The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics [1 ed.] 9783954895915, 9783954890910

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Julien Schnerrer

The Effect of Solution Transition on Steering the Sales Force

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For New Marketing and Sales Metrics

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Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

Schnerrer, Julien: The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics. Hamburg, Anchor Academic Publishing 2014 Buch-ISBN: 978-3-95489-091-0 PDF-eBook-ISBN: 978-3-95489-591-5 Druck/Herstellung: Anchor Academic Publishing, Hamburg, 2014 Bibliografische Information der Deutschen Nationalbibliothek: Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über http://dnb.d-nb.de abrufbar. Bibliographical Information of the German National Library: The German National Library lists this publication in the German National Bibliography. Detailed bibliographic data can be found at: http://dnb.d-nb.de

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Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

Table of Content Table of Content ....................................................................................................................I Index of Illustrations ......................................................................................................... III Index of Tables.................................................................................................................... IV Index of Abbreviations ........................................................................................................ V 1.

2.

3.

4.

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5.

Introduction .................................................................................................................. 7 1.1.

Problem Definition............................................................................................................................ 7

1.2.

Objectives of This Work ................................................................................................................... 7

1.3.

Scope of Work .................................................................................................................................. 8

Role of Marketing in a Firm ........................................................................................ 8 2.1.

Theory of the Firm and the Traditional Role of Marketing............................................................... 9

2.2.

Value Creation in a Firm................................................................................................................. 11

2.3.

How Marketing Influences the Firm Value..................................................................................... 14

2.4.

Conclusions about the Role of Marketing ....................................................................................... 17

The Emergence of Solutions ...................................................................................... 18 3.1.

Product Orientation ......................................................................................................................... 18

3.2.

Service Level Definition ................................................................................................................. 19

3.3.

Shift from Product to Service Orientation ...................................................................................... 20

3.4.

Solution Definition and Demarcation ............................................................................................. 22

3.5.

Drivers for Solution Orientation ..................................................................................................... 24

3.6.

Conclusions about the Evolution from Product to Solution Orientation ......................................... 26

Dominant Metrics used to Determine Marketing and Sales Performance ........... 28 4.1.

Performance Assessment in Product Centric Firms ........................................................................ 28

4.2.

Proposal for Joint Marketing Sales Metrics .................................................................................... 32

4.3.

Key Influencers of Market Success in Service Dominant Markets ................................................. 34

4.4.

Sales Force Control Systems and BCCS ......................................................................................... 35

4.5.

Conclusion about Existing Metric Readiness for Solution Orientation .......................................... 37

Potential Sales Metric Evolution in the Context of Solution Orientation ............. 39 5.1.

Definition of a Customer Solution .................................................................................................. 40

5.2.

Metrics that Determine Customer Solution Effectiveness .............................................................. 41

5.3.

Selection of an Appropriate Solution Selling Process..................................................................... 43

5.4.

Determinants for Relationship Value .............................................................................................. 47

5.5.

Impacting Factors on Interrelationship Performance ...................................................................... 49

5.6.

Implementation of Consultancy Mind Set in Sales ......................................................................... 51

5.7.

Sales and Effort Forecast as a Challenge in Solution Business....................................................... 52

5.8.

Growing Importance of Professional Maturity ............................................................................... 55

5.9.

Independent Measurements that Help to Predict Sales Performance .............................................. 56

5.10. Marketing Sales Interface ............................................................................................................... 59

Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

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6.

Scorecard Metrics to Measure Solution Orientation .............................................. 62 6.1.

Discussion ....................................................................................................................................... 62

6.2.

Managerial Implications ................................................................................................................. 63

6.3.

Limitations and Future Research Directions ................................................................................... 65

6.4.

Solution Readiness Metric .............................................................................................................. 66

Bibliography........................................................................................................................ 67

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Internet Sources .................................................................................................................. 75

II

Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

Index of Illustrations Figure 1 Linking Market Based Assets to Shareholder Value ............................................. 14 Figure 2 The Chain of Marketing Productivity .................................................................... 16 Figure 3 Attractiveness of After Sales and Service Propositions ......................................... 20 Figure 4 Pseudo Solutions .................................................................................................... 23 Figure 5 Complexity of Solution Performance .................................................................... 24 Figure 6 Marketing Sales Interface Overview...................................................................... 29 Figure 7 Determinants of Salespeople’s Performance ......................................................... 31 Figure 8 Proposed View of a Customer Solution ................................................................. 40 Figure 9 Supplier and Customer Variables Affecting Solution Effectiveness ..................... 41 Figure 10 Solution Selling Process and Functional Units Coordinating Stakeholders and Activities .............................................................................................................. 44 Figure 11 The Salesperson as a General Manager ............................................................... 45 Figure 12 Importance of Several Competences of Solution Selling in Comparison to Selling Standalone Products ............................................................................................. 46 Figure 13 Relationship Benefits and Relationship Cost Impact on Relationship Value ...... 48

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Figure 14 The Customer-Level Consequences of Interaction Orientation ........................... 50

Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

III

Index of Tables Table 1 Attributes of Balance-Sheet and Off-Balance Sheet Assets .................................... 13 Table 2 Comparison of Goods and Service Centered Views ............................................... 21 Table 3 Proposed Scale Refinement for the BCCS Scale .................................................... 37 Table 4 Marketing Sales Interface Setups – Verbal Cluster Description ............................. 61

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Table 5 Solution Readiness Metric for Sales Forces ............................................................ 66

IV

Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

Index of Abbreviations B2B

-

Business to Business

CRM -

Customer Relationship Management

4P

-

Marketing Mix - Product, Price, Place Promotion

7P

-

Product, Price, Place, Promotion, Physical Evidence, Processes, People

SFC

-

Sales Force Control Babakus and Colleagues Control System

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BCCS -

Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

V

1. Introduction 1.1. Problem Definition In recent years many firms in the business to business (B2B) environment were trying to increase their market position by better product portfolios. After these products became more and more complex product oriented firms started to offer services first as a reaction on customer requirements but soon also to create additional revenue on top of the core business. This transformation included that service departments were not longer considered as a cost center but a business unit. With increasing demand for higher customer satisfaction, the recognition that customer requirements must be better understood, but also external drivers e.g. shareholders who pushed firms to focus on core competencies, the term solution was defined as a combination of products and services that are required to gain competitive advantage.1 After so called solutions are now known for many years still many companies did not succeed in transforming their businesses. Even worse besides failing in the transformation they sometimes even lost core markets. 2 Scholars work has proven that although well defined in many framework constructs the practical implications for a successful solution transition especially in the sales domain are often not implemented or even unknown. This becomes especially obvious in the metrics that are used by sales organizations today. These do typically not indicate the necessary transformation that is expected due to the solution orientation.3 1.2. Objectives of This Work The overall objective of this thesis is to provide a metric that helps to assess the solution readiness status of a firm’s sales force. Sales is often considered to be a part of marketing. 4 It will be analyzed to what extent this perspective is justified and how this is influenced by

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the emergence of solutions. As part of that an overview about the sales marketing interface will be given to create awareness for this topic. This study will furthermore increase the 1

cp. Galbraith, Jay R. “Organizing to Deliver Solutions” (Organizational Dynamics, #31/2002) 194-207. cp. Johansson, Juliet E./Krishnamurthy, Chandru/Schlissberg, Hank E. “Solving the Solutions Problem” (McKinsey Quarterly #3/2003) 116-125. 3 cp. Brown, S.P./Evans, K.R./Mantrala, M./Challagalla, G. “Adapting Motivation, Control, and Compensation Research to a New Environment” (Journal of Personal Selling & Sales Management, #25/2005) 156-167. 4 cp. Workman, John P./Homburg, Christian/Gruner, Kjell “Marketing Organization: An Integrative Framework of Dimensions and Determinants” (Journal of Marketing, 07/1998) 21-41. 2

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understanding of the reader about applied metric concepts in marketing departments that can be found in existing firms today. It will be demonstrated how shareholder value influenced their design and why these metrics are not aligned with latest research about firm value. 1.3. Scope of Work This work will outline metric elements that shall be applied for sales forces when moving towards solution orientation. The structure of this thesis is split into 6 chapters and organized as follows. To begin with the history of marketing metrics will be portrayed in dependence on the theory of the firm and its implications on the marketing functions. An explanation will be given in what ways marketing can influence the firm value and how this shall be measured. Chapter 3 is describing why solutions are emerging and what consequences can be expected. To achieve a better understanding the author will depict the product centered logic and how it has been redeemed by the service centered logic over time. This chapter provides a meaningful insight into product dominated market challenges since the recognition of these is fundamental to understand the requirements for companies that shift their business from there towards service or solution oriented markets. Chapter 4 will provide an overview about metrics that are applied in sales and marketing organizations today and the development of Sales Force Control systems. After the overview about the historical progress was provided, considerations about requirements in regards to the sales forces in solution business environments are started with chapter 5. First a description of how customers perceive a solution is given. From there main influencing variables are derived that are likely to impact the success of sales persons. Major valuable measurement suggestions that are fundamental to test solution readiness are justified and outlined throughout chapter 5. The thesis is finalized with a detailed metric proposal for firms that want to benchmark their

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sales force against solution readiness in chapter 6.

2. Role of Marketing in a Firm This chapter describes the history of metrics in firms and their evolution in marketing departments. Hereafter the influence of marketing on the firm value is portrayed. Objective of this section is to create awareness why metrics are required and how the idea of firm

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Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

value influences its design. At the end of this chapter latest research results about firm value creation are compared to the currently dominating metrics to identify their suitability. 2.1. Theory of the Firm and the Traditional Role of Marketing The term “Theory of the firm” is describing which factors are influencing the emergence of firms, the behavior of firms and what objectives a firm follows. In doing so the theory of the firm is also trying to explain future activities of companies that are acting in an economical environment. An outcome of the theory development is how the value of a firm can be measured.5 According to Anderson the way of value assessment has evolved from the neoclassical model that focused on single period profit maximization to the market value model in which a more comprehensive approach is considered. The market value model takes into account several accounting periods, correlating profit expectations and other variables that are finally expressed in the firm value or stock price. In stock listed firms the owner is different from the management and may have dissimilar objectives. Thus the question rose in what way the relationship can be effectively managed to keep control costs low while ensuring maximization of the firm value. As a result the principal agent theory was formulated to overcome emerging conflicts related to value maximization on the one hand and more personal objectives on the other.6 According to the principal agent theory the firm agents (managers) are supposed to fulfill tasks in favor of the principal (shareholders). Since agents act mostly under limited observation of their principals it is required to identify measures that indicate the level of performance of managers to the owners or shareholders.7 Another aspect that has been reflected by Anderson is that each department is challenged for its individual contribution to the value maximization and here the role of marketing probably changed most significantly. Over time the marketing task has developed from being responsible for positive product market results to a role in that it is mainly responsiCopyright © 2013. Diplomica Verlag. All rights reserved.

ble for the relation to the external environment. In between marketing was forced into a position being accountable for financial outcomes which still remains in many firms. This 5

cp. Anderson, P. “Marketing, Strategic Planning and the Theory of the Firm” (Journal of Marketing, #46/1982) 15-26. 6 cp. Anderson, P. “Marketing, Strategic Planning and the Theory of the Firm” (Journal of Marketing, #46/1982) 15-26. 7 cp. Jensen, Michael/Meckling, William "Theory of the firm. Managerial behavior, agency costs, and ownership structure" (Journal of Financial Economics. #4/1976) 305–360.

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was caused out of a conflict with finance departments who argued that marketing also shall be responsible for financial performance indicators. Marketing struggled to develop its own transparent measurements to indicate its contribution.8 Therefore marketing got used to take the suggested financial figures into account to assess its performance and to justify its existence. These financial outcomes are named in various ways like return on investment, contribution margin, cash flow or cumulative compounded profits etc. Basically all of them describe profit maximization which is considered to be the predominant firm objective although it is recognized that firms follow multiple objectives.9 These figures however are most often short sighted and neglect the long term development needs. As a consequence many companies suffer from missing survival strategies and face tremendous challenges after a period of success. It is assumed that the short term financial figures orientation foils the essential role of marketing10 which is supposed to align a firm continuously with the market.11 As mentioned by Srivastava et al. stock prices were considered to be the most transparent identifier of firm value.12 There has been a strong belief that a positive stock price trend results mainly from superior financial achievements. It was observed that applied rules for stock selection are often based on the short term financial performance which is caused by the dynamic characteristics of investors who often do not consider the long term survival needs of a firm.13 Instead they shift their shares if they sense a better profit maximization opportunity. 14 Knowing that value creation in a firm is the fundamental objective of a company several attempts were made to explain how this can be achieved after doubts raised those financial figures and outcomes are the only explanation.15

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cp. Srivastava, Rajendra/Shervani, Tasadduq A./Fahey, Liam “Market-Based Assets and Shareholder Value: A Framework for Analysis” (The Journal of Marketing, 01/1998) 2-18. 9 cp Anderson, P. “Marketing, Strategic Planning and the Theory of the Firm” (Journal of Marketing, #46/1982) 15-26. 10 cp Anderson, P. “Marketing, Strategic Planning and the Theory of the Firm” (Journal of Marketing, #46/1982) 15-26. 11 Day, G.S. “Aligning the Organization with the Market” (MIT Sloan Management Review, #48/2006) 41-49. 12 cp. Srivastava, Rajendra/Shervani, Tasadduq A./Fahey, Liam “Market-Based Assets and Shareholder Value: A Framework for Analysis” (The Journal of Marketing, 01/1998) 2-18. 13 cp. Fornell, Claes/Mithas, Sunil/Morgeson III, Forrest/Krishnan, Mayuram "Customer Satisfaction and Stock Prices: High Returns, Low Risk" (Journal of Marketing, 1/2006) 3-14. 14 cp. Levitt, Theodore "Marketing Myopia" (Harvard Business Review, 08/1960) 24-47. 15 cp. Srivastava, Rajendra/Shervani, Tasadduq A./Fahey, Liam “Market-Based Assets and Shareholder Value: A Framework for Analysis” (The Journal of Marketing, 01/1998) 2-18.

