The Role of Management Control to Australian SME s Sales Effectiveness

Page 1 of 8 ANZMAC 2009 The Role of Management Control to Australian SME s Sales Effectiveness Ken Grant, Monash University, Ken.Grant@buseco.monash.edu.au Richard Laney, Monash University, Richard.Laney@lpa.com.au Hanny Nasution, Monash University, Hanny.Nasution@buseco.monash.edu.au Bill Pickett*, Monash University, Bill.Pickett@lpa.com.au Abstract Sales management control of the salesperson plays a part in influencing the sales-people behaviour and results. This study aims to investigate the role of management control to salesperson performance and sales organisation effectiveness. The sample for this study was 103 SME managers across Australia. The results indicate that management control plays a significant role on salesperson performance and consequently on sales organisation effectiveness. Specifically, the results highlight that directing and evaluating are positively related to salesperson s performance, subsequently to sales organisation effectiveness. The results suggest that the control aspect of sales management is important because the implementation of the control process is a mechanism by which common standards of performance are established. Keywords: Sales management control, salesperson performance, sales organisation effectiveness, SME

ANZMAC 2009 Page 2 of 8 The Role of Management Control to Australian SME s Sales Effectiveness Introduction Performance of the sales function within any organisation is both an input and output of the firm s marketing decision-making ability. Bonoma and Clark (1988) considered input and output components when they sought to determine aspects of marketing performance assessment. Management s ability to control and measure influences and outcomes within the different environments affecting performance is a constant challenge. Sales management s decisions and actions regarding monitoring, evaluating, directing and rewarding of the salespeople also play a part in influencing the salesperson s behaviour and results. Although these are decisions in which management is deeply involved in and often discussed with sales teams, assessment of performance is not easily resolved; this raises academic curiosity to gain a deeper and broader understanding of the antecedents and drivers to evaluating and enhancing the performance of the sales function within an organisation. Several seminal research articles (see Anderson and Oliver, 1987; Walker, Churchill, Ford, 1979) address sales management control issues and stimulated empirical research into the influences of management control strategies and procedures on the sales and selling practices of organisations. As sales management control research was being stimulated from within the US and European contexts, a number of research gaps were identified in relation to the Australian SME s context. Australia is predominantly a country of small businesses, with approximately over 90% of all private sectors business; and it is estimated that in June 2006 there were 1,646,344 small business operators (Australia Bureau of Statistics, 2006). There is a need to specifically identify marketing s influence in small growing firms, especially as marketing is put forward as an important dimension of a firm s performance. Carson (1990) suggests that SME s have unique characteristics that differentiate them from conventional marketing in large organisations. These characteristics may be determined by the inherent characteristics and behaviours of the owner/manager; and they may be determined by the inherent size and stage of development of the enterprise (Gilmore, Carson, D., and Grant, 2001). This study investigates the impact of management control to salesperson s performance, and consequently to sale organisation effectiveness in Australian SME s. Management Control Theoretical background Sales management control system is defined as an organisation s set of procedures for monitoring, directing, evaluating, and compensating its employees (Anderson and Oliver 1987, p.76); as attempts by managers and other stakeholders within the strategic business unit to influence the behaviour and activities of marketing personnel to achieve desired outcomes (Jaworski, 1988, p.58). Anderson and Oliver (1987) distinguish between sales management controlling philosophies which are more concerned with behavioural aspects of the selling function compared to a controlling system based more on outcomes of the salespeople. They suggest that the more the control system is behaviour-based, the more the salespeople is: (1) monitored, directed, evaluated and rewarded with higher fixed compensation; (2) knowledgeable regarding products, company information and selling 1

