sales organization

4.Number of products: If the enterprise is dealing with large number of products,

it needs large sales organization. E.g. Unilevers is selling many products like Lipton tea , lux soap , lifebuoy soap, while company which is selling few products will have small sales organization

5.Distribution policy: Different companies follow different distribution policies

for their products directly to the customers opening their own shop or through their personal selling.




Factors Affecting the Size / Structure of Sales Organization

6. Level of competition: if the level competition is high in the market , many

salesman have appointed to attract the customers so the size of the sales organization becomes large.

7. Tradition and customs: Tradition and customs prevailing in similar types of

business units also affects the structure of sales organization.

8. Sales policies: if the business unit adopts the aggressive sales policy then it will

require more salesmen for achieving higher sales level. The business units who sell goods on credit, installment system, hire purchases system will have to employee more salesmen for collecting dues, installments from customers.

9. Ability of Top-officials: If top-officials of the company are highly educated, experienced, skilled, efficient, and then business unit can adopt line sales organization, because these experienced officers can take necessary decisions without the help of experts.




Geographic Specialization

Many large corporations are organized by geographic territory.

This type of organization is generally used by companies with more than strictly local

distribution of their products.




Geographic Sales OrganizationGeographic Sales Organization


Zone Sales Managers (4) Zone Sales Managers (4)

District Sales Managers (20)

Salespeople (100) Salespeople (100)


Eastern Region Sales Manager Western Region Sales Manager





Comparison of Sales Organization Structures


OrganizationalStructure Advantages Disadvantages

Geographic • Low Cost• No geographic duplication• No customer duplication• Fewer management levels

• Limited specialization• Lack of management control over product or customer emphasis




Product Specialization

Another common type of organization in large companies is based on the firm’s product.

The entire company may be organized by product, with separate sales, advertising, marketing, and so on, along with staffs for each, or some functional units may remain centralized.




Product Sales OrganizationProduct Sales Organization


Office Equipment Sales Manager Office Supplies Sales Manager


Salespeople (100) Salespeople (100)








Product

• Salespeople become experts in product attr. & applications• Management control over selling effort

• High cost• Geographic duplication• Customer duplication




Market Sales OrganizationMarket Sales Organization


Zone Sales Managers (4)


Salespeople (150)


Commercial AccountsSales Manager

Government AccountsSales Manager


Salespeople (50)







Market

• Salespeople develop better understanding of unique customer needs• Management control over selling allocated to different markets

• High cost• Geographic duplication




Functional Sales OrganizationFunctional Sales Organization


Field Sales Manager Telemarketing Sales Manager

Regional Sales Managers (4)

Salespeople (160)

Salespeople (40)






Functional SpecializationFunctional Specialization

Functional type of organization it is classified and divided and sub divided on

the basis of functions to be performed. It Focus on phases in customer

relationship, Initial sales, Follow-up technical support and service and

Promotion efforts .

It take the following shape as shown:







Functional • Efficiency in performing selling activities

• Geographic duplication• Customer duplication• Need for coordination




Major Account OrganizationsMajor Account Organizations• Identify Major Accounts

– Large and Important Accounts– Accounts with Complex Buying Needs

• Organize for Major Account Coverage – Assign Major Accounts to Salespeople, or– Assign Major Accounts to Sales Managers, or– Develop Major Account Salesforce

• Organize Major Account Salesforce– Level in Sales Organization Structure– Reporting Relationships




WHO ARE MAJOR ACCOUNTS?WHO ARE MAJOR ACCOUNTS?

• WHEN A CUSTOMER PURCHASES A SIGNIFICANT VOLUME AND EXHIBITS ONE OR A COMBINATION OF THE FOLLOWING:

• MULTIPLE PEOPLE ARE INVOLVED IN THE BUYING PROCESS

• PURCHASING IS CENTRALIZED• THE CUSTOMER DESRIES A LONG-TERM,

COOPERATIVE WORKING RELATIONSHIP• THE CUSTOMER EXPECTS SPECIALIZED

ATTENTION AND SERVICE

• WHEN A CUSTOMER PURCHASES A SIGNIFICANT VOLUME AND EXHIBITS ONE OR A COMBINATION OF THE FOLLOWING:

