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Saturday, 25 May 2013

Sales person performance : Is it only outcomes that matter?

I was raised to believe that one must focus on their work and forget about the result. This is based on the Hindu scripture 'Bhagwad Gita' that outlines You have the right to work only but never to its fruits. Let not the fruits of action be your motive. Nor let your attachment be to inaction. The basic premise is that if you do the right things then the outcome will be the right one.

In the sales function, the means or methods by which a sales person pursues the outcome are relevant but ultimately the primary objective is to deliver an outcome that is typically a quantifiable metric in terms of revenue ($ or units) or gain in market-share or increased margins or something similar. This is measured as achievement against a quota or target.
Most reward mechanisms in sales focus only on a quantifiable outcome. A sales person can work 24x7 but if the deals are not being won then the outcome has not been achieved. In the sales world, there is a saying that you are as good as your last few quarters i.e. your outcome defines your success. In every sales meeting the mantra being chanted is ‘outcomes matter’.

Sales incentive systems are designed to encourage the delivery of quantifiable outcomes. The more one delivers and/or exceeds the target against the desired quantified outcome the more commission or incentive pay that a sales person would get. If sales incentive systems did not exist then there would be severe challenges in retaining top sales talent. This then makes for an interesting dilemma. If the 'how' is noble, intelligent and from the heart but the outcome is not achieved then clearly the incentive is not achieved. But what happens when we flip this around i.e. if the actions are ignoble, unethical and deviant but deliver the desired quantifiable outcome. In this case the incentive is achieved but the behaviour that drove the outcome was wrong! Therein lies the challenge in managing a sales force and hence the title of this blog.

Is it possible that an incentive system focused on quantifiable outcomes can encourage sales persons to cut corners and undertake actions that are morally dubious or unethical or actions that are aimed at improving the likelihood of achieving the desired outcome at the expense of other desirable behaviour or metrics?

I have been a student of incentives and their impact on motivation and performance for both sales persons and non-sales personnel (i.e. individuals that do not earn commissions or sales incentives). The matter of incentives has high practitioner and academic focus. Every year we see surveys and Human Resource (HR) departments outlining that pay is not one of the top reasons that motivate people. Employees keep talking about sense of accomplishment; the job; recognition etc. and then identify pay/incentive somewhere below other items in every survey. As I have already argued before (‘Does pay really matter in employee engagement?’) pay is invariably one of the most important factors for employees BUT for sales persons it is the primary driver and the traditional way to control sales persons. After all sales persons choose a career in sales because all things being equal the pay is always much better than other traditional roles and pay in sales is a direct reflection of how much effort a sales person puts in.

So how does an organisation bring about balance to the equation when dealing with sales personnel? They need to be rewarded for delivering their outcome but an organisation also needs to ensure that they are managing the performance (the 'how' in them working towards the outcome) of the sales person. Most large organisations have formal incentive and commission programmes but also leverage periodic (typically annual) formalised performance appraisal systems. I have written on performance appraisal systems before ‘Do not judge, or you too will be judged...(the performance rating conundrum!) ‘. In the context of sales persons I recommend the use of performance appraisals (despite my stated reservations with them as outlined in ‘Matthew at play in the performance management game’) as they are a balancing mechanism available to an organisation that ensures that the manner in which the outcome is achieved is also measured and recognised. Most performance appraisal systems lead to a stack rank and/or rating system that can be used a signalling device to sales person’s as well as a means to tie increases and promotions by deemphasising sales person’s quota achievement or quantitative outcome achievement. The trick is to get the performance appraisal system designed with the right metrics and qualitative focus on the manner in which specific outcomes are achieved. In simple terms, did the sales person show the right behaviours also when they delivered an outcome. Were their actions correct i.e. the 'how' was the right one? 

The performance appraisal of a sales person can be designed to assess and provide a score or grade by assessing the ‘how’ around outcome achievement as the salesperson with the highest outcome results (i.e. revenues etc.) in reality may not be doing any better on the behavioural front as compared to his or her 'non-performing' colleagues. It is my belief that a performance appraisal system that emphasises behavioural outcomes more than quantitative outcomes will deliver far more benefits to the organisation while also sharpening a sales person’s selling prowess. Remember quantifiable outcomes are always rewarded by commission but by forcing a review of behaviours via the performance appraisal system is likely to increase team work; co-operation; compliance with policies and improved oversight when making commitments on behalf of the organisation to customers etc. Some factors that can form part of the performance appraisal and should carry a substantial weightage in the performance appraisal are offered below:
  • Quality of interaction with support functions from pre-sales; operations; credit & collections etc (those colleagues who convert a sales person’s promises to reality). You will be surprised as to how accurate these support functions can highlight the strengths and weakness on display by the sales person as they navigate within the organisation
  • Evaluate fall-outs from earlier sales activities by the sales person. Did the customer have issues with the solution provided? Did the customer pay on time or were there issues that led to disputes and concerns? Were there any customer expectations that were not delivered and led to customer dissatisfaction and activities that cost money to fix and done due to a solution that was incomplete or put together inefficiently? How did the sales person react to fixing those challenges? How well could they rally resources from within the organisation in support of customer satisfaction?
  • Quality of data and usage of sales force productivity tool-set (CRM etc.). Does data in the forecast or pipeline get updated regularly and is it fit for use during reviews? Does the sales person treat such activities as a bureaucratic/administrative overhead or as a productivity enhancer?
  • Did the behaviour of the sales person exemplify the values of the organisation? Compare the individual’s style with that of his peers. Is the sales person displaying values that lift the organisation and team? [I say this as I have come across many condescending sales persons in my career that I would never hire or recommend to anyone. These are people who know it all and consider themselves better than the other functions in the organisation]
  •  Evaluate the tendency of the individual to suggest short-cuts or evaluate dubious tactics. Some actions may not be illegal (look for substance over form) but if they are ethically ambiguous and perception created is negative then call it out. Does the sales person actively build trust or erode trust from such activities?
  •  Evaluate the strengths that the sales person brings to the job. What are their weaknesses? What behaviours must they curtail? What skills do they want to develop? And then hold them to their development plan irrespective of their numeric achievement from an outcome point of view.
In general, sales persons are weak at self-evaluation. They tend to over-rate their sales prowess by only focusing on quota achievement (quantifiable outcome) as the only desirable outcome and most sales performance measurement systems are already well designed for measuring the same but exceptionally poor at measuring the behaviour shown in how the sales person went about delivering the outcome. It is imperative that sales managers understand that focusing on 'how' a sales person goes about delivering outcomes (against quotas and targets) is also critical to evaluate formally.

There are two eyes that a sales manager has and my guidance would be to have one focused on outcome and the other focused on how the outcome was achieved. And of course, it requires courage on the part of the sales manager to be able to have an honest performance appraisal with a sales person who is high on outcomes but low on displaying the right behaviours in how they acheived the outcome (i.e. the right 'how' techniques were used to deliver the outcome).

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1 comment:

  1. Your evaluation is brilliant. Mature sales management processes looks at Outcomes and how they were achieved. Corporates like any other organizations, face competition and can easily forget "the how" component to secure business. In most of such cases, sales managers may be pushed to ignore "the how" and focus on the outcomes to report. Thus both over-achievement & under-achievement can cause instability in the life of a sales person depending on the type of organization. Either way, over-achievement is punishable by management setting new higher targets in the next financial year and under-achievement is punishable by would be dismissal.

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