Page 3 of 8 ANZMAC 2009 expertise and more professionally competent; (3) committed to the organisation, the salespeople is more accepting of direction, and co-operative in the sales team; (4) more intrinsically motivated; (5) more concerned with longer-term relationships and customer service; (6) expected to plan each call, make fewer calls and spend more time on non-calling activities; (7) more likely to achieve organisational goals and service customer needs. Our study adopts measurements taken from the Anderson and Oliver (1987) approach, which is more behavioural centred compared to the Jaworski (1988) methodology, which tends to centre a traditional financial type measures. Management control in our study includes four components: (1) monitoring, (2) evaluating, (3) directing, and (4) reward. Monitoring captures the notion of regularly review the daily activities of salesperson. Evaluating refers to evaluate the salesperson contributions to sales results and profit. Directing captures the activities of coaching, helping, and training salesperson in order to improve their performance. Reward relates to the salesperson compensation scheme which is based on their achievement. Salesperson Performance Salesperson s performance is defined as an overall evaluation of the salesperson s contribution to achieving the organisational goals (Baldauf et al., 2001; Behrman and Perreault, 1982; Cravens et al., 1993; Ingram et al., 2004). Salesperson s performance refers to the behaviour and outcomes that are under the control of the salesperson (Babakus et al., 1994). In this study salesperson performance consists of five components: (1) meeting targets, (2) technical knowledge, (3) communication skills, (4) providing information, and (5) controlling expenses. Meeting targets relates to generating profitability and exceeding sales targets and objectives for a company. Technical knowledge is a salesperson performance component that capture the level of salesperson knowledge in design, specifications, application, and function in a company s offering. Communication skills refer to the salesperson ability in understanding and convincing customer concerns. Providing information relates to the salesperson ability in providing accurate, complete, and timely routine reports. Controlling expenses capture the salesperson ability in spending the budget effectively. The salesperson and its performance are imperative to the success of almost every business (Behrman and Perreault, 1982). Sales Organisation Effectiveness Sales organisation effectiveness is defined as a summary evaluation of the overall success of a sales organisation in meeting its goals and objectives in total and at different organisational levels (Ingram et al., 2004, p.256); a summary of overall organisational outcomes; and it indicates how well the sales organisation has implemented business and marketing strategies (Baldauf et al., 2001). Sales organisations are closely related to the implementation of marketing strategies that lead to the effectiveness of the sales organisation (Baldauf et al., 2001). The distinction between salesperson performance and sales organisation effectiveness has been widely acknowledged in the literature (Baldauf et al., 2001; Ingram et al. 2004; Piercy et al., 1999). Sales organisational effectiveness and salesperson performance are related but conceptually different constructs (Piercy et al., 1999). Sales organisational effectiveness can be measured by total sales volume, market share, profitability (Babakus et al., 1996; Ingram et al., 2004), return on assets, and residual income (Cravens et al., 1993). Sales organisations are responsible for the implementation of business and marketing strategies, which impact on the effectiveness of the sales organisation (Churchill et al., 1993). 2

ANZMAC 2009 Page 4 of 8 High performance of the salesforce drives profits, sales growth, and customer satisfaction (Babakus et al., 1996). Hypotheses Development The Anderson and Oliver (1987) propositions led to the belief that there was a need to develop a generalised model for sales management control systems and their impact on the effectiveness of the sales unit of an organisation. Academically the behaviour based concept being championed by Anderson and Oliver (1987) was seen as a research opportunity of particular interest to managers. Many salespersons are concerned when their individual performance is measured only on actual results compared to budgeted targets as there are decisions and actions external to the salesperson immediate control that impact on their sales results. The performance measurement systems which are established and the styles of management implementation are examples that influence the salespersons results. Previous studies conducted in large companies suggest that sales management control have a positive impact on salespersons performance, subsequently to sales effectiveness (Baldauf et al, 2001; Cravens et al., 1993; Piercy et al., 1999). In line with previous studies, our study proposes the following hypotheses: H1: Management control i.e. monitoring (a), evaluating (b), directing (c), reward (d) has direct impact on salesperson performance. H2: Management control i.e. monitoring (a), evaluating (b), directing (c), reward (d) has indirect impact on sales organisation effectiveness. H3: Salesperson performance is positively related to sales organisation effectiveness. Research Methodology The sample for this study was SME managers in charge of the sales team. The database was obtained from the Laney Pickett Thomas Customer Directory, 2006 and KOMPASS Database 2009. Several steps have been taken in determining the participants: firstly, the database was reviewed to short list appropriate SME's. Secondly, each remaining organisation on the list was checked to ensure contact details were correct. Finally, each remaining potential respondent was contacted to explain the purpose of the research and explore the respondent s willingness to participate. The questionnaires were distributed to 400 SME s across Australia. In total 103 SME managers participated in this study thereby providing a final effective response rate of approximately 26%. The scale of management control, salesperson s performance, and sales effectiveness was adopted from the work of Baldauf et al. (2001), Cravens et al. (1993), and Piercy et al. (1999). Cronbach alpha, exploratory and confirmatory factor analyses were used to establish the psychometric properties of the measures. Table 1 shows that all constructs have coefficient greater than.90, indicating good reliability (Nunnally, 1978). The figure ofχ 2 /df, GFI, AGFI, NFI, TLI, CFI, and RMSEA indicate that the constructs were shown to have acceptable psychometric properties. 3