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Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

2.2. Value Creation in a Firm Principal Agent Theory describes the monitoring need due to information asymmetry between two parties. It can be considered to be the explanation for performance metric emergence. In addition behavioral theories were developed that describe the firm as coalitions of individuals who follow their own objectives rather than following objectives of their company.16 The term coalition is used by Cyert and March to reflect the different departments within a firm and external stakeholders like customers, investors and suppliers.17 Resource dependence model as one example of the behavioral theories, explains that each coalition is mainly interested in its own survival and the chances to achieve that are dependant on the ability of a coalition to demonstrate its value to other coalitions. The larger the perceived value of a coalition the more likely it is that this coalition will play a dominant role in the structure of coalitions.18 As a consequence of missing measurements in marketing it has been supposed that its influence suffered and its importance diminished.19 An early attempt to counteract this development has been the shareholder value methodology in which Day et al. tried to explain their influence beyond short term financial figures recognizing that ultimately the increase of shareholder value is desired by investors. The need for shareholder value enrichment results from the market value model. The theory describes how the marketing activities and market strategy selection influence financial outcomes as the shareholder value. Its objective is to increase or maximize monetary returns for investors of a firm based on the firm’s marketing activities and especially its strategy. 20 In the literature about marketing and finance this methodology has not been very popular. This probably resulted from the difficulties to link long term oriented marketing activities directly with respectively financial figures and shareholder value since effects do not occur in the same accounting period or even worse for finance over several periods.21 Nevertheless marketing scholars continued to search for a framework to be accepted being

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aware that short term orientation does usually not result in superior long term development.

16

cp. Simon, Herbert A. “On the Concept of Organizational Goal” (Administrative Science Quarterly, 06/1964) 1-22. 17 cp. Cyert, M./March, J.G. “A Behavioral Theory of the Firm” (Englewood Cliffs, 1963) 27. 18 cp. Pfeffer, Jeffrey/Salancik, Gerald “The External Control of Organizations” (Harper and Row, 1978) 27. 19 cp. Srivastava, Rajendra/Shervani, Tasadduq A./Fahey, Liam “Market-Based Assets and Shareholder Value: A Framework for Analysis” (The Journal of Marketing, 01/1998) 2-18. 20 cp. Day, G.S./Fahey, L. “Valuing Market Strategies” (Journal of Marketing, 07/1988) 45-57. 21 cp. Srivastava, Rajendra/Shervani, Tasadduq A./Fahey, Liam “Market-Based Assets and Shareholder Value: A Framework for Analysis” (The Journal of Marketing, 01/1998) 2-18.

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With an increasing understanding of the marketplace firms began to acknowledge that the internal and external marketplace is influenced by several goods and conditions.22 Marketing departments were originally assigned to be mainly responsible to manage the external product market place while most other firm coalitions are dealing with internal market places. Product development, market research, channel selection but also advertisements etc. are tasks that mainly target to support external coalition needs like customers satisfaction and investor pleasure and hence represent fundamental tasks of marketing.23 The ability of a firm to address the external product market place can be influenced by many variables. These were summarized in the marketing mix, the 4Ps, in the past but after acknowledging that it does not explain all the influence a firm has and that can be impacted by marketing in particular a more comprehensive approach was introduced by Srivastava et al. In this augmented view scholars attempted to illustrate how marketing activities that are not directly linked with a financial result influence the long term well being of a firm. Since assets are well understood by finance and shareholders marketing used a similar terminology when they developed assets that can not be produced by a firm’s internal marketplace. Instead they need to be created with external coalitions and thus result from market interaction. Market based assets are defined as capabilities a firm possesses that leverages its position in the market but do not occur on the balance sheet and are mostly intangible. They can be separated into intellectual and relational and are highly dependant on skills and knowledge. They are different to production facilities or sourcing capabilities. Table 1 shows a comparison of tangible and intangible assets. It also outlines measurement points that shall help to increase acceptance by correlating positive market results to correspond-

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ing property considerations.24

22

cp. Constantin, Lusch “Understanding Resource Management” (Oxford The Planning Form, 1994). cp Anderson, P. “Marketing, Strategic Planning and the Theory of the Firm” (Journal of Marketing, #46/1982) 15-26. 24 cp. Srivastava, Rajendra/Shervani, Tasadduq A./Fahey, Liam “Market-Based Assets and Shareholder Value: A Framework for Analysis” (The Journal of Marketing, 01/1998) 2-18. 23

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Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

Taken from: Srivastava, Shervani, Fahey; Market-Based Assets and Shareholder Value: A Framework for Analysis (The Journal of Marketing, 01/1998); 2-18.

Table 1 Attributes of Balance-Sheet and Off-Balance Sheet Assets

Its influence on shareholder value is illustrated in figure 1 on page 8. It depicts the connection between market based assets that are largely intangible on market performance that leads to improved cash flows that finally leverage the firm value. As a conclusion it can be said that intangible assets contribute heavily to a firm’s performance and shareholder value. Considering that most of the intangible assets result from the linkage between a firm and its market it is suggested that marketing leads related actions and may apply measurements on

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the correlating outcomes.25

25

cp. Srivastava, Rajendra/Shervani, Tasadduq A./Fahey, Liam “Market-Based Assets and Shareholder Value: A Framework for Analysis” (The Journal of Marketing, 01/1998) 2-18

Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

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Taken from: Srivastava, Shervani, Fahey; Market-Based Assets and Shareholder Value: A Framework for Analysis (The Journal of Marketing, 01/1998); 2-18.

Figure 1 Linking Market Based Assets to Shareholder Value

2.3. How Marketing Influences the Firm Value Being aware that market based assets are fundamental to a firm’s value and understanding how these assets can be created it is possible to derive the influence of marketing on firm value. Since market based assets mainly result from external interactions and therefore functions that have an external relation market orientation will make a difference. Intangible assets gain importance and so marketing also would need to gain influence in firms. Market oriented firms achieve better results and so it is recommended that marketing shall take leadership in aligning the firm with the market.26 A continuous focus on core competences lead to a situation in which it is not very likely that one firm can offer all required products or services. 27 Therefore the intangible off balance-sheet assets of a firm will be fundamentally influenced by its capability to find its

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position in market networks28 and deal with market alliances.29

26

cp. Verhoef, Peter/Leeflang, Peter “Understanding Marketing Department’s Influence within a Firm” (Journal of Marketing, 03/2009); 14-37. 27 cp. Gouthier, Matthias "Entwicklungspfade und Erfolgsausichten des industriellen Servicegeschäfts. Eine Bestandsaufnahme" (in Diller, Hermann "Vom Produkt- zum Dienstleistungsgeschäft - Marketingstrategien für reife Märkte", Nürnberg: Gesellschaft für Innovatives Marketing, 06/2008) 1-20 28 cp. Rust, Ambler, Carpenter, Kumar, Srivastava; Measuring Marketing Productivity: Current Knowledge and Future Directions (Journal of Marketing, 10/2004) 76-89. 29 cp. Swaminathan, Moorman; Marketing Alliances, Firm Networks, and Firm Value Creation (Journal of Marketing, 09/2009) 52-69.

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Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

According to Simon et al. amongst other scholars Tobin’s q is considered to be the value that mostly explains the impact of marketing on firm value. It reflects the amount of tangible assets compared to the market value. Positive difference which means higher market value than tangible asset value requires intangible assets and is to a large degree a result of external activities.30 It shall be beard in mind that accounting systems can manipulate what is an asset. The stock market is the benchmarks for most firms and market capitalization or Tobin’s q are its key performance indicators.31 Here investors do typically invest if they feel that they can realize returns while avoiding uncertainties at the same time. The selection of an investment out of numerous opportunities is mainly based on the expected return and risk considerations. The desires of stockholders do to a large degree concur with firm owners. An interesting difference though is the ability of stockholders to move investments more dynamically if another opportunity promises higher returns. As a consequence stock analysts did often focus on financial key performance indicators when they tried to identify opportunities with high return potential. Research in this field has now proven that the likelihood of high returns apparently is not dependant on previous financial results but correlates well with customer satisfaction.32 This finding is enforced with the recognition that stock return risks are highly mitigated when the customer satisfaction is high. Hence the market does not response immediately to changes in customer satisfaction results which is different to financial performance announcements.33 A radical shift is expected since marketing has to transform from being an agent of goods and services in which it is held accountable for short term financial figures to a customer consultant role in which marketing’s focus are market based assets that enable sustainable success in the marketplace.34 Since this largely impacts the satisfaction felt on consumer side it will impact the firm value too.35 The chain of marketing productivity is illustrated in figure 2 that associates a wide range of marketing activities with financial outcomes and the

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30

cp. Simon, Carol J./Sullivan, Mary W. “The Measurement and Determinants of Brand Equity: Financial Approach” (Marketing Science, #12/1993) 28–52. 31 cp. Fang, Eric/Palmatier, Robert M./Steenkamp, Jan-Benedict “Effect of Service Transition on Firm Value” (Journal of Marketing, 09/2008) 1-14. 32 cp. Fornell, Claes/Mithas, Sunil/Morgeson III, Forrest/Krishnan, Mayuram "Customer Satisfaction and Stock Prices: High Returns, Low Risk" (Journal of Marketing, 1/2006) 3-14. 33 cp. Tuli, Kapil R./Bharadwai, Sundar “Customer Satisfaction and Stock Return Risks” (Journal of Marketing, 11/2009) 184-197. 34 cp. Achrol, Kotler; Marketing in the Network Economy (Journal of Marketing, 1999) 146-163. 35 cp. Rust, Ambler, Carpenter, Kumar, Srivastava; Measuring Marketing Productivity: Current Knowledge and Future Directions (Journal of Marketing, 10/2004) 76-89.

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value of the firm. It suggests a flow top down from strategy development, execution and indicates the visibility in the market place which is at the end Tobin’s q.36

Taken from: Rust, Ambler, Carpenter, Kumar, Srivastava; Measuring Marketing Productivity: Current Knowledge and Future Directions (Journal of Marketing, 10/2004) 76-89.

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Figure 2 The Chain of Marketing Productivity

36

cp. Rust, Ambler, Carpenter, Kumar, Srivastava; Measuring Marketing Productivity: Current Knowledge and Future Directions (Journal of Marketing, 10/2004) 76-89.

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Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

2.4. Conclusions about the Role of Marketing From this chapter following conclusions can be derived. Metrics are an essential element for firms in which the owner is different from executives who run the business. Their purpose is to allow a performance monitoring. Since firm owners seek continuously for firm value progression financial outcomes had been set as ultimate objectives. Marketing not being able to demonstrate its influence by other means had to accept financial results as determining performance metric elements although not believing in them. As reflected by Vargo and Lusch latest research on firm value demonstrated the influence of customer satisfaction imposingly. Marketing is in the best position to take ownership on this as it manages the external marketplace which ultimately creates market based assets. Metric systems shall be adapted to these findings and reflect a clear customer satisfaction orientation instead of being navigated by financial measures. 37 One can ask whether the importance of customer satisfaction has emerged or was neglected over long time. As described in the problem definition it became fundamental for firms to create high customer satisfaction which thanks to the increasing complexity resulted in a combination of products and services. To gain transparency on that the next chapter is investigating into the

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evolution of a product oriented market to a solution dominated market.

37

cp. Vargo, Stephen L./Lusch, Robert F. “Evolving to a New Dominant Logic for Marketing” (Journal of Marketing, 01/2004) 1-17.

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3.

The Emergence of Solutions

This paragraph describes how solutions emerged from previously product and later service oriented markets. The chapter begins with product orientation which represents the situation from which most firms that are longer present in the market start a potential transformation and therefore provides good insight into existing mind sets. A definition of different service levels is given before the shift towards service orientation is described. A description about solutions in which drivers from selling and buying companies but also economical environment pressures are highlighted finalizes this chapter. 3.1. Product Orientation Product orientation refers to classical business models in which activities of a company are centered on goods that are manufactured and finally sold to particular markets or segments. Most marketing activities do still follow the product approach in which differentiation by either price or quality and cost management are essential. On the long run however most products are commoditized and compete on price rather than functionalities.38 With increasing usage and importance of software and also the trend towards customization the term product became obsolete in many cases.39 Products are at the present time often part of a system which is defined as a bundle of software, service and hardware components. A system typically shows scalability for involved components and interaction takes place between the elements.40 A system orientation typically requires obligatory secondary services since installation and maintenance must be delivered with the product components.41 The service definitions are explained in

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the next paragraph.

38

cp. Chase, R.B./Garvin, D.A. “The Service Factory” (Harvard Business Review #67/1989) 61-69. cp. Franke, Nikolaus/Keinz, Peter/Steger, Christoph J. “Testing the Value of Customization: When Do Customers Really Prefer Products Tailored to Their Preferences?” (Journal of Marketing, 09/2009) 103-121. 40 cp. Salonen, Anna/Gabrielsson, Mika/Al-Obaidi, Zuhair “System Sales As a Competitive Response to the Asian Challenge: Case of a Global Ship Power Supplier” (Industrial Marketing Management, #35/2006) 740750. 41 cp. Stremersch, Tellis “Strategic bundling of products and prices: a new synthesis for marketing” (The Journal of Marketing, 01/2002) 55-72. 39

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3.2. Service Level Definition Services in general can be differentiated into retail or consumer and industrial services.42 Industrial services belong to the so called investive services that are found in B2B conditions. These are different from pure investive services that are offered by service companies. Investive services are offered by production oriented firms. From this separation a further split is possible to distinguish between primary and secondary services. Primary services can be offered independently like education. Secondary services are offered on top of a product to increase efficiencies using the product. These secondary services can be differentiated into obligatory secondary services that have to be offered by a company due to market expectations and facultative secondary services that are considered as added value by buying firms. 43 Firms acting in the service domain are represented by a mixture of companies that either run a pure service business or others that have developed from products to services over time. Different strategic service levels according to Homburg et al. are illustrated in figure 3 on page 14 with a wording that is more common in management reality. Service for products and service for profit represent obligatory secondary services and service excellence correlates with facultative secondary services. In figure 3 it is also shown how appealing different service levels are for customers and offering firms. Clearly it can be seen that high service levels require advanced knowledge and skills since processes and tasks are performed on behalf of and in co-creation with customers.44 Major differences to the traditional 4Ps that characterize a marketing mix in product markets (Price, Place, Product, and Promotion) - service perspective adds 3Ps (People, Process, Physical Evidence) in which people who are in a way neglected in product markets are probably most important.45 This transition from product orientation towards services is explained in more details in the

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next chapter.

