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Step 1: Setting Performance Standards

Performance standards may be set by staff or managers, by managers and staff, or


by managers with input from employees whose performance is being measured.
The last method is the best because employees believe that line and staff do not
have enough information about the conditions of various jobs to set realistic
standards. Managers should see that objectives and standards are measurable and
that individuals are held accountable for their accomplishment. The level of
difficulty should be challenging but within the capabilities of the employee.
Standards set too low are usually accomplished but not exceeded, while standards
set too high usually do not motivate the employee to expend much effort to reach
the goal.
It is important that standards be complete; however, it is difficult to develop a
single standard or goal that will indicate the effective overall performance. For
example, consider the automobile dealer who decided to measure sales peoples
performance on the basis of the number of automobiles sold. Sales increased
impressively, but it was later learned that many sales had been made to poor credit
risks, and too high prices had been allowed on trade-ins. Too many managers are
looking for that one magic number that will tell them how well the company is doing
or how their employees are performing. Standards for the automobile salespeople
might have included number of sales, losses from poor credit risks, and profit on
resale's. Standards should also be expressed in terms that relate to the job and are
meaningful to the employees. For example, the foremen in one plant were assigned
standards based on break-even analysis, although none of them had any knowledge
of this analytical technique. From a behavioral standpoint, it is extremely important
that the employee be able to significantly influence or affect the standard
assigned.
Finally managers should see that the number of standards assigned, like planning
objectives, are limited and placed in priority order for the employee. If there are too
many controls assigned, the employee will not be able to give enough attention to
any of them and will become frustrated and confused.
Step 2: Measure and compare actual with plannedresults
As with setting standards, the objectivity of the measurement and the person who
measures and compares the performance are important. Measuring and comparing
can be accomplished by the person performing the task, by the boss, or by a staff
person; even an automated system can measure and compare. From a behavioral
standpoint, the last method is the least popular, followed by measurement by a
staff person only. An employee believes an automated system, a staff person, or
even the boss does not know enough about the conditions of the job to make a fair
comparison between actual and planned results.
Also, the employee often distrusts the staff person and sometimes even the boss. At
the same time, the employee is usually not trusted enough by the company to
perform the measurement and comparison alone. The best solution is to have the
measurement done by the person most trusted by the employee and to allow the
employee some input. When employees have relatively low trust in a control
system, they sometimes behave in various ways that are harmful to the
organization. They may do what is required by the system.
For example, when bonuses for salespeople in a department store were based on
sales volume, many employees soon lost interest in customers who did not
immediately purchase an item, and they spent little time helping customers,
making merchandise attractive, or performing stock work.
Quite often employees will report data in such a way that performance will look
good for a particular time period. Some control systems will also cause employees
to report invalid or misleading data about what can be done.
For example, it is not uncommon at budget time for managers to ask for larger
amounts than needed if they believe their requests will be reduced. In many
organizations budget setting sessions are largely negotiating games with little effort
given to establishing realistic standards. The advent of computer-based
management information systems has also caused invalid data to be provided.
These systems sometimes require historical cost, production, and other data that
are simply not available and cannot be provided. When pressed, however, the data
are estimated, often inaccurately.
Finally, control systems that employees view as clearly threatening will cause
strong resistance, perhaps the best example of this is automatic data systems.
These systems create new experts with much power, are often not well understood,
and, therefore are feared by many employees.