Page 5 of 8 ANZMAC 2009 Table 1: Summary Statistics of the Measurement Models Analysis Construct Factor SFL* t-value Management control Monitoring.70 6.84*** α=.92 Evaluating.86 6.67*** Directing.86 6.63*** Reward.69 6.79*** Salesperson performance Meeting targets.88 3.15*** α=.90 Technical knowledge.52 2.93** Communication skills.58 3.65*** Providing information.51 2.88** Sales organisation effectiveness α=.94 Controlling expenses.56 3.12*** Compared to objectives.87 9.57*** Compared to competitor.83 10.31*** Qualitative.83 10.29*** Model Fit: Cmin/df= 1.20; GFI=.92;AGFI=.86;NFI=.91;TLI=.98; CFI=.98;RMSEA=.04 *SFL = standardized factor loading. *** = p <.001 Results and Discussion The results of hypotheses testing as shown in Table 2 indicate that evaluating (β=.32, p<.01) and directing (β=.28, p<.05), as dimensions of management control have significant impact salesperson performance. The results support H1b and H1c. In addition, the positive relationships between evaluating (β=.12, p<.05), directing (β=.11, p<.05), and sales organisation effectiveness are mediated by salesperson s performance leading to the acceptance of H2b and H2c. Table 2: Management Control, Salesperson Performance and Sales Effectiveness Variable H Direct t value Indirect t value Total t value Effect Effect Effect Monitoring is related to Salesperson performance H1a -.18-1.37 -.18-1.37 Sales effectiveness H2a.07-1.26-1.26 Evaluating is related to Salesperson performance H1b.32 2.70**.32 2.70** Sales effectiveness H2b.12 2.24*.12 2.24** Directing is related to Salesperson performance H1c.28 2.06*.28 2.06* Sales effectiveness H2c.11 1.80*.11 1.80* Reward is related to Salesperson performance H1d.05 0.38.05 0.38 Sales effectiveness H2d.02.38.02.38 Salesperson performance is related to Sales effectiveness H3.39 5.26***.39 5.26*** Model fit: Cmin/df= 1.44; P=.24; RMR=.03; GFI=.99;AGFI=.90;NFI=.99;TLI=.97; CFI=.99;RMSEA=.07 * = p < 0.05, ** = p < 0.01, *** = p < 0.001 4

ANZMAC 2009 Page 6 of 8 The findings highlight that the sales management control system plays an important role in influencing salesperson s outcome performance, and designing effective field sales organisations. The greater the extent of sales management control, the more satisfied sales managers are with the performance of the salesperson and their unit outcomes. In this sense, sales managers could be more productive in seeking differences between individual salesperson performance. The findings further highlight the important role of evaluating and directing salespeople in improving their performance. Our results support other research findings (Grant et al., 2001; Oliver and Anderson, 1994) that indicate that sales managers directing and evaluating activities should be helpful in meeting target, improving technical knowledge and communication skills, and enhancing salespeople s capabilities in providing information and controlling expenses. The results further suggest that monitoring and rewarding are not significant related to salesperson performance. The unexpected findings can be explained in that SME s might have some characteristics of entrepreneurship (Carrier, 1996) in which SME s can be considered as entrepreneurial; hence, monitoring and rewarding activities are not important in this context. The results further suggest that salesperson performance has a positive impact on sales effectiveness significantly (β=.39, p<.001), this leads to the acceptance of H3. This result is in-line with previous studies conducted in large companies. This implies that the influence of the selling effort is reflected in the sales results of an organisation. The sales, or the revenue, of the organisation is regarded as a performance measure to be presented and discussed at the boardroom level of most organisations. From this point of view the significance of how the sales function is managed and how the sales control mechanisms are established should be of ongoing concern to managers. In this sense, the control aspect of sales management is important because the implementation of the control process is a mechanism by which common standards of performance are established. Conclusions and Implications This study sought to investigate the impact of management control on salesperson performance and consequently on sales effectiveness. The results indicate that evaluating and directing were shown to have a positive direct impact on salesperson s performance, and indirect impact on sales effectiveness. In addition, the significant impact of salesperson performance on sales effectiveness in SME s support to previous similar studies in large companies. The findings have implications for both researchers and practitioners. This study contributes to the sales literature by providing empirical evidence on the importance of evaluating and directing as dimensions of management control to salesperson performance and sales effectiveness in the SME s context. From a managerial perspective, the results suggest that managers need to pay attention on directing and evaluating salespeople, such as evaluate the sales results and profit contribution achieved by each salesperson, and actively facilitate salespeople with training in order to develop their potential. 5

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