42

cp. Grönroos, C. “Service Management and Marketing: A Customer Relationship Approach” (John Wiley & Sons, Chichester 2000). 43 cp. Homburg, Christian/Garbe, Bernd “Industrielle Dienstleistungen – Bestandsaufnahme und Entwicklungsrichtungen“ (Zeitschrift für Betriebswirtschaft, 66. Jg. #3/1996) 253-282. 44 cp. Kaerner, H./Gräßler, M “Vom Produzenten zum Dienstleistungspartner – Marktorientierte Servicemodelle für die Produktionsgüterindustrie“ (in Kaerner, H./Kasper, M/Mattmüller, R. ”After Sales“ (Frankfurter Allgemeine Buch, Frankfurt am Main 2004) 35-49. 45 cp. Rafiq, Mohammed/Ahmed, Pervaiz “Using the 7Ps as a generic marketing mix: an exploratory survey of UK and European marketing academics” (Marketing Intelligence & Planning #9, 1995) 4-15.

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19

According to: (Accenture 2004, VDMA Impuls ) 40

Figure 3 Attractiveness of After Sales and Service Propositions

3.3. Shift from Product to Service Orientation According to scholars firms have to shift their focus from tangible goods to intangible assets. Service centricity gains popularity considering that the leading economic nations nowadays create an output of 70% with service offers while it grew from 30% over the past decades.46 Reason for that is mainly a fundamental shift in the understanding why and what customers actually purchase.47 Vargo and Lusch concluded that with the rise of economic theories goods were considered the unit of exchange probably because it was possible to assess them more objectively. While scholars who created the theory of economic exchange were already aware that goods are only a part of the exchange process they had difficulties to make the surrounding influence factors computable. They also did not fit well into economies of scale theory that

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is based on the assumption that a unit of exchange which is characterized by specifications can be increased and decreased by adapting its production in dependence of the demand. Over time it became obvious that customers seek for value derived from a purchase and so

46

cp. Rust, R./Ambler, T./Carpenter, G./Kumar, V./Srivastava R. “Measuring Marketing Productivity: Current Knowledge and Future Directions” (Journal of Marketing, 10/2004) 76-89. 47 cp. Gummesson, Evert “Relationship Marketing: Its Role in the Service Economy” (in Glynn, Barnes “Understanding Services Management” ; Wiley and Sons New York, 1995) 244-268.

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Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

firms had to adapt the way they are offering to the market. If at the end customers are only interested in the added value of a purchase one can ask whether it is more promising to sell only value at the end. Considering the increased capabilities in manufacturing and sourcing the only piece for differentiation left are human skills. Knowledge and especially its application in exchange with the customer will so become the only unit of exchange and firms that create core competences in this field will be superior against the market.48 An overview about the changing conditions is illustrated in table 2 that uses operand resources for goods and products and operant resources for assets that only exist due to applied skills and knowledge as defined by Vargo and Lusch. In addition it says clearly that value can only be created as a result of interaction with customers. Hence an important factor outlined in table 2 is the acknowledgment that customers do also represent an operant resource for a

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firm.49

Taken from: Vargo, Lusch “Evolving to a New Dominant Logic for Marketing” (Journal of Marketing, 01/2004) 1-17.

Table 2 Comparison of Goods and Service Centered Views

48

cp. Vargo, Stephen L./Lusch, Robert F. “Evolving to a New Dominant Logic for Marketing” (Journal of Marketing, 01/2004) 1-17. 49 cp. Constantin, Lusch “Understanding Resource Management” (Oxford The Planning Form, 1994).

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21

Table 2 on page 21 expresses the importance of customers in the value creation process. The ability to interact with customers during the creation process is essential in the service dominant logic. To enable that the selling firm has to ensure that it provides appealing skills and knowledge to the market.50 3.4. Solution Definition and Demarcation Solutions were originally defined as a bundle of products and services. This has been redefined and today it is typically understood as the integrated combination of goods and services attempting to overcome customer business problems. 51 So solutions actually describe the extent in which a firm is able to demonstrate to the customer its relevance in solving distinctive business issues or competitive challenges.52 As an example: the shipment of a product already belongs to the service domain but this product is now not accepted as a solution. The general term service is covering too many aspects to be used without clear comments.53 For example in the B2B domain many sales are based on tenders that require certain service commitments and customization efforts. If a product, service or system is customized based on tender requirements, this probably does not reflect the idea of a solution which is supposed to emerge out of the interaction between customer and suppliers. Taking into account service levels it can be said that a solution is a bundle of products and service excellence components that belong to the domain of facultative secondary services. Integration of partners to overcome gaps in the own offering is another very critical capability that solution providers shall consider. Looking at solution offerings today it becomes obvious that the term is often misused and does not reflect solution as originally described. The term pseudo solutions depict their positioning compared to solutions.54 This

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50

cp. Vargo, Stephen L./Lusch, Robert F. “Evolving to a New Dominant Logic for Marketing” (Journal of Marketing, 01/2004) 1-17. 51 cp. Scheer, August Wilhelm/Grieble, Oliver/Klein, Ralf “Modellbasiertes Dienstleistungsmanagement“ (in Bullinger, Scheer “Service Engineering. Entwicklung und Gestaltung innovativer Dienstleistungen“ Berlin, Heidelberg, Springer-Verlag, 2006) 19-51. 52 cp. Dhar, Ravi/Menon, Anil/Maach, Bryan “Toward Extending the Compromise Effect to Complex Buying Contexts” (Journal of Marketing Research, 08/2004) 258-261. 53 cp. Engelhardt, Werner/Kleinaltenkamp, Michael/Reckenfelderbäumer, Martin “Leistungsbündel als Absatzobjekte. Ein Ansatz zur Überwindung der Dichotomie von Sach- und Dienstleistungen“ (in: Zeitschrift für betriebswirtschaftliche Forschung, #5/1993) 395-426. 54 cp. Sales Performance International “From Commodity Products to Solutions – “Pseudo solutions” still dominate the landscape” (www.solutionselling.com, White Paper).

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Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

relation is illustrated in figure 4. A similar term has been defined by Gebauer et al. who describe such a situation as service paradox.55

According to: Sales Performance International “From Commodity Products to Solutions – “Pseudo solutions” still dominate the landscape” (www.solutionselling.com, White Paper).

Figure 4 Pseudo Solutions

Figure 4 expresses the idea of solutions pretty well. A more complex metric shows the individual parameters that change their importance with increasing solution orientation. This is reflected in figure 5 on page 18. From this overview one can see that the complexity increases tremendously and challenges sales personnel in particular. While complexity could be managed within product lines before now most of the tasks need a deep understanding of and alignment with customers to identify the most appropriate offer.56 Solution business changes the importance of product criteria. It has been observed that neither price nor features are anymore the predominant differentiators for solution suppliers. This means a tremendous shift in the focus areas of marketers since two out of the tradi-

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tional 4Ps, namely price and product, are losing significance as reflected by Dhar.57

55

cp. Gebauer, H./Fleisch, E./Friedli, T. "Overcoming the Service Paradox in Manufacturing Companies" (European Management Journal, #1/2005) 14-26. 56 cp. Nippa, Michael/Wienhold, Doreen/Piezonka, Sascha “Vom klassischen Produktgeschäft zum Lösungsgeschäft – Implikationen für eine Neugestaltung des Vergütungssystems im Vertrieb” (Freiberg Working Papers, #2/2007). 57 cp. Dhar, Ravi/Menon, Anil/Maach, Bryan “Toward Extending the Compromise Effect to Complex Buying Contexts” (Journal of Marketing Research, 08/2004) 258-261.

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23

According to: Buriánek, F./Ihl, C./Bonnemeier, S./Reichwald, R. “Typologisierung hybrider Produkte - Ein Ansatz basierend auf der Komplexität der Leistungserbringung“ (Arbeitsbericht Nr. 01/2007 des Lehrstuhls für Betriebswirtschaftslehre - Information, Organisation und Management der TU München, #01/2007). http://www.hyprico.de/publikationen/AP%20Typologisierung%20hybrider%20Produkte.pdf, Captured 08.06.2007

Figure 5 Complexity of Solution Performance

3.5. Drivers for Solution Orientation Reason for the development towards solution orientation is not a single root cause but various circumstances of which the most obvious ones are illustrated in the following. Certainly three major groups shall be considered which are the market environment, selling organizations and buying firms.58 Market environments changed tremendously over the recent years. While a few companies operated mostly in local markets the situation today is that much more of them exist and local boundaries are diminishing which leads to more competition on local and global basis and also more firms to focus on their core competences. This finally implies that in most cases it is not possible anymore for one company to provide a real solution that mostly is

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bundling several core competences. As a consequence many firms started to search for strategic but also on demand alliances that leverage their market position by combining several core competences on demand rather than growing all of them organically. Thus the capability to ally with partners is considered critical and is an additional differentiator for 58

cp. Gouthier, Matthias "Entwicklungspfade und Erfolgsausichten des industriellen Servicegeschäfts. Eine Bestandsaufnahme" (in Diller, Hermann "Vom Produkt- zum Dienstleistungsgeschäft - Marketingstrategien für reife Märkte", Nürnberg: Gesellschaft für Innovatives Marketing, 06/2008) 1-20.

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Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

solution providers.59 As shown in 2.3 on page 10 this capability is part of the market based assets. Thanks to this development it becomes also crucial for a firm to recognize its own position in the economy. A firm would have to decide whether it really has the core competences required to sell directly to customers. Alternatively it may be more appropriate to sell to a main supplier60 or backup supplier as a backend supplier.61 Dependant on this the author assumes that the service and solution orientation may differ since a backend supplier may need a different strategy.

This leads to the question what drives sellers in general to move towards solutions orientation. Science has perhaps not yet identified all drivers for the emergence of solutions from a selling firm perspective. The mindset of sales organizations is reflected on several blogs and also suggested by scholars like Hildenbrand et al. can be summarized as follows. A big shift from a demand rich to a demand poor environment results in survival of the fittest which means that if competition offers solutions or names its offers solutions, firms in the same market are required to do the same. An amplifying effect is the economic landscape that changed from local to global competition. 62 A further important factor is the continuous race for revenue growth and due to very promising outlooks from a return and margin perspective more and more companies are trying to participate in the race for solution providers.63 From a buying firm perspective the situation is interestingly similar but not equal as Gruhler analyzed. Customer focus on their core competences more which creates resistance to pure product offers that require assembly or integration by the customer. Another fact is that solutions can be easily used to split important functionalities inside a company and even allows complete outsourcing if required.64 The outsourcing capability itself provides

59

cp. Achrol, R./Kotler, P. “Marketing in the Network Economy” (Journal of Marketing, 1999) 146-163. cp. Swaminathan, Vanitha/Moorman, Christine “Marketing Alliances, Firm Networks, and Firm Value Creation” (Journal of Marketing, 09/2009) 52-69. 61 cp. Ulaga, Wolfgang/Eggert, Andreas “Value Based Differentiation in Business Relationships: Gaining and Sustaining Key Supplier Status” (Journal of Marketing, 01/2006) 119-136. 62 cp. Hildenbrand, K./Gebauer, H./Fleisch, E. "Strategische Ausrichtung des Servicegeschäfts in produzierenden Unternehmen" (in Barkawi, K./Baader, A./Montanus, S. "Erfolgreich mit After Sales Services", Berlin, 2006) 73-94. 63 cp. Sales Performance International “From Commodity Products to Solutions – “Pseudo solutions” still dominate the landscape” (www.solutionselling.com, White Paper). 64 cp. Gruhler, W. "Outsourcing von Dienstleistungen zu Dienstleistungsunternehmen" (in Corsten, H. "Dienstleistungsproduktion", Wiesbaden, 1994) 153-175.

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25

rather low switching costs although many managers confess that this often is more an expectation rather than a waterproof condition. 65 Nevertheless this flexibility is highly .

regarded by managers who face uncertainty or made bad experiences with a vendor of choice who could not meet the expectations over the expected product lifecycle time. If solutions are selected they often can be accounted to the operational expenditures rather than capital expenditures that are in a way disliked by investors especially in industries with high suspicions.66 Reducing number of suppliers is appealing to firms since it reduces costs and complexity and also explains why buying firms seek the all in one offering.67 3.6. Conclusions about the Evolution from Product to Solution Orientation Chapter 3 provided a comprehensive overview about what happened to the market place. It illustrated the historical reasons for product orientation that were mainly caused by an attempt to cope with industrialization needs with a focus on economies of scale. From there the service evolution has been followed consequently by many firms in order to stay competitive and has now reached a stage in which the differentiation within the product by price or features is not really an option. The service definition has evolved but its details remain to be a moving target. A firm that has focused on products in the past would have to address the service excellence space in order to differentiate from its competition in solution dominated markets. This is an effect of the service evolution that forced most firms in the past to enhance portfolios with services for the product and later services for profit strategies. Offerings that are ranked as service excellence today lose their value added perception when the majority of firms provide the same. For marketing managers this implies a continuous search for the most appealing service offerings. Here one can ask whether in a world of permanent customization of offerings the traditional setup of marketing and sales can be kept.68 Due to the significantly increasing influence of customers in the value creation process it is likely that the strategies of marketing and sales shall be influenced. It shall be beard in mind that in product oriented markets the marketing is taking Copyright © 2013. Diplomica Verlag. All rights reserved.

care for the creation of product and service offerings based on markets and segments and 65

cp. Prahalad, C.K./Hamel, Gary “The core competence of the corporation” (Harvard Business Review 05/1990) 7991. 66 cp. Hennes, M./Metzger, S./Sommer, U. “Daimler Bilanz - Gefangen in der Kostenfalle” (Handelsblatt 14.04.2010). 67 cp. Ulaga, Wolfgang/Eggert, Andreas “Value Based Differentiation in Business Relationships: Gaining and Sustaining Key Supplier Status” (Journal of Marketing, 01/2006) 119-136. 68 cp. Homburg, Christian “Configurations of Marketing and Sales - A Taxonomy“ (Journal of Marketing, #72/2008) 1-50.