Step 3. Evaluate results, give feedback and coach


The third step is most effective when steering controls are selected. With these
controls, forecasters of the results can also be used for early warning that specific
actions may be required. For example, high morale is a popular goal but one that is
difficult to measure. Forecasters such as number of accidents, absenteeism, and
employee turnover may be evaluated together and serve as a surrogate measure
for increasing or declining morale. However, careful evaluation must be used. If the
accident rate increases rapidly in the production area, it would suggest declining
morale when a significant increase is caused by employee carelessness. However, if
the cause is related to equipment that suddenly wears out, then there probably is
not a relationship between accident rate and low morale.
It is essential that managers carefully evaluate deviations before taking action. It is
also important that they remember that deviations can be positive as well as
negative and that they reward employees for positive deviations. Unfortunately, this
step is often omitted and only the negative aspects of deviation receive attention.
Who should receive feedback from this evaluation and how often should it be
offered?
The person who is accountable for accomplishing the standard should receive the
information first.
The employee's boss, or whoever is in a position to reward the employee should
receive the information at about the same time or a little later. Then peers, staff
people, subordinates. and other line people can receive the information. At this
time, the boss ought to have some suggestions about how to get back on course if
the employee needs help. The boss's most important job is coaching subordinates.
and a good planning control system provides an excellent framework for such
coaching.
Feedback must be reliable, relatively frequent, and prompt. The feedback has to be
reliable for the employees to be able to change the behavior or plan in order to get
on course. Frequency of information has to do with the interval for which data are
received.
If, for instance, costs would not normally get out of control in a short period, then
monthly reports might be adequate. On the other hand, a delay of six months might
allow the situation to get so far out of control that it would be too late to take
corrective action.
Sometimes prompt feedback can create problems. Today's computer-based control
systems can provide feedback on a real time basis, but such speed can be harmful
from a behavioral standpoint. This kind of speed causes undue pressure because
there is no time for the manager to use discretion and make changes.
A company director recently described his company's "outstanding" planning-
control system. He proudly explained a feedback system that provided information
on a continuous basis to every employee concerning his or her progress toward a
numbers goal. 'When numbers weren't being made, more pressure was applied.'
Employees were confused because there was no plan to change, and consequently,
standards and objectives were not changed. The company had a standards-control
system based on numbers: but objectives, plans, evaluation, and coaching did not
exist. It is this sort of system that causes low morale and unethical and illegal
behavior - all in the name of control.
Step 4. Take corrective action
Making changes as the activity is in progress is a form of corrective action. The real
correction occurs when warnings raised by the forecasters or predictors are
confirmed.
The corrective action can be changing objectives, standards, plans, and the like, but
it can also be penalizing employees when the objectives, standards, and plans are
determined to be appropriate and employees have not met them. However, there
usually are several alternative corrective actions that can be taken and often more
than one will prove effective. The planning control system is not effective until
corrective action is taken and this action begins a new planning-control cycle.

General Measures. Performance standards should be objective, measurable,


realistic, and stated clearly in writing (or otherwise recorded). The standards should
be written in terms of specific measurers that will be used to appraise performance.
In order to develop specific measurers, you first must determine the general
measure(s) that are important for each element. General measurers used to
measure employee performance include the following:
Quality address how well the work is performed and/or how accurate or how
effective the final product is. Quality refers to accuracy, appearance, usefulness, or
effectiveness.
Quantity addresses how much work is produced. A quantity measure can be
expressed as an error rate, such as number ore percentage of errors allowable per
unit of work, or as a general result to be achieved. When a quality or quantity
standard is set, the Fully Successful standard should be high enough to be
challenging but not so high that it is not really achievable.
Timeliness addresses how quickly, when or by what date the work is produced. The
most common error made in setting timeliness standards is to allow no margin for
error. As with other standards, timeliness standards should be set realistically in
view of other performance requirements and needs of the organization.
Cost-Effectiveness addresses dollar savings to the Government or working within a
budget. Standards that address cost-effectiveness should be based on specific
resource levels (money, personnel, or time) that generally can be documented and
measured in agencies' annual fiscal year budgets. Cost-effectiveness standards may
include such aspects of performance as maintaining or reducing unit costs, reducing
the time it takes to produce a product or service, or reducing waste.

One of the most important responsibilities of sales managers is to evaluate the


performance of the sales personnel. The performance appraisal period can become
one of those times that a salesperson dreads, unless the appraisal is effectively
conducted. Ineffective performance appraisal tends to become a time-consuming
and unpleasant activity for the sales manager as well as the sales personnel.

The factors affecting sales peoples'performance are many. Some of these are
beyond the control of the individual, while some can be modified. Aspects like
motivation, skill-set, job satisfaction, role perception, personal factors like age, sex,
height, etc; the ego drive, and empathy towards the customers are inherent in the
individual salesperson. Environmental and organizational factors, along with the
different functions of sales management come under external factors. It is difficult
for the sales manager to predict the influence of the external factors on the
performance of the sales force.

