Topic 4 Sales Organization Structure and Salesforce Deployment

In this topic we will look at the following factors;

·         Sales Organization Concepts.

·         Selling Situation Contingencies.

·         Sales Organization Structures.

·         Comparing Sales Organization Structures.

·         Salesforce Deployment.

Sales Organization Concepts

The basic problem in sales organization structure can be presented in simple terms.

The corporate, business, marketing and sales strategies developed by a firm prescribe specific activities that must be performed by salespeople for these strategies to be successful. Sales managers are also needed to recruit, select, train, motivate, supervise, evaluate, and control salespeople.

In essence, a firm as salespeople and sales managers who must engage in a variety of activities for the firm to perform to perform successfully. A sales organization structure must be developed to help salespeople and sales manager perform the required activities effectively and efficiently.

The structure provides a framework for sales organization operations by indicating what specific activities are performed by whom in the sales organization.

The sales organization structure is the vehicle through which strategic plans are translated into selling operations in the market place. Developing a sales organization structure is difficult. Many different types of structures might be used, and many variations are possible within each basic type. 

Specialization

Most sales organization are sometimes too complex and often require some degree of specialization, in which certain individuals concentrate on performing some of the required activities to the exclusion of other tasks. Thus certain salespeople might sell only certain products or call on certain customers. Some sales managers might concentrate on training, others on planning.



 



 

Centralization

An important characteristic of the management structure within a sales organization is its degree of centralization – that is, the degree to which important decisions and tasks are performed at a higher levels in the management hierarchy.

A centralized structure is one in which authority and responsibility are placed at higher management level. An organization becomes more decentralized as tasks become the responsibility of lower level managers.

Organization typically centralize some activities and decentralize others. Most organization however, tend to have a centralized or decentralized orientation.

The trends from transactions to relationships, from individuals to teams, and from management to leadership are producing a more decentralized orientation in many sales organization.

To facilitate and meet customers’ needs in a timely manner, salespeople must be empowered to make decision quickly and a decentralized structure enable and encourages such decision and actions to be made quickly.  

Span of Control versus Management Level

·         Span of Control - refers to the number of individuals who report to each sales manager. The larger the Span of Control, the more subordinated a sales manager must supervise.

 

·         Management Levels - define the number of different hierarchical levels of sales management within the organization

 

 

 

Span of Control versus Management Level

In the flat sales organization structure, there are relatively few sales management levels, with each sales manager having a relatively large span of control. Flat organization structures tend to be used to achieve decentralization, whereas tall structures are more appropriate for centralized organizations.

The span of control also tends to increase at lower sales management levels.  

 

Line versus Staff Positions

Sales Management positions can be differentiated as to line or staff positions.

·         Line Sales Management - positions are part of the direct management hierarchy within the sales organization. Line sales managers have direct responsibility for a certain numbers of sub-organizations and report directly to management at the next highest level in the sales organization. 

·         Staff Sales Management - positions, are not in the direct chain of chain of command in the sales organizational structure. Instead those in staff positions do not directly manage people, but they are responsible for certain functions (e.g. recruiting, selecting, and training) and are not directly involved in sales-generating activities. Staff Sales Management position are more specialized than line sales management positions.

 

 

In summary, designing the sales organization is an extremely important and complex task. Decisions concerning the appropriate specialization, centralization, span of control versus management levels, and line versus staff position are difficult.

Many sales organization sales organization are moving to some type of specialization, usually a structure that allows salespeople to concentrate on specific types of customers.

The downsizing and restructuring of entire companies have affected the sales function. Sales management levels have been eliminated and replaced by sales organization structures that are flatter and that increase the span of control exercised by the remaining sales managers.

This restructuring has influenced the trend towards more decentralized orientation and has resulted in the elimination of some staff positions. 

Selling Situation Contingencies

Determining the appropriate type of sales organizational structure is as difficult as it is important. There is no one best way to organize a Salesforce.

The appropriate organization structure depends or is contingent on the characteristics of the selling situation. As a selling situation changes, the type of sales organization structure may also need to change.

One key decision in sales organization design relates to specialization. Two basic questions must be addressed;  

1.      Should the Salesforce be specialized?

2.      If the Salesforce should be specialized, what type of specialization is most appropriate? 

Decision on specialization hinges on the relative importance to the firm of selling skill versus selling effort. If sales management wants to emphasize the amount of selling contact, a generalized Salesforce should be used.

If sales management wants to focus on specific skills within each selling contact, then a specialized Salesforce should be used.