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handovers them to the sales force, which may be either a part of marketing or a standalone organization within the firm, after the creation process is finished.69 To analyze what drives the sales forces today it is useful to take a look at the dominating metric concepts that are applied in firms. The author acknowledges that the concept of account management is an attempt to overcome the difficulties raised in complex buying contexts.70 However this study does not differentiate between account managers and sales personal since evidence is missing that

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they behave differently.71

69

cp. Kotler, Philip/Rackham, Neil/Krishnaswamy, Suj “Ending the War Between Sales and Marketing” (in “Harvard business review on strategic sales management” Harvard Business School Press, 2007). 70 cp. Homburg, Christian/Gruner, Kjell/Garbe, Bernd “Produkt und Key Account Management als objektorientierte Formen der Marketingorganisation“ (Die Betriebswirtschaft, #2/1997) 234-251. 71 cp. Day, George S. “Managing Market Relationships” (Journal of the Academy of Marketing Science, #1/2000) 24-30.

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27

4.

Dominant Metrics used to Determine Marketing and Sales Performance

It is acknowledged that the literature about metrics in marketing and sales is huge while the standard sets of measurement elements that are mostly financial indicators seem to be well aligned between different concepts. Though there is no agreement amongst scholars which shall be the ultimate metric. Nevertheless this paragraph will illustrate hitherto popular metrics that either were found in standard books or are often used in research works. The objective of this chapter is to enable an understanding for the currently dominating metric elements and to show their inaptitude for the solution orientation. It also provides background information about the emerging sales force control systems which can be considered as serious attempt to bridge this gap. Before existing metrics are illustrated the author will provide an explanation about the relation between metrics and performance after an introduction of the measurement framework. 4.1. Performance Assessment in Product Centric Firms In most product centric firms sales and marketing are acting according to persuasion model AIDA meaning awareness or attention, interest, desire and action72 that has evolved to the Seven Steps of Selling which are (1) prospecting, (2) preapproach, (3) approach, (4) presentation, (5) overcoming objections, (6) close, and (7) follow-up.73 This approach also explained to a large degree how sales and marketing organizations shall be managed and evenly important how they shall interact. Figure 6 on page 23 shows the process that is typically implemented in product oriented firms noticeably cutting the marketing responsibilities from the sales tasks. The interface of marketing and sales represents a new research topic. Before it was acknowledged by scholars that these units are typically split in organizations sales was often considered to be a part of marketing.74 Bearing that in mind it is important to understand whether a metric concept looks at marketing and sales as separate Copyright © 2013. Diplomica Verlag. All rights reserved.

units or whether they are viewed as the same. This accounts mostly for research while firms tend to prefer separate views since the beginning. In firms tasks were originally split according to the level of impact. Short term sales impacts were typically related to sales 72

cp. Strong, Edward K. “Theories of selling” (Journal of Applied Psychology, 02/1925) 7586. cp. Dubinsky, A.J. ”The effects of sales training” (Industrial Marketing Management, 04/1980) 129137. 74 cp. Workman, John P./Homburg, Christian/Gruner, Kjell “Marketing Organization: An Integrative Framework of Dimensions and Determinants” (Journal of Marketing, 07/1998) 21-41. 73

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forces and mid and long term actions that shall attract customers to marketing.75 The funnel perspective illustrated in Figure 6 shows the process that is in place at most firms.76 It is very much aligned with the previously described AIDA or “Seven Steps of Selling” approach. Marketing takes ownership for the awareness while sales approaches interest, desire and action.

Taken from: Kotler, Rackham, Krishnaswamy “Ending the War between Sales and Marketing” (in “Harvard business review on strategic sales management” Harvard Business School Press, 2007).

Figure 6 Marketing Sales Interface Overview

Knowing that increases transparency about the performance assessment criteria which are used by firms to either encourage its personnel or to identify low performers. Motivation impacts the performance of all working personnel but has special implications for sales people and therefore it has been investigated over the past decades clearly outlining that their motivation is mainly impacted by pay levels.77 Today most firms try to adapt the payment levels based on sales people performance which is measured by outcomes and here especially financial figures despite recommendations to measure performance based Copyright © 2013. Diplomica Verlag. All rights reserved.

on aptitude that is personality and mental abilities, selling skills, personal characteristics, role and motivation. Meanwhile it is known that role and selling skills are the predominant 75

cp. Cespedes, F.V. ”Industrial Marketing: Managing New Requirements” (Sloan Management Review, 03/1994) 45-60. 76 cp. Kotler, Philip/Rackham, Neil/Krishnaswamy, Suj “Ending the War Between Sales and Marketing” (in “Harvard business review on strategic sales management” Harvard Business School Press, 2007). 77 cp. Albers, S. “Salesforce Management: Compensation, Motivation, Selection and Training” (in Weitz, B./Wensley, R. ”Handbook of Marketing”, Sage Publications, 2002) 248-266.

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29

factors that correlate with performance. 78 Although being suggested by scholars the popularity of metric systems that do also look beyond financial outcomes is not reflected in dominant sales metrics that are shown next.79 x

Sales Quota Achieved

x

Number of New Customers

x

Number of Sales Closings

x

Average Gross Profit Per Customer

x

Sales Expense to Total Sales

x

CSP – Cost Per Sales

In summary it can be said that the predominant sales metric elements are reflecting financial outcomes. This means their compensation is dependant on the success of their activities. However it is not very popular to take activities or behavior into account when it comes to performance assessment and finally rewarding.80 An overview about the determinants of sales people performance is shown in figure 7 on page 25. Here an older perception is depicted that does not contain all latest research results. However it shows the relation of different variables on the performance of a sales person. From this framework it can be learned that the resulting satisfaction that mainly impacts the performance is always heavily dependant on the reward system that acts like an emphasizing trigger. Thus behavior will be repeated that is perceived as reward influencing while non influenc-

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ing variables may be neglected.81

78

cp. Churchill, G./Ford, N./Walker, O. “Motivation and performance in industrial selling: Present knowledge and needed research” (Journal of Marketing Research, 05/1977) 156168. 79 cp. Kotler, Philip/Rackham, Neil/Krishnaswamy, Suj “Ending the War Between Sales and Marketing” (in “Harvard business review on strategic sales management” Harvard Business School Press, 2007). 80 cp. Krafft, M./Frenzen, H./Jeck, M.S. ”Wissen: Team Selling“ (Absatzwirtschaft 09,2002) 40. 81 cp. Churchill, G./Ford, N./Walker, O. “Motivation and performance in industrial selling: Present knowledge and needed research” (Journal of Marketing Research, 05/1977) 156168.

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Taken from: Churchill, Ford, Walker “Motivation and performance in industrial selling: Present knowledge and needed research” (Journal of Marketing Research, 05/1977) 156168.

Figure 7 Determinants of Salespeople’s Performance

Considering the determinant for sales people performance and looking at the used metric elements it can be assumed that sales personnel will follow mainly objectives that promise success in financial outcomes. An attenuating fact is the timely impact of the measures on the pay level. While financial figures are mostly measured on a monthly basis (accounting period) any behavioral objectives are often assessed only once a year according to the author’s experience. These are usually company wide goals rather than sales behavior direction targets. Moreover the increase in pay level due to superior achievements in behavioral objectives can not be compared to possible pay level increases due to overwhelming success in financial outcomes.82

Kotler et al propose that marketing departments as sales shall use scorecard approaches to measure their performance. Most firms use financial scorecards to assess marketing Copyright © 2013. Diplomica Verlag. All rights reserved.

performance that do not cover their performance in several regards but the financial outcomes similar to sales metrics.83 Instead of repeating the previously dominating metric with a focus on financial achievements a recommended path will be given. A suggested 82

cp. Wienhold, Doreen/Egeling, Alexander “Vermarktung von Lösungen – Eine Personalwirtschaftliche Perspektive” (Hyprico, http://www.hyprico.de). 83 cp. Kotler, Philip/Keller, Kevin L./Bliemel, Friedhelm “Marketing Management” (Pearson Studium, 2007) 1191-1192.

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scorecard approach would cover multiple dimensions like stakeholders and customers. For customer dimension it is recommended to look at:84 x

Proportion of new, lost and recovered customers

x

Proportion of unsatisfied, neutral and satisfied customers

x

Proportion of customers who would buy the product again

x

Proportion of customers who would recommend that product to others

x

Proportion of customers who know the brand

x

Proportion of customers who are convinced to have the best tool for a category

x

Proportion of customers who understand the position to other brands

x

Average perception of product quality compared to strongest competitor

x

Average perception of service quality compared to strongest competitor

Although recommended the typical metric setup focuses on financial performance indicators like revenue and return although it is known that profit maximization is inconsistent with these.85 Many companies do still miss an efficient marketing performance measurement approach.86 Notably even if the above mentioned metric would be dominant it is very much focused around the product which probably concludes from the 4P perspective. 4.2. Proposal for Joint Marketing Sales Metrics The author acknowledges that several attempts were made in order to align marketing and sales metrics and the efforts were even enforced after science has outlined that firms do not follow previous suggestions. Engle and other scholars are convinced that in today’s economic environment both need to work closer together to achieve better results than competition. In other words the interaction performance between marketing and sales will be a differentiator. Therefore metrics shall reflect the cooperation. Proposal for joint

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metrics:87 84

cp. Kotler, Philip/Keller, Kevin L./Bliemel, Friedhelm “Marketing Management” (Pearson Studium, 2007) 1191-1192. 85 cp. Kaplan, Robert S./Shocker, Allan “Discount Effects on Media Plans” (Journal of Advertising Research, 11/1971) 37–43. 86 cp. Kotler, Philip/Keller, Kevin L./Bliemel, Friedhelm “Marketing Management” (Pearson Studium, 2007) 1192. 87 cp. Engle, Robert “Global Marketing and Sales Scorecard” (in Jain, “Handbook of Research in International Marketing” Edward Elgar Publishing, 2003) 449-455.

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x

Brand Awareness/Leadership

x

Target Market Share – Volume or Value

x

Relative Market Price

x

Number of Complaints – Level of Dissatisfaction

x

Consumer Satisfaction

x

Consumer Profitability

x

On-Time Delivery – Customer Defined

x

Distribution/Availability

x

Total Number of Customers

x

Perceived Quality/Esteem/Image/Uniqueness

x

Loyalty/Retention

x

Frequency/Recency/Amount and Type of Customer Purchases

x

New Business

x

Number of First into the Market

x

Relative Perceived Quality

x

Value Sales/Growth

x

Unit Sales/Growth

x

Sales Backlog

x

Percent of Sales from new Products

x

Employee Marketing Orientation

x

Employee Satisfaction

x

Correlation Between Customer and Employee Satisfaction

x

Pre-Tax Profitability/Product

x

Profit Forecast Reliability/Product

x

Project Profitability

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The elements that are suggested here represent probably the latest knowledge about what is required for product markets. Mentioning employee satisfaction and employee marketing orientation are steps towards behavioral measures but it does not yet really focus on such ones and still emphasizes financial figures likely still as a result of the principal agent

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theory.88 The author concludes that the idea of customer satisfaction is implemented but does not reveal sales specific criteria which explain how this can be achieved. Next paragraph shall analyze the changing conditions that can be observed in service dominant markets. 4.3. Key Influencers of Market Success in Service Dominant Markets Erevelles et al. recognized that compared to the product centric logic the key influencers for market success change in a service dominant logic.89 This has been further specified by Vargo and Lusch who explain that overwhelming product capabilities or price leadership were considered to be the main influencers in product centric markets. It turned out that service centric models require a different set of variables. The application of specialized skills and knowledge becomes more important than product features and knowledge evolves to be the main differentiator. Customers have to be involved heavily in the value creation and the whole organization needs to behave customer centric and relational. 90 Furthermore goods are becoming distribution mechanisms for service offerings.91 Based on the traditional role of sales, exchanges with the customer were regarded as a defined process or transactional activities but sales people are critical for the management of customer loyalty and customer relationships too.92 It is expected that the new salesman and also the marketing department would have to act more as a customer consultant rather than someone who purely delivers what the firm offers via datasheets at that moment.93 This is enhanced to customer-focus selling or consultative selling.94

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88

cp. Erevelles, Sunil/Dutta, Indranil/Galantine, Carolyn “Sales Force Compensation Plans Incorporating Multidimensional Sales Effort and Salesperson Efficiency” (Journal of Personal Selling & Sales Management #24/2004) 101-112. 89 cp. Vargo, Stephen L./Lusch, Robert F. “Evolving to a New Dominant Logic for Marketing” (Journal of Marketing, 01/2004) 1-17. 90 cp. Vargo, Stephen L./Lusch, Robert F. “The Service dominant logic for marketing” (M.E. Sharpe, 2006). 91 cp. Sheth, Jagdish N./Sharma, Arun “The Impact of the Product to Service Shift in Industrial Markets and the Evolution of the Sales Organization” (Industrial Marketing Management, 07/2008) 260-269. 92 cp. Palmatier, Robert W./Scheer, Lisa K./Houston, Mark B./Evans, Kenneth R./Gopalakrishna, Srinath “Use of Relationship Marketing Programs in Building Customer–Salesperson and Customer–Firm Relationships: Influences on Financial Outcomes” (International Journal of Research in Marketing, 2007) 210–223. 93 cp. Achrol, R./Kotler, P. “Marketing in the Network Economy” (Journal of Marketing, 1999) 146-163. 94 cp. Arnett, D./Badrinarayanan, V. ”Enhancing customer-needs driven CRM strategies: Core selling teams, knowledge management competence, and relationship marketing competence” (Journal of Personal Selling and Sales Management, 09/2005) 329341.