• MULTIPLE PEOPLE ARE INVOLVED IN THE BUYING PROCESS

• PURCHASING IS CENTRALIZED• THE CUSTOMER DESRIES A LONG-TERM,

COOPERATIVE WORKING RELATIONSHIP• THE CUSTOMER EXPECTS SPECIALIZED

ATTENTION AND SERVICE




LargeLarge

SmallSmall

Complexity of AccountComplexity of Account

Siz

e o

f A

cco

un

tS

ize

of

Acc

ou

nt

LargeAccount

SimpleSimple ComplexComplex

MajorAccount

RegularAccount

ComplexAccount

Identifying Major AccountsIdentifying Major Accounts




Develop Major Account Salesforce

Assign Major Accounts to Sales Managers

Assign Major Accounts to Salespeople along with Other Accounts

Major Accounts OptionsMajor Accounts Options




Hybrid Sales Organization StructureHybrid Sales Organization Structure


Major Accounts Sales Manager

Regular Accounts Sales Manager

Office Equipment Sales Manager

Office Supplies Sales Manager

Field SalesManager

TelemarketingSales Manager

Commercial Accounts Sales Manager

Government Accounts Sales Manager

WesternSales Manager

EasternSales Manager

Sales Force DeploymentSales Force DeploymentSales Force DeploymentSales Force Deployment

Sales management decisions involved in allocating selling effort, determining salesforce size, and designing territories.




Salesforce DeploymentSalesforce Deployment

1. How much selling effort is needed to cover accounts and prospects adequately so that sales and profit objectives will be achieved?

2. How many salespeople are required to provide the desired amount of selling effort?

3. How should territories be designed to ensure proper coverage of accounts and to provide each salesperson with a reasonable opportunity for success?

Sales Force deployment decisions can be viewed as providing answers to three interrelated questions.




Interrelatedness ofSales Force Deployment Decisions


How much selling effort is needed to cover accounts and prospects adequately so that sales and profit objectives will be achieved?

How many salespeople are required to provide the desired amount of selling effort?

How should territories be designed and salespeople assigned to territories to ensure proper coverage of accounts and to provide each salesperson with a reasonable opportunity for success?

Allocation ofSelling EffortAllocation ofSelling Effort

Sales ForceSize

Sales ForceSize

TerritoryDesign

TerritoryDesign






2,000 accounts x 25 sales calls/account = 50,000 sales calls required to cover accounts

50,000 sales calls required ÷ 1,250 sales calls/ salesperson = 40 salespeople needed

40 territories needed to provide each salesperson with opportunity for success and to ensure proper coverage of accounts (e.g. 50 accounts per territory)

Allocation ofSelling EffortAllocation ofSelling Effort

Sales ForceSize

Sales ForceSize

TerritoryDesign

TerritoryDesign




Single FactorModels

Single FactorModels

Easy to Develop and UseEasy to Develop and Use

Difficult to Develop and UseDifficult to Develop and Use

LowAnalyticalRigor

LowAnalyticalRigor

HighAnalyticalRigor

HighAnalyticalRigor

PortfolioModels

PortfolioModels

DecisionModels

DecisionModels

Analytical Approaches toAllocation of Selling EffortAnalytical Approaches toAllocation of Selling Effort




Single Factor ModelsSingle Factor Models

• Easy to develop and use/low analytical rigor

• Accounts classified into categories based on one factor, such as market potential

• All accounts in the same category are assigned the same number of sales calls

• Effort allocation decisions are based on the analysis of only one factor and differences among accounts in the same category are not considered in assigning sales call coverage




Single Factor Model ExampleSingle Factor Model Example




Portfolio ModelsPortfolio Models

• Account Opportunity - an account’s need for and ability to purchase the firm’s products

• Competitive Position - the strength of the relationship between the firm and an account




Portfolio Model Segments and StrategiesPortfolio Model Segments and Strategies

Competitive PositionCompetitive Position

Segment 1Segment 1 Segment 2Segment 2

Segment 4Segment 4Segment 3Segment 3

StrongStrong WeakWeak

Lo

wL

ow

Hig

hH

igh

Acc

ount

Opp

ortu

nity

Acc

ount

Opp

ortu

nity




Portfolio Model Segments and StrategiesPortfolio Model Segments and Strategies







Simple Basic Concept - to allocate sales calls to accounts that promise the highest sales return from the sales calls

Optimal number of calls in terms of sales or profit maximization

Two PartsResponse Function - a mathematical equation that represents the relationship between sales calls and sales to accountsAllocation Procedure - sets the response function to evaluate the expected sales for many different account effort allocation strategies

Decision Models




Sales Force Size: Key ConsiderationsSales Force Size: Key Considerations

• Sales Productivity - the ratio of sales generated to selling effort used– Increase # of Salespeople = Increased Sales, but not

in a direct linear relationship– In early stages, the addition of salespeople increases

sales considerably more than the selling costs. – As salespeople continue to be added, sales

increases tend to decline until a point is reached when the costs to add a salesperson are more than the revenues that salesperson can generate.