There must be some balance between selling efforts and selling skills in all situations. Two of the most important factors in determining the appropriate types of specialization are the;

1.      Similarity of customer needs

2.      Complexity of products offered by the firm. 

Example: When the firm has a simple product offering but customers have different needs, a market-specialized Salesforce is recommended. If however, customers have similar needs and the firm sells a complex range of products, then a product-specialized Salesforce is more appropriate.  



 

 



 

 

Decisions concerning centralization, span of control versus management levels, and line versus staff positions require analysis of similar selling situation factors. Decision in these areas must be consistent with the specialization decision. The appropriate sales organization structure depends on the specific characteristics of a firm’s selling situation.  

Sales Organization Structures

Geographic Sales Organization - Most Salesforce use some type of geographic specialization. Salespeople are typically assigned a geographic area and are responsible for all selling activities to all accounts within the assigned area. There is no attempt to specialize by product, market or function.

Organization Structure

·         Geographic   

Advantages

·         Low Cost

·         No geographic duplication

·         No Customer duplication

·         Fewer management level

 Disadvantages

·         Limited Specialization

·         Lack of management control over product or customer emphasis

Product Sales Organization - Product specialization has been popular in recent years, but it seems to be declining in importance, at least in certain industries. Salesforce specializing by product assign salespeople selling responsibility for specific products or product lines. The objective is for salespeople to become expert in the assigned product categories.   

Organization Structure

·         Product

Advantages

·         Salespeople become experts in product attributes and applications.

·         Management control over selling effort allocated to products.

Disadvantages

·         High Cost.

·         Geographic duplication.

·         Customer duplication.

 

Market Sales Organization - An increasing important type of specialization is Market Specialization. Salespeople are assigned specific types of customers and are required to satisfy all needs of these customers. The basic objective of market specialization is to ensure that salespeople understand how customers use and purchase their products. Salespeople should then be able to direct their efforts to satisfy customers need better. 

Organization Structure

·         Market               

Advantages

·         Salespeople develop better understanding of unique customer needs.

·         Management control over selling effort allocated to different markets.  

Disadvantages

·         High Cost

·         Geographic duplication. 

Functional Sales Organization - The final type of specialization is Function Specialization. Most selling situations require a number of selling activities, so there may be efficiencies in having salespeople specialize in performing certain of these required activities. Many firms are using telemarketing Salesforce to generate leads, qualify prospects, monitor shipments and so forth, while the outside Salesforce concentrates on sales generating activities. These firms are specializing by functions. 

Organization Structure

·         Functional                       

Advantages

·         Efficiency in performing selling activities 

Disadvantages

·         Geographic duplication

·         Customer duplication

·         Need for coordination 

Major Account Organization

Many firms receives a large percentage of their total sales from relatively few accounts. These large-volume accounts are obviously extremely important and must be considered when designing a sales organization. The term major account is used to refer to large, important accounts that should receive special attention from the sales organization. Some firms used the term Key Accounts instead.

A major account organization represents a type of market specialization based on account size and complexity. Two types of major account organizations;

1.      National Account Management – Meeting the needs of specific accounts with multiple locations throughout a large region.

2.      Global Account Management – Serves the needs of major customers with location around the world.

Major account organization has become increasingly important in both domestic and international markets. Although major account programs differ considerably across firms, all firms must determine how to identify their own major accounts and how to organize for effective coverage of them.

All large accounts do not qualify as major accounts. 

Identifying Major Accounts

All large accounts do not qualify as major accounts. An account can be considered complex under the following circumstances;

·         Its purchasing function is centralized.

·         Top management heavily influences its purchasing decisions.

·         It has multisite purchasing influences.

·         Its purchasing process is complex and diffuse.

·         It requires special price concessions.

·         It require special services.

·         It purchases customized products.

 

Organizing for Major Accounts

Accounts not large and complex are served adequately through the basic organization structure, but those identified as large and complex have to be handled in a variety of ways;

·         Develop Major Account Salesforce.

·         Assign Major Accounts to Sales Managers.

·         Assign Major Accounts to Salespeople along with other Accounts.

An increasingly popular approach is to establish a separate major account Salesforce with each salesperson assigned one or more major accounts and he or she is responsible for coordinating all seller activities to serve the assigned accounts.

Salesforce Deployment

Salesforce Deployment refers to important sales management decisions involved in allocating selling effort, determining Salesforce size, and designing territories. These decisions are closely related to the sales organization structure.

Changes in structure often require adjustments in all three areas of Salesforce deployment – Selling effort allocation, Salesforce size determination, and territory design. Salesforce Deployment decisions can be viewed as providing answers to three interrelated questions;

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 reasonable opportunity for success?