To measure performance, it is necessary for the sales manager to put in place a


performance evaluation procedure. A proper evaluation process ensures that the
organization is well managed. It also provides the sales personnel with information
on their performance and gives recommendations for further improvement.
Performance evaluation can also help in improving the relationships between the
sales force and superiors by minimizing suspicion and improving interaction. The
performance evaluation process generally involves five steps. The first step is to
determine the factors that affect the performance of the sales force. The next step
involves the selection of criteria that will be used to evaluate the performance. Step
three involves establishing performance standards that can be used as a basis to
compare the performance of the sales force. Step four involves monitoring actual
performance. The last step is to review and provide feedback to the sales
personnel.

The purpose of conducting performance evaluation is to crosscheck whether the


sales force activities are in alignment with organizational objectives. It also helps
monitor the sales force activities and provide remedial action, if required.
Performance evaluation also helps to prepare a future action plan for the sales
personnel and fulfill the organizational objectives. It exerts an influence on the
mode of compensation, fixing of sales quotas, and decisions on the transfer or
removal of the salesperson from the organization. In most organizations, it is the
immediate superior or the sales manager who conducts the performance appraisal.
Sometimes a team of people including the personnel manager and the department
head, along with the sales manager, appraise the sales personnel. The timing of
appraisal also varies for different organizations. It depends on the complexity of the
sales plan, the costs involved, and the current objectives of the organization.
Periodic performance appraisal is necessary to identify any discrepancies in the
overall sales plan and correct them.

The sales manager or the concerned person involved in appraising the sales force
can take the help of quantitative or qualitative criteria. These are also termed the
behavior and outcome components. Qualitative criteria include sales skills, territory
management skills, personality traits, etc. The quantitative factors include the sales
volume, average calls per day, sales orders, etc. Quantitative criteria are those
aspects that measure the sales performance in terms of the end results whereas
qualitative criteria involve all those activities that the sale person does to achieve
the end results.

The sales manager must ensure that the performance standards are set to compare
and evaluate the actual performance of the sales force. The standards vary from
industry to industry and are different for different job profiles. Performance
standards come under quantitative standards, qualitative standards, time-based
standards, or cost-based standards. All the sales force activities can be segregated
into one of these four categories and compared with the base standard.

Sales Quota
Quotas are quantitative objectives assigned to sales
organizational units—individual sales personnel, for instance.
As standards for appraising selling effectiveness, quotas specify
desired performance levels for sales volume; such budgeted
items as expenses, gross margin, net profit, and return on
investment; selling – and nonselling-related activities; or some
combination of these items. Sales management sets quotas for
organizational units, such as individual sales districts and sales
personnel. In some companies, sales management sets quotas
for middlemen, such as agents, wholesalers, and retailers.
Quotas set for sales regions, or other marketing units on higher
organizational levels, are customearily broken down and
reassigned to lower-level units like sales districts, or to
individual sales personnel. All quotas have a time dimension—
they quantify what management expects within a given period.
Quotas are devices for directing and controlling sales operations.
Their effectiveness depends upon the kind, amount, and accuracy
of marketing information used in setting them, and upon
management’s skill in administering the quota system. In
effective
systems, management bases quotas on information derived from
sales forecasts, studies of market and sales potentials, and cost
estimates. Accurate data are important to the effectiveness of a
quota system, but, in and of themselves, they are not sufficient;
judgment and administrative skill are required of those with
quota-
setting responsibilities. Soundly administered quotas based on
thorough market knowledge are effective devices for directing
and
controlling sales operations.
Objectives in Using Quotas
The general objective that sales management has in mind in
using quotas is to control the sales effort. Sales control is
facilitated through setting quotas to use in appraising
performances of sales organizational units, such as a sales
region or an individual on the sales force. Sales control is
tightened through setting of quotas on expenses and
profitability of sales volume. A skilled management uses
quotas to motivate personnel to achieve desired performance
levels. When management sets quotas, if firms up its
performance expectations; when these expectations are
communicated to those who are to perform, motivational
forces are put into operation that, it is hoped, result in the
required.
To Provide Quantitative Performance Standards
Quotas provide a means for determining which sales personnel,
other units of the sales organization, or distributive outlets are
doing an average, below-average, or above-average job.
Territorial sales volume quotas, for instance, are yardsticks for
measuring territorial sales performance. Comparisons of quotas
with sales performance identify weak and strong points, but
management must dig deeper to uncover reasons for variations.
A well-designed quota system combined with sales analysis
helps, for example, in assuring that a bad showing in selling
one product in a territory is not hidden by good showings in
selling other products. Sales performances vary product by
product, territory by territory, and salesperson by salesperson.
Quotas identify the strong and weak points ; additional analysis
of performance data uncovers reasons for performance
differentials.
Tto Obtain Tighter Sales and Expenses Control
Control over expenses and profitability is tightened through
quotas. Some companies reimburse sales expenses only up to a
certain percentage of sales volume, the expense quota being
expressed as a percentage of sales. Others set dollar expense
quotas and appraise sales personnel, in part, by their success in
staying within assigned expenses limits. Still others establish
quotas for dollar profit or within assigned expense limits. Still
others establish quotas for dollar profit or profit percentage on
sales. These “budget” quotas shift the emphasis from making
sales to increasing profitability. Budget quotas are particularly
appropriate when additional sales volume is obtainable only at
increased expense; thus profits increase only with improved
selling efficiency (lower selling expenses or more profitable
sales).
To Motivate Desire Performance