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This evolution mainly requests behavioral adoptions from the affected persons and a proper system to monitor the change process.95 Next paragraph is analyzing sales force control systems that are regarded as one possible answer to this. 4.4. Sales Force Control Systems and BCCS The emergence of Sales Force Control (SFC) systems is a consequence of the linkage between compensation and motivation 96 after it has been recognized by Anderson and Oliver that especially in the field of B2B environments it is essential to implement proper controlling variables in sales.97 Further it has been proven by Evans et al. that its appliance improves the performance of sales organizations but although being considered important there is not much alignment in research about the required measurements which probably explains missing adaption in firms today.98 An often applied method in research is the BCCS scale99 which consists of 25 measurement items that emerged from originally 28 measurements.100 This scale takes several perspectives into account and has confirmed its relevance since it built the basis for more than 20 studies in the field of SFCs.101 BCCS unifies the outcome and behavior dimensions102 with the formal (process and output) and informal perspectives103 to create a holistic view that is split into monitoring, directing, evaluating and rewarding.104

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95

cp. Kawohl, Julian/Evanschitzky, Heiner/Woisetschläger, David M./Ahlert, Dieter “Towards a Measurement of Solution Orientation” (published in Proceedings First International Symposium on Service Science ISSS’09, Logos, 2009). 96 cp. Baldauf, A./Cravens, D.W./Piercy, N.F. “Sales Management Control Research—Synthesis and an Agenda for Future Research” (Journal of Personal Selling & Sales Management, #25/2005) 7–26. 97 cp. Anderson, E./Oliver, R. “Perspectives on Behavior-Based Versus Outcome-Based Salesforce Control Systems” (Journal of Marketing, 10/1987) 76–88. 98 cp. Evans, Kenneth/Landry, Timothy D./Li, Po Chen/Zou, Shaoming “How Sales Controls Affect JobRelated Outcomes: The Role of Organizational Sales-Related Psychological Climate Perceptions” (Journal of the Academy of Marketing Science, #35/2007) 445–459. 99 cp. Babakus, E./Cravens, D./Grant, K./Ingram, T./LaForge, R. “Investigating the Relationships among Sales, Management Control, Sales Territory Design, Salesperson Performance, and Sales Organization Effectiveness” (International Journal of Research in Marketing, #13/1996) 345–363. 100 cp. Cravens, D./Grant, K./Ingram, T./LaForge, R./Young, C. “In Search of Excellent Sales Organizations” (European Journal of Marketing, #26/1992) 6–23. 101 cp. Panagopoulos, Nikolaos/Avlonitis, George “Sales Force Control Systems: A Review of Measurement Practices and Proposed Scale Refinements” (Journal of Personal Selling and Sales Management, #4/2008) 365-385. 102 cp. Oliver, Richard L./Anderson, Erin “An Empirical Test of the Consequences of Behavior- and Outcome-Based Sales Control Systems” (Journal of Marketing, #58/1994) 53–67. 103 cp. Jaworski, Bernard J. “Toward a Theory of Marketing Control: Environmental Context, Control Types, and Consequences” (Journal of Marketing, #52/1988) 23–39. 104 cp. Babakus, E./Cravens, D./Grant, K./Ingram, T./LaForge, R. “Investigating the Relationships among Sales, Management Control, Sales Territory Design, Salesperson Performance, and Sales Organization Effectiveness” (International Journal of Research in Marketing, #13/1996) 345–363.

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After being reviewed and compared with studies that were based on the BCCS to a large degree the original scale was reduced to new BCCS-SV scale in which SV means shortened version. However the authors of the BCCS-SV also admit that it may be required to review the whole SFC concept due to changing requirements in sales organizations e.g. implementation of Customer Relationship Management (CRM) strategies, selling job differences, missing customer centric measurements and less emphasis on informal controls. In table 3 on page 31 the evolution can be seen. Items that are equipped with numbers on the right hand side showed a significant impact on the performance of sales people while not numbered items were originally defined but do not indicate big influence.105 From author’s perspective both the BCCS and BCCS-SV assume that the sales manager possesses all required skills to enable successful selling. It is questionable whether this is true for firms that are in a transition phase. Instead of leading the sales person towards desired behaviors by the used metric elements the BCCS rather relies on regular reviews of behavioral performance. Considering the changing conditions in regards to knowledge and skills in solution business environments it seems to be very likely that a mind shift is required within all parts of the organization since enabling processes do not yet exist.106 Therefore the author concludes that the BCCS cannot be used since it requires a condition in which experts can provide continuous consulting. This situation is neither expected for the sales personnel nor the

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management team during the transformation.

105

cp. Panagopoulos, Nikolaos/Avlonitis, George “Sales Force Control Systems: A Review of Measurement Practices and Proposed Scale Refinements” (Journal of Personal Selling and Sales Management, #4/2008) 365-385. 106 cp. Ahlert, D./Kawohl, J/Schulze-Bentrop, C. “Solution Selling für KMUs“ (Transolve Projektbericht 4, Münster, 2008).

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Taken from: Panagopoulos, Avlonitis “Sales Force Control Systems: A Review of Measurement Practices and Proposed Scale Refinements” (Journal of Personal Selling and Sales Management, #4/2008) 365-385.

Table 3 Proposed Scale Refinement for the BCCS Scale

4.5. Conclusion about Existing Metric Readiness for Solution Orientation As described by Nippa et al. many metrics are available though none of them apparently comprises all necessary elements that are required for solution orientation. A misfit in all available metrics is the missing link to compensation and direction. Compensation is Copyright © 2013. Diplomica Verlag. All rights reserved.

usually handled separately and mainly focuses on the split between fixed and variable income without going into details how results shall be achieved. As a consequence the variable salary is adapted based on outcomes but not their demonstrated behavior.107 The

107

cp. Nippa, Michael/Wienhold, Doreen/Piezonka, Sascha “Vom klassischen Produktgeschäft zum Lösungsgeschäft – Implikationen für eine Neugestaltung des Vergütungssystems im Vertrieb” (Freiberg Working Papers, #2/2007).

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author concludes that from the shift towards service orientation it can be learned that applied skills and knowledge by people is the fundamental key for firms. Due to the similarity to solution markets it seems to be likely that a metric would need to be enhanced with elements that direct sales but also marketing people into the right direction and in parallel ensures that old metric concepts that leverage product orientation lose significance. The review of dominant marketing metrics revealed a missing link to the 7P philosophy in which people and especially sales personnel represent a marketing instrument rather than a cost factor. Knowing that available metrics do not reflect the idea of solution orientation and being aware that existing metrics do not promote certain behaviors it is worth to investigate what parameters do mainly influence the success of sales people in solution dominated markets. It appears to be beneficial as well to take a closer look at the marketing

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sales interface since it affects the role recognition and may lead to different orientations.

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5.

Potential Sales Metric Evolution in the Context of Solution Orientation

Performance assessment in B2B sales environment has long been neglected in research.108 It is known that it is difficult to find the right baseline since no two sales territories are the same109 and in the field of B2B a sales person requires exceptional features.110 An additional factor that influences performance monitoring and assessment is missing daily observation due to autonomous field activities by the sales person. 111 There is evidence that a control system shall be hybrid and has to take into account both behavior and outcome based dimensions to achieve optimized results.112 Although the degree of emphasize may differ it is fundamental that the applied elements are perceived consistent by sales people. This means the outcome elements must be balanced with behavior elements and both shall in a way correlate to achieve optimized results.113 Therefore a solution readiness metric shall include elements that are not inconsistent but reinforce each other. As one possible result the performance assessment cycle may be synchronized. While companies measure the sales performance against the forecast often on a monthly basis the behavior assessment in product dominated firms often only takes place once or twice in a year. Explanation for that is that in a well known environment firms tend to focus on outcome based measurements thanks to the experience they have gained in the past. Since it is recommended that sales evolves from transactional selling towards relationship selling, then consultative selling and finally value added selling this behavioral evolution shall be reflected in a solution readiness metric.114 As a result the author concludes that it is required to put more emphasize on behavior control elements.

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108

cp. Rouziès, Dominique/Coughlan, Anne T./Anderson, Erin/Iacobucci, Dawn “Determinants of Pay Levels and Structures in Sales Organizations” (Journal of Marketing, 11/2009) 92-104. 109 cp. Ryans, Weinberg “Territory Sales Response Models: Stability Over Time” (Journal of Marketing Research, 05/1987) 229-233. 110 cp. Gomez-Meija, Luis R./Balkin, David B. “Compensation, Organizational Strategy, and Firm Performance” (Cincinnati, South-Western Publishing, 1992). 111 cp. Rouziès, Dominique/Coughlan, Anne T./Anderson, Erin/Iacobucci, Dawn “Determinants of Pay Levels and Structures in Sales Organizations” (Journal of Marketing, 11/2009) 92-104. 112 cp. Baldauf, A./Cravens, D.W./Piercy, N.F. “Sales Management Control Research—Synthesis and an Agenda for Future Research” (Journal of Personal Selling & Sales Management, #25/2005) 7–26. 113 cp. Onyemah, Vincent/Anderson, Erin “Inconsistencies Among the Constitutive Elements of a Sales Force Control System: Test of a Configuration Theory-Based Performance Predictions” (Journal of Personal Selling and Sales Management, 1/2009) 9-24. 114 cp. Davenport, R.J. “Designing Reward Systems for Today’s Sales Professionals” (in Fay, Thompson, Damien “The Executive Handbook of Compensation”, New York: The Free Press, 2001) 284-291.

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Chapter 5 starts with an introduction of the recently defined term “customer solution”. Subsequently factors are analyzed that influence the performance of a firm that is acting in a solution oriented market from a sales perspective. Based on these factors the author derives elements that shall be part of a solution readiness metric. During the investigation the elements are outlined as follows. Each item will be given a metric name starting with Tx. The correlating question that helps to measure the item is outlined with Qx. An investigation about the marketing sales interface closes this chapter. Its objective is to demonstrate the need for a better alignment between these units. 5.1. Definition of a Customer Solution The term customer solution has been defined recently and tries to overcome the confusion that subsists in the market about what is a solution. It has been outlined that the term solution suffers from too many definitions and apparently these were mostly defined by suppliers rather than customers.115 Figure 8 shows a proposed view from customer perspective while the extant view reflects the dominating supplier perspective.

Taken from: Tuli, Kholi, Bharadwaj “Rethinking Customer Solutions: From Product Bundles to Relational Processes” (Journal of Marketing, 07/2007) 1-17.

Figure 8 Proposed View of a Customer Solution

From figure 8 on page 34 Tuli et al. derived that customers appreciate solutions to be provided end to end which means they would like to involve the supplier from the require-

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ments phase over customization of goods and services, its deployment and even the lifetime support while suppliers have a very focused view on solutions that is focused on the customization of their portfolio. Solution suppliers must be aware of the customer view

115

cp. Tuli, Kapil R./Kholi, Ajay K./Bharadwaj, Sundar “Rethinking Customer Solutions: From Product Bundles to Relational Processes” (Journal of Marketing, 07/2007) 1-17.

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since it gives them insight what parameters need to be considered for real differentiation and lasting customer satisfaction.116 5.2. Metrics that Determine Customer Solution Effectiveness Out of the discovery of customer solutions a framework has been created to describe elements and variables that depict the solution effectiveness that correlates with the customer satisfaction. The framework is illustrated in figure 9.

Taken from: Tuli, Kholi, Bharadwaj “Rethinking Customer Solutions: From Product Bundles to Relational Processes” (Journal of Marketing, 07/2007) 1-17.

Figure 9 Supplier and Customer Variables Affecting Solution Effectiveness

In this framework it can be seen that solution effectiveness is dependant on two input sources. On the one hand it is influenced by supplier variables and on the other hand the customer has to contribute significantly. In the following these items are explained. Contingent hierarchy (P1) describes the flexibility within a supplier to change structures

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and processes according to external requirements. The involvement of experts on demand to identify requirements accurately 117 and the communication amongst involved units118 are highly appreciated by customers and therefore shall be reflected by suppliers.119

116

cp. Tuli, Kapil R./Kholi, Ajay K./Bharadwaj, Sundar “Rethinking Customer Solutions: From Product Bundles to Relational Processes” (Journal of Marketing, 07/2007) 1-17. 117 cp. Gunderson, J. Stuart “Recognizing and Utilizing Expertise in Work Groups: A Status Characteristics Perspective” (Administrative Science Quarterly, 12/2003) 557-591.