The basic objective of and approaches for determining selling effort allocation, Salesforce size and territory design.

 

Allocation of Selling Effort

The allocation of selling effort is one of the most important deployment decisions, because the Salesforce size and territory decisions are based on this allocation decision. Although decisions on the allocation of selling effort are difficult, several analytical tools are available to help. Three basic analytical approaches are;

1.      Single Models .

2.      Portfolio Models.

3.      Decision Models.

Single Models – Classifying all accounts under the same category e.g. market potential. Single Models is easy to use however, have limitation. Managers uses this model with a systemic approach for determining the sales effort allocation.

Portfolio Models – A more comprehensive analysis of accounts however, difficult to develop. Each account used is part of an overall portfolio of accounts.

Decision Models – The most rigorous and comprehensive method for determining an account. Difficult to develop. 

Salesforce Size.

Research have found that many firms could improve their performance by changing the size of their Salesforce. Firms can increase or decrease the Salesforce size by understanding some key considerations;

·         Salesforce size and Costs - (Advertising budget).

·         Productivity - (ratio between outputs and inputs).

·         Turnover – Salesforce turnover.

·         Analytical Tools – Sales, Costs, Productivity, and Turnover.

·         Breakdown Approach – Breakdown of sales forecast..

·         Workload Approach – Total amount of selling effort.

·         Incremental Approach – Compare marginal profit to marginal cost for each incremental salesperson.

·         Turnover – Calculation of sales and costs.

Salesforce Size – Example: A firm with 100 salespeople who each make 500 sales call per year has a total selling effort of 50,000 sales calls. If the Salesforce is increased to 110 salespeople, then total selling effort is increased to 55,000 sales call.

 

Two key considerations

1.      Productivity and Turnover.

2.      Salesforce size. 

Designing Territories.

The size of the Salesforce determines the total amount of selling effort that a firm has available to generate sales from accounts and prospects. Effective use require territories to be developed and each salesperson assigned to specific territories.

·         Territory Considerations.

·         Procedures for designing territories.

·         Select Planning and Control Unit.

·         Analyze Opportunity of Planning and Control Unit.

Effective use require territories to be developed and each salesperson assigned to specific territories.

·         Territory Considerations.

·         Procedures for designing territories.

·         Select Planning and Control Unit.

·         Analyze Opportunity of Planning and Control Unit.

·         Form Initial Territories.

·         Assess Territory Workload.

·         Finalize Territory Design.

·         Assigning Salespeople to Territory. 

Planning and Control.

The first step in territory design is to select the planning and control unit that will be used in the analysis – that is some entity that is smaller than a territory.The total market area served by a firm is divided into these planning and control units, then they are analyzed and grouped together to form entities.

Analyze Opportunity of Planning and Control Unit.

In the above example there are market potential for 11 trading areas. Everything else being equal, the higher the market potential, the more opportunity is available. 

Form Initial Territories

Once planning and control units have been selected and opportunity evaluated, initial territories can be designed. The objective is to group the planning and control units into territories that are equal as possible in opportunity. The best approach is to design several different territory arrangement and evaluate each alternative.

Assess Territory Workloads

The preceding steps produces territories of nearly equal opportunity. Workload of each territory should be evaluated by;

1. The number of sales calls required to cover the account in the territory.

2. The amount of travel time in the territory.

3. The total number of accounts.

4. Any other factors that measure the amount of work required by a salesperson assigned to the territory. 

Assigning Salespeople to Territories.

Once territories have been designed, salespeople must be assigned to them. Salespeople are not equal in abilities and will perform differently with different types of accounts or prospects.

Some sales managers considers their salespeople to be either farmers or hunters. 

Farmers – are effective with existing accounts but do not perform well in establishing business with new accounts.

Hunters – Excel in establishing new accounts but do not fully develop existing accounts. 

Forecasting Methods

·         Moving Averages.

·         Exponential Smoothing.

·         Decomposition Method.

·         Survey of Buyers intentions.

·         Jury of Executive Opinion.

·         Delphi Method.

·         Salesforce Composite. 

SUMMARY

Salesforce size decisions require considerations of people issues. A decision to reduce the size of a Salesforce means that some salespeople will have to be removed from the Salesforce..

How this reduction is accomplished can affect the relationship between salespeople and the sales organization.In summary, sales managers should integrate the results from Salesforce deployment analysis with people considerations before implementing any changes in sales call allocation, size, and territory.

 

Sources:

Sales Management Analysis and Decision Making by Pilai, Ingram, LaForge, Avila, Schwepker Jr Williams. 5^th Edition Thomson South-Western