Quotas motivate sales personnel, distributive outlets, and

others engaged in the sales operation to achieve assigned


performance levels. Some managements use quotas solely for

inspirational purposes, basing them almost entirely upon what

they think individuals can be inspired to achieve. Because of the

high degree of subjectivity in such quotas, they frequently turn

out high, thus losing inspirational value. Most sales executives

agree that quotas should be attainable goals, goals, achieveable

with justifiable pride. The salesperson should believe so

strongly in the quota’s, attainability that he or she will not give

up with the excuse that is cannot be reached. Sales personnel

should feel that they must reach assigned quotas, and they
should be confident that management will recognize their

achievements. One study revealed that most sales personnel are

“quota achievers” rather than “dollar maximizes.” Motivation

of sales personnel declines with easily attainable quotas. The

decline may, in fact, be so great that sales personnel are less likely

to achieve easy quotas than difficult quotas.

For maximum effectiveness in motivating desired performance,

quotas cannot be based solely on judgment or on sales potentials. Past sales


experience and analysis of the sales potential in a territo

for example, may appear to indicate that the sales volume quo

of the salesperson assigned there should be increased by 50perce

over the previous year’s record. Psychological factors may make

much higher quota inadvisable. Most sales personnel are hopeles

discouraged to learn that management expects their sales to rise

50 percent in a single year. Consequently7, in instances of t

sort, management generally settles for raising the quota a sm

percentage each year until finally it is brought up to the desir

level.

To Use in Connection with Sales Contests


Companies frequently use “performance against quota” as the

main basis for making awards in sales contests. Sales contests

are more powerful incentives if all participants feel they have a

more or less an equal chance of winning. By basing awards on

percent of quota fulfillment, the desired “common

denominator” feature is build into a contest. Adjustments are

made for differences among territories (as in coverage difficult

and competitive position) and for differences among sales

personnel (as in experience with the company and in the

territory). Generally, contest quotas are designed solely for


contest use, “special quotas” to stimulate special effort, causin

average sales personnel to turn in above-average performances

Quotas, The Sales Forecast, and The Sales Budget

Relationships among quotas, the sales forecast, and the sales

budget vary from company to company. Relationships depend

not only upon the procedures used in forecasting, budgeting,

and quota setting but upon how the planners integrate these

three procedures. The greater the integration, the more effectiv

quotas are as devices for controlling sales efforts. Planning a

company sales effort begins with a sales forecast and evolves

naturally into a sales budget, thus setting the stage for the

controlling phase, which involves, among other things,

determination of quotas for use as performance standards.