Salesforce SizeSalesforce SizeKey Considerations

Salesforce SizeSalesforce SizeKey Considerations

• Sales force Turnover– Is very costly– Opportunity costs may exceed $75,000– Should be anticipated– An average turnover rate of 27% may be expected

• Higher in some industries, lower in others




Sales Force Size: Analytical ToolsSales Force Size: Analytical Tools

This approach is easy to develop. However, it is weak conceptually. The concept underlying the calculations is that sales determine the number of salespeople needed—putting “the cart before the horse.”




ANALYZE SALESPEOPLE’S WORKLOADS

Workload is the quantity of work expected from sales personnel. Three of the main influences on workload involve the nature of the job, intensity of market coverage, and type of products sold.

Analytical Tools: Workload Approach




Workload MethodClassify all customers into sales volume categories1.

Determine the frequency with which each type of account should be called upon and the desired length of each sell

2.

Calculate workload involved in covering entire market3.

Determine time available per salesperson4.

Apportion the salesperson’s time by task performed5.

Calculate the number of salespeople6.




Analytical Tools: Workload Approach Analytical Tools: Workload Approach

This approach relatively simple to develop and is sound conceptually.




Salesforce SizeSalesforce Size Analytical Tools: Incremental

Approach

Salesforce SizeSalesforce Size Analytical Tools: Incremental

Approach

• Compares the marginal profit contribution with the marginal selling costs for each incremental salesperson.

• Optimal number of salespeople in where the marginal profit from adding one more salesperson equals the marginal cost of that salesperson.




Analytical Tools: Incremental Approach Analytical Tools: Incremental Approach

# of Salespeople Marginal Contribution Marginal Cost100101102103

$85,000$80,000$75,000$70,000

$75,000$75,000$75,000$75,000

Marginal contribution- Sales price –variable cost




Designing TerritoriesDesigning Territories

• Territories consist of whatever specific accounts are assigned to a specific salesperson. The territory can be viewed as the work unit for a salesperson.

• Territory Considerations– Trading areas– Present effort– Recommended effort




WHAT IS A SALES TERRITORY?

A sales territory is composed of a group of customers or a geographic area assigned to

a salesperson.

Designing Territories










WHO IS RESPONSIBLE FOR

TERRITORIAL DEVELOPMENT?

Development of sales territories is usually the responsibility of the sales manager overseeing the larger sales

units within the organization.




WHY ESTABLISH SALES TERRITORIES?

• To obtain thorough coverage of the market.

• To establish a salesperson’s responsibility.

• To evaluate performance.

• To improve customer relations.

• To reduce sales expense.

• To allow better matching of salesperson to customer.

• To benefit salespeople and the company.




Why sales territories may not be developed:

• Salespeople may be more motivated if they are not restricted.

• The company may be too small.

• Management may not want to take the time, or have the know-how.

• Personal friendship may be the basis for attracting customers.




FACTORS TO CONSIDER WHEN

DESIGNING SALES TERRITORIES

Sales force objectives may be based on factors such as contribution to profits, return on assets, sales/cost ratios, market share, or customer satisfaction.




Territory Design ProcessTerritory Design Process1

Select geographiccontrol units

2Decide on

allocation criteria

3Choose

starting points

4Combine control units

adjacent to starting points

5Compare territories on

allocation criteria

6Assign salespeople to

new territories

Events triggering salesterrirtory adjustments

MergersDivision consolidationDivision splitSales force turnoverPlant relocationsProduct line changes

Revise territoryboundadries tobalance workloadand potential




SELECT BASIC CONTROL UNITS

• States

• Counties

• Cities and zip-code areas

• Metropolitan statistical areas

• Trading areas

• Major accounts

• A combination of two or more factors




ASSIGN TO TERRITORIES

Some salespeople can handle large territories and the travel associated with them; some can’t. Some territories require experienced salespeople; some are best for new people. Some people want to live in metropolitan areas; others prefer territories with smaller cities.




CUSTOMER CONTACT PLAN

The customer contact plan involves scheduling sales calls and routing a salesperson’s movement around the territory.




THREE BASIC ROUTING PATTERNS

B ase cc

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Straigh t- L in e P atternF irst C all

W o rk B ack

B asec

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C lo v erleaf P attern

E ach L eaf O ut an d B ack Sam e D ay

M ajo r- C ity P attern

1 - D o w n to w n

1

2 3

5 4







Territory Design ProcedureTerritory Design Procedure

FinalizeTerritoryDesign

AssessTerritoryWorkload

Form Initial Territories

AnalyzePlanning andControl UnitOpportunity

SelectPlanning andControl Unit




Territory Design ProcedureTerritory Design Procedure




“People” Considerations“People” Considerations

• Temper analytical results with people considerations prior to making final deployment decisions.

• Salespeople may have a good feel for whether an account should receive more or less coverage.

• Reducing the size of the salesforce means letting people go.

• Adding salespeople may mean realignment of territories which may affect salesperson-customer relationships.




THNAKS

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