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Documentation emphasis (P2) depicts the ability of a supplier to document and memorize customer specific information that is important for the solution concept as stated by the customer.120 Incentive Externality (P3) shows the importance of comprehensive incentive and reward system alignments over subunits to align on firm objectives which increase customer satisfaction.121 Customer Interactor Stability (P4) relates to the skill to develop a relation with the customer and get confidential information that helps in providing solutions122 and support its deployment.123 Process Articulation (P5) summarizes the need for a framework that manages the interaction of several units dealing with a customer external but also internal.124 Customer Adaptiveness (P6) comprises the feasibility for a customer to adapt internal processes and procedures according to the solution125 and the willingness of a customer to discuss different scenarios about the solution design and possible outcomes with the supplier. 126 Political Counseling (P7) is about sharing political in-sight within customer firm to the supplier. This enables the supplier to understand needs apart from pure functionalities since it addresses for example emotional needs.127 Operational Counseling (P8) allows suppliers to align their solution with existing conditions at the customer. This is mainly enabled by information about processes, systems and company policies.128 Looking at supplier and customer variables it is possible to outline tasks that are mainly under control of sales from author’s perspective. Customer interactor stability which is a

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118

cp. Murthi, B.P.S./Sakar, Sumit “The Role of the Management Sciences in Research on Personalization” (Management Science, 10/2003) 1344-1362. 119 cp. Tuli, Kapil R./Kholi, Ajay K./Bharadwaj, Sundar “Rethinking Customer Solutions: From Product Bundles to Relational Processes” (Journal of Marketing, 07/2007) 1-17. 120 cp. Tuli, Kapil R./Kholi, Ajay K./Bharadwaj, Sundar “Rethinking Customer Solutions: From Product Bundles to Relational Processes” (Journal of Marketing, 07/2007) 1-17. 121 cp. Westphal, James D./Zajac, Edward J. “The Symbolic Management of Stockholders: Corporate Governance Reforms and Shareholder Reactions” (Administrative Science Quarterly, 03/1998) 127-153. 122 cp. Kalwani, Manohar U./Narayandas, Narakesari “Long-Term Manufacturer-Supplier Relationships: Do They Pay Off for Supplier Firms” (Journal of Marketing, 01/1995) 10-16. 123 cp. Welch, C. “Multilateral Organizations and International Project Marketing” (International Business Review, #14/2005) 289-305. 124 cp. Meuter, Matthew L./Bitner, Mary J./Ostrom, Robert/Brown, Stephen W. “Choosing Among Alternative Service Delivery Modes: An Investigation of Customer Trial of Self-Service Technologies” (Journal of Marketing, 04/2005) 61-83. 125 cp. Heide, Jan B./John, George “Do Norms Matter in Marketing Relationships?” (Journal of Marketing, 04/1992) 32-44. 126 cp. Jaworski, Bernie/Kohli, Ajay K. “Co-Creating the Voice of the Customer” (The Service-Dominant Logic of Marketing: Dialog, Debate, and Directions, Robert F. Lusch and Stephen Vargo, eds. New York: M.E. Sharpe) 109–117. 127 cp. Cannon, Perreault “Buyer-Seller Relationships in Business Markets” (Journal of Marketing Research, 11/1999) 439-360. 128 cp. Jap, Ganesan “Control Mechanisms and the Relationship Life Cycle: Implications for Safeguarding Specific Investments and Developing Commitment” (Journal of Marketing Research, 05/2000) 227–45.

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supplier variable is part of a sales metric since it is represented at the external front end of a firm. The customer variables can be influenced and apparently are also highly dependant on the front end capabilities. Thus the ability to establish a stable connection and the degree of influence on customer variables are useful elements for a solution readiness metric.

T1 = Customer Interactor Stability T2 = Influence on Customer Variables Q1 = How well does the sales person enable a Stable Customer Interaction Q2.1 = How does the sales person influence the Customer Adaptiveness Q2.2 = How does the sales person influence the Political Counseling Q2.3 = How does the sales person influence the Operational Counseling

5.3. Selection of an Appropriate Solution Selling Process With respect to solution perception of customers Wienhold suggests that tasks in the sales process are well defined. Major concern here is that compared to product oriented selling the sales person today has to take care of the design, customization, delivery and maintenance phase as well. Figure 10 on page 38 shows different possible setups. These are derived from the understanding how customers perceive a solution and correlate with customer solution effectiveness. Model 1 has several advantages like one face to the customer paradigm and the design and realization lies in one hand. Unfortunately huge focus here is on non selling activities why a metric would need to put emphasizing on indirect selling activities. In model 2 the sales person has sufficient time for core selling activities but one face to the customer gets lost and interfaces require clear definition and reflection in applied metric. This brings in complexity which can be managed by deploying team metrics. Finally model 3 is splitting well sales tasks from design and realization but again creates interfaces and it is doubtful Copyright © 2013. Diplomica Verlag. All rights reserved.

whether the project management feels motivated to support the sales when realization is difficult. For the time being there is no preferred model that outrivals the other ones.129

129

cp. Wienhold, Doreen "Organizing for Effective Solution Selling - Empirical Findings and Conceptual Thoughts" (in Alt, Fähnrich, Franczyk “Proceedings First” International Symposium on Services Science ISSS’09, Logos, Berlin, 2009).

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. Taken from: Wienhold, Doreen "Organizing for Effective Solution Selling - Empirical Findings and Conceptual Thoughts" (in Alt, Fähnrich, Franczyk “Proceedings First” International Symposium on Services Science ISSS’09, Logos, Berlin, 2009).

Figure 10 Solution Selling Process and Functional Units Coordinating Stakeholders and Activities

The author deduces that a solution readiness metric shall contain an element that monitors the alignment of a sales person with the selected model. The model to be selected may be dependant on the individual capabilities, firm strategy or customer expectations.

T3 = Solution Selling Process Alignment T4 = Internal Alignment (throughout the Solution Selling Process) Q3 = How consistent behaves the sales person according to the selected solution selling process Q4 = How well does the sales person handover tasks and drive necessary actions

The concept of account managers who are the new sales persons can be considered an attempt to cope with complex buying context environments.130 Since the account manager role is emerging from being product expert to a general manager like position who is managing the whole relation with a customer, success criteria are changing accordingly. This will affect selection, training, recruitment and role determination. At the end the sales person shall be responsible to align all internal and external needs.131 Figure 11 depicts the

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predicted evolution of account managers to general managers. If this setup is taking granted it would need to be reflected in a solution readiness metric. Monitoring the ability of a sales person to establish the right level of contacts between inter-firm departments seems to be a good measuring scale. 130

cp. Kotler, Philip/Keller, Kevin L./Bliemel, Friedhelm “Marketing Management” (Pearson Studium, 2007) 799. 131 cp. Sheth, Jagdish N./Sharma, Arun “The Impact of the Product to Service Shift in Industrial Markets and the Evolution of the Sales Organization” (Industrial Marketing Management, 07/2008) 260-269.

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Taken from: Sheth, Sharma “The Impact of the Product to Service Shift in Industrial Markets and the Evolution of the Sales Organization” (Industrial Marketing Management, 07/2008) 260-269.

Figure 11 The Salesperson as a General Manager

T5 = Firm Alignment Q5 = How well does the sales person align external with internal resources

Being aware that complexity will increase radically from a communication and management perspective it is worth to outline details that contribute to these skills. Figure 12 displays the method and social competence development expected if a firm is transforming from product to solutions and reveals important metrics that delineate solution

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readiness.

Taken from: Wienhold "Organizing for Effective Solution Selling - Empirical Findings and Conceptual Thoughts" (in Alt, Fähnrich, Franczyk “Proceedings First” International Symposium on Services Science ISSS’09, Logos, Berlin, 2009).

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Figure 12 Importance of Several Competences of Solution Selling in Comparison to Selling Standalone Products

Factors shown in figure 12 illustrate the need for metric elements in the domain of method and social competences. It shall be taken into account that the selected solution selling process influences the weight of the individual elements highly. The author comes to the conclusion that a solution readiness metric shall reveal in how far the sales person is meeting the required changes.

T6 = Method Competence T7 = Social Competence Q6.1 = How well does the sales person apply project management skills Q6.2 = How well does the sales person apply process management skills Q6.3 = How well does the sales person communicate Q7.1 = How well are the team working skills developed Q7.2 = How well does the sales person integrate into the selling team Q7.3 = How well does the sales person demonstrate willingness to share knowledge

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Q7.4 = How well does the sales person adapt to changes (internal and external)

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5.4. Determinants for Relationship Value Research by Cannon and Homburg has shown that downsizing of suppliers in buying organizations has several impacts on firms that are respectively trying to get in business with or desire to increase their existing business with firms but also to keep the current share at a stable level.132 Outstanding advantage for key suppliers is that in average 73.3% of the business (Share of Wallet133) is dedicated to them.134 Nowadays it is common that a new supplier needs to gain the position of a backup supplier first before the chance is given to become a key supplier.135 Looking at purchasing processes in firms this equals the position of being short listed in a buying organization. To become short listed firms have to meet different customer expectations. The tradeoff between costs and benefits plays a dominant role at that stage.136 Benefits can be split into different categories that represent also value creation at different layers. Core benefits that correlate with direct costs considerations are mainly driven by product quality and delivery performance. Sourcing benefits are mainly leveraged by service support and personal interaction in buyer-seller relationship. It ties with the acquisition costs. Operation costs are highly moderated by operation benefits which are impacted by know how of a supplier and its capacity to improve time to market.137 Gaining the status of a key supplier requires a firm to be better than the incumbent supplier and interesting here the price as a moderating effect becomes much less important. Instead service support and personal interaction become key differentiators. This means that sourcing benefits are considered essential. Overall it can be said that the relationship value is moderated by both the costs and the benefits while the importance of costs diminishes over time and finally in key supplier status situation only represents 20% of the relationship value. This relation has been investigated based on studies in that mainly purchasers were

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132

cp. Cannon, J.P./Homburg, C. “Buyer–Supplier Relationships and Customer Firm Costs” (Journal of Marketing, 1/2001) 29–43. 133 cp. Cooil, B./Keiningham, T./Aksoy, L./Hsu, M. “A Longitudinal Analysis of Customer Satisfaction and Share of Wallet: Investigating the Moderating Effect of Customer Characteristics” (Journal of Marketing, 1/2007) 67-83. 134 cp. Ulaga, Wolfgang/Eggert, Andreas “Value Based Differentiation in Business Relationships: Gaining and Sustaining Key Supplier Status” (Journal of Marketing, 01/2006) 119-136. 135 cp. Rust, Roland T./Lemon, Katherine N./Narayandas, Das “Customer Equity Management” (Upper Saddle River, NJ: Pearson/Prentice Hall, 2005) 313. 136 cp. Cannon, J.P./Homburg, C. “Buyer–Supplier Relationships and Customer Firm Costs” (Journal of Marketing, 1/2001) 29–43. 137 cp. Ulaga, Wolfgang/Eggert, Andreas “Value Based Differentiation in Business Relationships: Gaining and Sustaining Key Supplier Status” (Journal of Marketing, 01/2006) 119-136.

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involved. It shall be beard in mind that a buying organization consists of different stakeholders in which purchasing represents one part of the decision making process.138 A framework that shows the influencing factors is given in figure 13.

Taken from: Ulaga, Eggert “Value Based Differentiation in Business Relationships: Gaining and Sustaining Key Supplier Status” (Journal of Marketing, 01/2006) 119-136.

Figure 13 Relationship Benefits and Relationship Cost Impact on Relationship Value

From the above it can be derived that a metric has in a way to distinguish between the current status of a firm in the buyer-seller relationship since main differentiators tend to change. A solution readiness metric has to consider the current supplier status and in addition it needs to reflect the sourcing benefits the customer perceives. Since the sales person manages the customer it would be useful to know what strategy is applied to gain the key supplier status. The author expects that product oriented sales persons will work mainly with price or functionalities to improve an existing situation. In the direction of solution orientation this has to be shifted continuously towards service support and excellent personal interaction with all buying organization stakeholders. T8 = Strategy Adaptation

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Q8 = How well does the sales person align the selling strategy with the current status

138

cp. Ulaga, Wolfgang/Eggert, Andreas “Value Based Differentiation in Business Relationships: Gaining and Sustaining Key Supplier Status” (Journal of Marketing, 01/2006) 119-136.

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5.5. Impacting Factors on Interrelationship Performance Relationship orientation becomes crucial in the solution domain. It can be considered to be the opposite of transaction mentality.139 The challenge of sales and marketing managers is now to measure the quality of their interrelationship quality that describes how well the communication between firms works since it results in lasting competitive advantage.140 Research by Jaworski and Kohli on relations between firms has itemized contributing parts that leverage the customer interrelationship performance and is shown subsequently. Interaction orientation that describes how well a firm is interacting with customers and uses it to its benefit141 consists of Customer Concept, Interaction Response Capacity, Customer Empowerment and Customer Value Management.142 Customer Concept here stands for the ability of a firm to treat customers individually rather than segmenting them.143 Interaction Response Capacity describes the processes and systems a firm uses to enable the customer concept. Customer Empowerment expresses the degree at which customers can decide about the required interactions.144 Firms that deal with customers based on their value for the firm are aligned with the idea of Customer Value Management that enables optimized resource allocation decisions145 while it focuses on customer-based revenues and profits (e.g. customer lifetime value146).147 Figure 14 on page 44 shows the consequences of customer orientation on customer based profit performance and customer based relational performance. Positive word of mouth, increased customer satisfaction and increased customer ownership which represents the accountability customers feel for the supplier 148 are positively influenced by interaction

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139

cp. Day, G.S. “Managing Market Relationships” (Journal of the Academy of Marketing Science, 28/2000) 24–30. 140 cp. Rayport, Jeffrey/Jaworski, Bernie “Best Face Forward” (Boston: Harvard Business School Press, 2005). 141 cp. Jaworski, Bernie/Kohli, Ajay K. “Market Orientation: Antecedents and Consequences” (Journal of Marketing 07/1993) 53–70. 142 cp. Ramani, Girish/Kumar, V. “Interaction Orientation and Firm Performance” (Journal of Marketing, 01/2008) 27-45. 143 cp. Hoekstra, Janny C./Leeflang, Peter S. H./Wittink, Dick R. “The Customer Concept: The Basis for a New Marketing Paradigm” (Journal of Market-Focused Management, #4/1999) 43–76. 144 cp. Prahalad, C.K./Ramaswamy, Venkat “The Future of Competition: Co-creating Unique Value with Customers” (Boston: Harvard Business School Press, 2004). 145 cp. Ramani, Girish/Kumar, V. “Interaction Orientation and Firm Performance” (Journal of Marketing, 01/2008) 27-45. 146 Cp. Ryals, Lynette “Making Customer Relationship Management Work: The Measurement and Profitable Management of Customer Relationships” (Journal of Marketing, 10/2005) 252-261. 147 cp. Kumar, V./Reinartz, W. “Customer Relationship Management: A Databased Approach” (Hoboken, NJ: John Wiley & Sons, 2006). 148 cp. Newell, Frederick “Why CRM Doesn’t Work?” (Princeton NJ: Bloomberg Press, 2003).

