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New ways of measuring sales performance needed

Published on 26/01/10 at 07:03am
Sales meeting

Research funded by the Chartered Institue of Management Accountants (CIMA) has helped Cranfield School of Management unveil a new framework designed to support organisations with target setting processes.

The ‘Cranfield target setting wheel’ can help firms of all sizes 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.

The research, published in a report and conducted by the Centre for Business Performance at Cranfield, demonstrates that most sales performance measurement and incentive systems still focus on the need to meet short-term sales targets, and assume sales people operate independently. 

This is despite reality being very different, with many sales people working in teams where customer information must be produced and shared. The study highlights that this new selling environment requires innovative ways of measuring performance, setting targets and designing incentive plans.

Commenting on the research findings, Professor Mike Bourne from Cranfield School of Management said: “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 sales people respond to targets. Often management’s view of role and performance clarity differed from the sales force due to failures in communication, capacity and performance planning.”

The research finds that management often wrongly believe that the sales force has participated to some extent in the target setting process, while the sales people simply believe that they have been handed their targets with little explanation. According to the report, 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, and that better communication between the sales team and management is required.

Co-author of the report, Dr Monica Franco-Santos from the Centre for Business Performance said:  “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.”

Naomi Smith, CIMA research manager, explains further:  “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.

"Sales people 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. 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.”

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