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orientation and embody customer based relational performance. Customer based profit performance enables firms to identify profitable customers at higher accuracy, acquire and maintain profitable customers and transform unprofitable customers to profitable ones. Summing up it can be said that interaction orientation influences highly desired outcomes for any firm.149

Taken from: Ramani, Kumar “Interaction Orientation and Firm Performance” (Journal of Marketing, 01/2008) 27-45.

Figure 14 The Customer-Level Consequences of Interaction Orientation

Customer Interactor stability is already measured in T1 and is a precondition for interaction orientation. In a solution readiness metric an element is required that furthermore indicates the quality of information. It can be expected that the higher the customer-seller intimacy the higher the quality of information. So if direct measurement of quality does not work the degree of intimacy shall be measured based on the criticality of the derived information. As an example it is not very likely that customers will share their strategic plans if the interrelationship performance is weak. T9 = Customer Intimacy Copyright © 2013. Diplomica Verlag. All rights reserved.

Q9 = How well is the sales person informed about customer strategies

149

cp. Ramani, Girish/Kumar, V. “Interaction Orientation and Firm Performance” (Journal of Marketing, 01/2008) 27-45.

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5.6. Implementation of Consultancy Mind Set in Sales Customers like to interact with people that they recognize as trusted advisors. There is evidence that this perception is created when the sales person makes relevant judgments and recommendations about the customer situation. This includes understanding of processes and business challenges. Also the ability to listen first before a solution is offered is highly appreciated by customers.150 Casciaro and Lobo identified that a social competence that avoids customer embarrassment is crucial and becomes especially challenging if sales personal possesses large knowledge. In such occasions sales personal often misses the patience but applies persuasion which is taking the customer out of the comfort zone.151 A solution readiness metric shall outline in how far the sales person is recognized as a trusted advisor. Furthermore the deep understanding of customer processes and business challenges and the ability to communicate these towards the internal resources are fundamental. 152 Finally a sales person is expected to explain buying firms how exactly the supplier can help them. This requires a good understanding of the potential product and service capabilities according to the author’s perspective.

T10 = Trusted Advisor T11 = Understanding of Customer Processes and related Challenges T12 = Understanding and Resolution of Customer Business Challenges Q10.1 = Is the sales person recognized as a trusted advisor by customers Q10.2 = Is the sales person able to consult the customer Q10.3 = Does the sales person possess skills that are of interest for the customer Q11 = How well does the sales person understand the processes within the customer Q12.1 = How well does the sales person understand the business challenges of the customer Q12.2 = How well does the sales person position the capabilities of the selling firm in front

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of the customer

150

cp. Cross, R./Sproull, L. “More Than an Answer: Information Relationships for Actionable Knowledge” (Organization Science, 15/2004) 446–462. 151 cp. Casciaro, T./Lobo, M.S. “Competent Jerks, Lovable Fools, and the Formation of Social Networks” (Harvard Business Review, 06/2005) 92–99. 152 cp. Frazier, Gary L./Maltz, Elliot/Antia, Kersi D./Rindfleisch, Aric “Distributor Sharing of Strategic Information with Suppliers” (Journal of Marketing, 07/2009) 31-43.

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5.7. Sales and Effort Forecast as a Challenge in Solution Business In a solution environment several conditions change compared to product business. A major aspect is the enhanced sales cycle that does not correlate well with the assumption that sales looks for short term wins while marketing focuses on long term developments.153 The increase of sales cycles or lead times has been recognized154 why it is questionable whether this split can or shall be kept. Bearing in mind that a sales cycle for complex buying decisions like solutions takes in average 18 up to 24 months155 compared to 2-5 months in product environment, the author argues that the time horizon in which impacts are visible is now equal for both sales and marketing. Many firms have faced the enhanced sales cycle as a major challenge. It typically impacts forecasts and quarterly reviews with managers and shareholders heavily and has a major impact in assessing sales and firm performance. Although many firms want to be in the solution business they do not prepare their sales forecasts accordingly which typically creates frustration when recognizing that numbers cannot be achieved as constantly as in previous product domain that most managers are still used too.156 For account managers but also sales managers the author suggests that it is beneficial to understand why it takes longer compared to before in order to get a better acceptance for a new metric concept. As a major differentiator firms do now face complex buying contexts as outlined by Dhar et al. In such contexts the customer is not represented by one person anymore but several individuals and even numerous departments. This condition explains amongst others why decision making inside the customer is taking more time. Apart from that customers got used to start buying discussions without a clear idea about what they actually want to purchase which results in long consulting time to be spend with the customer before a real business opportunity is created.157 The ability of a sales person to express the solution and its benefits clearly to the customer can reduce the time required to make a deal happen

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153

cp. Rouziès, Dominique/Anderson, Erin/Kohli, Ajay K./Michaels, R.E./Weitz, B./Zoltners, A.A. “Sales and Marketing Integration: A Proposed Framework” (Journal of Personal Selling & Sales Management, #25/2005) 113-122. 154 cp.Jones, Brown, Zoltners, Weitz “The Changing Environment of Selling and Sales Management” (Journal of Personal Selling and Sales Management, #25/2005) 105-111. 155 cp. Dhar, Ravi/Menon, Anil/Maach, Bryan “Toward Extending the Compromise Effect to Complex Buying Contexts” (Journal of Marketing Research, 08/2004) 258-261. 156 cp. Wienhold, Doreen/Egeling, Alexander “Vermarktung von Lösungen – Eine Personalwirtschaftliche Perspektive” (Hyprico, http://www.hyprico.de). 157 cp. Dhar, Ravi/Menon, Anil/Maach, Bryan “Toward Extending the Compromise Effect to Complex Buying Contexts” (Journal of Marketing Research, 08/2004) 258-261.

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significantly.158 It can be observed that especially sales people who come from a product business have difficulties to qualify their opportunities correctly which results in delayed funnels.159 Another challenge in complex buying contexts is the willingness of the customer to reveal strategic information to the supplier. Since solution buying decisions have the objective to solve a business problem the customer is required to reveal these problems to the supplier. Customer tend to keep critical information for themselves since they also need to be trained that a solution for a business problem is more likely to be found if the business problem is understood in detail by the supplier and especially its sales person.160 Forecast accuracy seems to be a valuable element that represents the ability of a sales person to understand customer internal decision making processes and to apply the right action at the right time. If a sales person has a high inaccuracy in forecast the author expects that the overall decision making process is managed more by accident than by purpose.

T13 = Forecast Accuracy Q13 = How well does the sales person meet the forecast customer wise

In product environments it was possible to predict efforts in both pre- and postsales since market requirements were well defined to a large extent. So product managers were able to identify the demand in advance which made the efforts in a way predictable. To a large degree it was also possible to expect the postsales effort that correlated highly with the units sold. In solution domain these two factors become unpredictable. Uncertainty is highly increased taking the fact given that at the beginning of a business opportunity the final efforts can hardly be estimated. Basically customer preferences have to be learned during the buying process and value criteria of a customer are often unknown at the

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beginning.161

158

cp. Cross, R./Sproull, L. “More Than an Answer: Information Relationships for Actionable Knowledge” (Organization Science, 15/2004) 446–462. 159 cp. Kantin, Bob/Nick/Nick, Michael/Sullivan, Tim "Why Johnny (and Janie) Can’t Sell" (www.solutionselling.com, Whitepaper, 2004). 160 cp. Dhar, Ravi/Menon, Anil/Maach, Bryan “Toward Extending the Compromise Effect to Complex Buying Contexts” (Journal of Marketing Research, 08/2004) 258-261. 161 cp. Dhar, Ravi/Menon, Anil/Maach, Bryan “Toward Extending the Compromise Effect to Complex Buying Contexts” (Journal of Marketing Research, 08/2004) 258-261.

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Therefore the author concludes a sales person’s ability to understand effort requirements throughout the sales process that is characterized by changing conditions in the requirement definition is significant. Solution oriented sales personnel have to act similar to product managers in order to align the firm strategy continuously with customer demands.162 This also requires that individual customers are analyzed like markets. Since the sales process does not stop after a particular buying decision the sales personal may also be required to assess the design, integration, delivery and maintenance costs of a solution. A solution readiness metric has to mirror these conditions from the author’s view. In general the metric has to reveal whether the sales person manages to achieve optimized results for the supplier firm while providing the best possible solution to the customer. In other words lowest possible costs, highest possible revenues and dominating superior customer satisfaction are desired outcomes.163 Optimizing the balance between proactive support and costs appears to be an interesting research topic.164 Given that the sales cycle is continuously repeated and does not stop the lifetime of a customer shall receive higher importance than a single buying achievement.

T14 = Customer Lifetime Assessment Q14 = How well does the sales person forecast the customer lifetime value and the correlat-

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ing costs

162 cp. De Luca, L/Atuahene-Gima, K “Market Knowledge Dimensions and Cross-Functional Collaboration: Examining the Different Routes to Product Innovation Performance” (Journal of Marketing, 01/2007) 95-112. 163 cp. Homburg, Christian/Koschate, Nicole/Hoyer, Wayne D. “Do Satisfied Customers Really Pay More? A Study of Relationship Between Customer Satisfaction and Willingness to Pay” (Journal of Marketing, 04/2005) 84-96. 164 cp. Challagalla, G./Venkatesh, R./Kholi, A.K. “Proactive Postsales Service: When and Why Does it Pay Off” (Journal of Marketing, 03/2009) 70-87.

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5.8. Growing Importance of Professional Maturity Professionalism refers to the extent at which an individual can act autonomously while achieving optimized performance. This includes “[…] conscientiousness, independence of thought and action, a sense of responsibility regarding appropriate and inappropriate behaviors and crystallized perceptions of the stimuli in the work environment and corresponding responses” 165. In relation to sales persons this requires high attention due to the environment in which they are operating. Since they are typically not under permanent monitoring and also act mostly alone it is crucial for them to stay focused and insistent even under difficult situations. This degree of professionalism is expressed in attentive, disciplined, organized and thoughtful behavior.166 It is known that professional maturity can counterbalance inconsistencies amongst outcome and behavioral elements and consequently mitigates weaknesses in any used metric concept. The boundaries that describe a solution mentality require a sales person to be highly autonomous on customer site. At the same time it is crucial for the sales person to stay focused and insistent on opportunities due to enhanced sales cycles.167 From this reflection the author argues that the level of professionalism derived from autonomy shall be taken into account when the solution readiness is assessed.

T15 = Autonomy Q15.1 = How autonomous does the sales person behave

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Q15.2 = How often does the sales person need redirection from the manager

165

Onyemah, Vincent/Anderson, Erin “Inconsistencies Among the Constitutive Elements of a Sales Force Control System: Test of a Configuration Theory-Based Performance Predictions” (Journal of Personal Selling and Sales Management, 1/2009) 9-24. 166 cp. Maxwell, Sarah/Reed, Gary/Saker, Jim/Story, Vicky “The Two Faces of Playfulness: A New Tool to Select Potentially Successful Sales Reps” (Journal of Personal Selling & Sales Management, #25/2005) 215– 229. 167 cp. Onyemah, Vincent/Anderson, Erin “Inconsistencies Among the Constitutive Elements of a Sales Force Control System: Test of a Configuration Theory-Based Performance Predictions” (Journal of Personal Selling and Sales Management, 1/2009) 9-24.

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Professionalism furthermore influences the perception of any person to a large degree.168 Especially in consumer markets but also in industrial markets the brand equity influences market success to a great deal and represents a powerful market based asset. 169 Strong brand equity results in higher customer satisfaction and lower sales costs.170 Also lower price elasticity and premium price ranges are benefits that can be derived from high brand equity. 171 While in industrial product markets it was possible to influence brand equity highly by collaterals and dedicated promotions it is not very likely that in complex sales organizations with unclear requirements a traditional approach to enhance brand equity can be successful.172 Since touch points with the selling firm a mainly dependant on the sales person a solution readiness metric shall reflect the ability to enhance the brand equity at a customer.

T16 = Professional Maturity T17 = Brand Equity Q16 = How professional do customers and internal resources perceive the sales person Q17 = How well does the sales person increase the brand equity at customers

5.9. Independent Measurements that Help to Predict Sales Performance In earlier times it was very difficult to compare all necessary data for fair judgment. Computational and data availability limitations made it difficult to cross collect and analyze data over various people or departments.173 This today seems to be a little problem only. Although the subjective assessment seems to be more useful when it comes to behavioral change monitoring it is probably very beneficial to identify measurements that can be derived independently of individuals and are impartial compared to a person’s judgment.

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168

cp. Onyemah, Vincent/Anderson, Erin “Inconsistencies Among the Constitutive Elements of a Sales Force Control System: Test of a Configuration Theory-Based Performance Predictions” (Journal of Personal Selling and Sales Management, 1/2009) 9-24. 169 cp. Keller, K.L. “Strategic Brand Management” (Upper Saddle River, NJ: Prentice Hall, 1998). 170 cp. Hogan, Lemon, Rust “Customer Equity Management: Charting New Directions for the Future of Marketing” (Journal of Service Research, #5/2002) 4–12. 171 cp. Boulding, William/Lee, Eunkyu/Staelin, Richard “Mastering the Mix: Do Advertising, Promotion, and Sales Force Activities Lead to Differentiation?” (Journal of Marketing Research, 05/1994) 159–172. 172 cp. Fang, Eric/Palmatier, Robert M./Steenkamp, Jan-Benedict “Effect of Service Transition on Firm Value” (Journal of Marketing, 09/2008) 1-14. 173 cp. Simon, Herbert A. “Theories of Decision Making in Economics and Behavioral Science” (American Economic Review, 06/1964), 253-283.

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In the following some measurements are exposed that can be derived without human interaction. The benefit of such measurements is the low influence of subjective opinions.

General Mental Abilities (GMA) is reflecting a person’s inherent ability to think flexibly and reason abstractly.174 Paired with social competence and the applied thinking style it is possible to predict sales performance.175 Social competence describes the skill to create a comfort zone with the customer in that he feels psychologically safe. 176 Exchange of relevant information is leveraged by this condition.177 Thinking styles are executive, judicial and legislative. People that prefer to follow certain scripts or processes apply an executive style. Firms that have codified sales procedures benefit from that behavior. Judicial style is understood if the sales person applies knowledge that was learned in a different opportunity and only requires little adjustments to meet specific requirements. If it is required to create solutions from scratch a legislative thinking style is necessary.178 A firm that has long experience in a specific market is expected to have the sales task well structured. This condition also applies for markets with low volatility. Here research has shown that people with low GMA and executive style outperform. In contrast for highly complex sales tasks it seems to be more fruitful to apply either legislative or judicial style combined with high GMA. Social competence seems to be more critical when it is paired with high GMA while its impact with low GMA seems to be opposed.179 For a solution readiness metric it seems useful to measure GMA. Such results can be derived from an IQ test. Especially firms that have optimized their sales organizations and processes over long time are supposed to have a different profile compared to the one required now. Since low GMA outperforms high GMA in low complex sales the author assumes that sales organizations that were successful in product oriented markets have adapted their hiring and rewarding processes over time and suffer now from missing skills.

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174

cp. Sternberg, Robert J. “Wisdom, Intelligence, and Creativity Synthesized” (Cambridge, UK: Cambridge University Press, 2003) 20. 175 cp. Verbeke, Willem J./Belschak, Frank D./Bakker, Arnold B./Dietz, Bart ”When Intelligence is (Dys)Functional for Achieving Sales Performance“ (Journal of Marketing, 07/2008) 44-57. 176 cp. Edmondson, Amy “Psychological Safety and Learning Behavior in Work Teams” (Administrative Science Quarterly, 6/1999) 350–383. 177 cp. Casciaro, T./Lobo, M.S. “Competent Jerks, Lovable Fools, and the Formation of Social Networks” (Harvard Business Review, 06/2005) 92–99. 178 cp. Sternberg, Robert J. “Thinking Styles” (Cambridge, UK: Cambridge University Press, 1997). 179 cp. Verbeke, Willem J./Belschak, Frank D./Bakker, Arnold B./Dietz, Bart ”When Intelligence is (Dys)Functional for Achieving Sales Performance“ (Journal of Marketing, 07/2008) 44-57.

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T18 = GMA Q18 = Results of GMA assessment

Considering the increasing challenges in the solution environment it is beneficial to take a look at the pay level. Usually it shall be expected that increasing challenges are reflected here. The Hay Group, a compensation consulting firm, invented a job evaluation methodology based on their experience and database that uses proprietary “Hay Points” to scale occurring challenges and demands.180 The scale reaches from 104 to 994 for sales people and from 285 to 997 for sales managers while higher numbers represent higher complexity. According to Hay a sales job that requires consultative- or value-added selling is in the range of 570 Hay points. A manager position in this field would be in the 700 range.181 Having this data at hand a firm can benchmark its pay levels against competition. If the pay level is much lower compared to the suggested by Hay it is not expected to be solution ready since potential sales persons will most likely not work in this firm. Thus the element pay level shall be part of a solution readiness metric. The availability of the Hay scale would require a firm to engage the company Hay and its consultants why it may not be possible for every company to make use of this data.

T19 = Hay Points Q19 = How many points does the sales person achieve on the Hay metric Expense and time reports can give a good overview about how efforts are spend in the field. Managers can make use of these reports to track how often sales meets individual customers. Communication reports may also contain useful information about the interrelationship quality. Such reports could contain data such as incoming calls received from customer and

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proactive received email approaches from customers.

180

cp. Baron, James N./Kreps, David N. “Consistent Human Resource Practices” (California Management Review #41/1999) 29–53. 181 cp. Onyemah, Vincent/Anderson, Erin “Inconsistencies Among the Constitutive Elements of a Sales Force Control System: Test of a Configuration Theory-Based Performance Predictions” (Journal of Personal Selling and Sales Management, 1/2009) 9-24.

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A CRM system which shall represent the core of a company182 may have an interface to expense and information systems to derive such data automatically. Thresholds could be set here that inform automatically if a benchmark is not meeting the expectations.

T20 = Report Quality Q20.1 = Do expense reports of the sales person indicate the right behavior Q20.2 = Do time reports of the sales person indicate the right behavior Q20.3 = Do communication reports of the sales person indicate the right behavior 5.10. Marketing Sales Interface The marketing and sales interface will be depicted again to illustrate desirable changes. From research it is known that this interface can be optimized to a large degree when departments follow different orientations but have similar competence levels.183 Orientation means that one feels responsible for the firm needs and another one is taking care of the customer requirements.184 Competence is related to the skills and knowledge. It is known that high differences in competence between involved departments avoid optimal decisions.185 Workman et al. acknowledge two different perspectives when marketing and sales are reflected in research. One of them is the functional group perspective in which the departmental subunit distinguished tasks. The other one is called activity based perspective in which tasks are less described by departmental linkage but the real activities someone is taking care of regardless of organizational attachment.186 This study considers the functional group perspective. Table 4 on page 55 illustrates the different marketing and sales interface types as outlined earlier by Homburg and Jensen.187 Considering the expected changes on the move from

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182

cp. Payne, Adrian/Frow, Pennie “A Strategic Framework for Customer Relationship Management” (Journal of Marketing 10/2005) 167-176. 183 cp. Homburg, Christian/Jensen, Ove “The Thought Worlds of Marketing and Sales: Which Differences Make a Difference?” (Journal of Marketing, 07/2007) 124-142. 184 cp. Schweiger, David M./Sandberg, William R. “The Utilization of Individual Capabilities in Group Approaches to Strategic Decision Making” (Strategic Management Journal, #10/1989) 31-43. 185 cp. Franckwick, Ward, Hutt, Reingen “Evolving Patterns of Organizational Beliefs in the Formation of Strategy” (Journal of Marketing, 04/1994) 96-110. 186 cp. Workman, John P./Homburg, Christian/Gruner, Kjell “Marketing Organization: An Integrative Framework of Dimensions and Determinants” (Journal of Marketing, 07/1998) 21-41 187 cp. Homburg, Christian/Jensen, Ove “The Thought Worlds of Marketing and Sales: Which Differences Make a Difference?” (Journal of Marketing, 07/2007) 124-142.

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product to solution selling, table 4 helps according to the author’s understanding to identify from what position or interface type a firm has to move if conditions change. It seems that the Brand Focused Professional segment fits best to the solution orientation since it highly emphasizes the cooperation between involved departments and also the acceptance that customer is in focus of all activities while Sales Rules and Marketing Driven Devil’s Advocacy well reflect product oriented firms capabilities. The brand focused professional cluster describes the selling personnel as follows. Sales persons are acknowledged as congenial counterpart of marketing. This means the sales person shall possess a skill set that allows him to think like a marketer. The amount of information from sales towards business units or product lines shall be high which is similar to T6 and T7 on page 40. The structural linkages are well developed. Formalization, joint planning and team work are established processes. This concurs with T3, T4 on page 38 and T7 on page 40. Sales market and product knowledge is high for both similar to T11 and T12 on page 45. The time orientation of both departments is long which correlates with T13 on page 47.

Herewith the analysis part of useful metric elements is finished. The author concludes that the usage of behavioral elements is crucial for a solution readiness metric. This results from missing evidence that financial outcome measures trigger the required mind changes that are expected in a solution environment. The next chapter will summarize the results of this

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study and also assemble the identified elements to one metric.

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Taken from: Homburg, Christian “Configurations of Marketing and Sales - A Taxonomy“ (Journal of Marketing, #72/2008) 1-50.

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Table 4 Marketing Sales Interface Setups – Verbal Cluster Description

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6.

Scorecard Metrics to Measure Solution Orientation

6.1. Discussion This study outlined the importance of customer satisfaction for a firm’s performance and value progression compared to financial figures which dominate existing metric concepts often in firms in chapter 2. Furthermore it explained the emergence of solutions and the related challenges for product oriented sales forces in chapter 3. While firms tend to understand that markets are increasingly asking for solutions and response to that with appropriate offerings, applied metric concepts in firms do not reflect required changes as demonstrated in chapter 4. Customer satisfaction in B2B markets is heavily influenced by sales persons as they manage the whole interaction with the supplier as proven in chapter 5.

The concept of account management reflects already many of the aspects especially in regards to responsibilities that were also outlined in this study. Though, the author assumes that many firms have rather relabeled their sales forces but not transformed them to behave as expected in the theory about account management. Sheth and Sharma suggest that in the domain of account management the performance shall be measured based on sales growth, profit growth and customer satisfaction rather than sales volume.188 Based on the results derived in this study there is no evidence that the measurement of financial figures leverages the transition towards solution business in sales forces. As a consequence no financial figures are part of the solution readiness metric that is shown in table 5 on page 60. Furthermore customer satisfaction that can heavily be influenced by sales forces is an outcome that will be achieved when the behavioral objec-

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tives are met by the sales person.

188

cp. Sheth, Jagdish N./Sharma, Arun “The Impact of the Product to Service Shift in Industrial Markets and the Evolution of the Sales Organization” (Industrial Marketing Management, 07/2008) 260-269.

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6.2. Managerial Implications The author derives that the sales person who is supposed to behave customer satisfaction oriented needs direction as existing mind sets are tremendously shifted. To support sales persons in the best possible way the applied metric shall support a behavior that is desired by customers who are looking for solutions. While in product oriented markets product and price were main differentiators now people represent a dominant role. Sales persons must be aware of that and use knowledge and skills as competitive advantage.

Although this thesis focuses on sales that is not necessarily a part of marketing the metrics used by both shall be combined to a certain extend in order to cope with solution business challenges. This does not mean that both departments have to be integrated, although according to Kotler et al. there is proven evidence that if so performance is leveraged.189 The author concludes that in solution oriented markets sales cycles are rather long than short. The desirable behavior and mind set of a sales person is subsequently more equal to marketing than former sales procedures. The ability to ask questions and create value in cooperation with customers is key in solution domain. Up hereto sales people were often required to have strong persuasion skills while marketing was supposed to ask questions and design products accordingly. In solution domain the sales person is required to be marketing minded since they manage the interrelationship from the design until the delivery and maintenance. Closing techniques as a result lose importance.

Equally important the performance measurement must be reflected by the reward system applied by the firm in order to motivate sales persons continuously to behave according to the desired profile. Therefore it is strongly recommended that any reward system focuses on the behavioral assessment during the transition phase. 190 The author supposes that the importance of behavioral control measurements diminishes Copyright © 2013. Diplomica Verlag. All rights reserved.

over time due to newly enabled standards and processes. Nevertheless it shall be acknowledged that customer satisfaction is always highly dependant on the individual sales person. As an effect the continuous control of behavior represented by sales persons appears to 189

cp. Kotler, Philip/Rackham, Neil/Krishnaswamy, Suj “Ending the War Between Sales and Marketing” (in “Harvard business review on strategic sales management” Harvard Business School Press, 2007). 190 cp. Jaworski, Bernie/Kohli, Ajay K. “Market Orientation: Antecedents and Consequences” (Journal of Marketing 07/1993) 53–70.

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offer promising impacts on the differentiation against competition due to superior customer satisfaction. A major learning from this study is that the performance of sales people shall be observed in relation to the customer. It is expected that the level of performance may differ according to the relation between a salesperson and the customer. As a conclusion this implies that there is no superior or weak sales person in general. Instead the performance must be measured customer based. Hence a sales person that achieves weak performance at one customer may achieve superior results at another one. Sales managers shall try to identify the optimized sales person assignment for customers. Sales managers shall differentiate between backend, back-up and key supplier status also considering the most promising selling process. It may be too optimistic to expect the same person to be capable of handling all possible setups. Consequently experts for certain setup structures may emerge and shall be allocated accordingly. The final metric shown in table 5 on page 58 consists of 20 items and 33 questions. An evaluation of the results may be performed either by the manager or together with the sales person that is assessed except T18 – T20 since these represent objective measurements. Due to the behavioral changes required the later option may be preferred as it promises a better reflection. The author proposes a 5 point scale, in that 1 corresponds with the weakest and 5 the best possible score, for all questions which may be refined in future studies. It may be possible to benchmark the summary points to predict sales force perfor-

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mance.

64

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6.3. Limitations and Future Research Directions Biggest challenge for future account managers is the complexity they are facing. While previously the role of customer advocacy could be represented when communicating customer complaints straight forward back to the firm this situation gains much more complications now. The sales person has now to benchmark continuously the value added by the supplying firm and ensure that this is understood and recognized by the buying firm. This implies that he needs to understand the potential value propositions in particular for products, services and partner deliverables during the sales cycle. While product oriented sales persons focused on the details of their products they now need to focus on how the firm can help to improve the customer business. A CRM appears to be the right solution to manage the monitoring need and make data actionable for account managers at the same time in future.191 Future studies may analyze how exactly the CRM can be used during the sales cycle and whether intelligence from it can counterbalance weaknesses of a sales person. This study analyzed key metric elements that shall be used to measure solution readiness in sales forces. Further studies may outline possibilities to either reduce or improve the measurement items or questions since they were derived theoretically. A field test may be applicable to check its suitability. Outcome based measures were not included due to missing evidence that these support the required behavioral changes. Future studies could focus on the right set of outcome based measures that correlate well with solution orientation since behavioral assessment might go along with subjective views. Another way to overcome potentially subjectively biased assessments could be a correlation of best practices with the listed measurement items. Some confusion seems to exist when research reports about account managers, sales persons and marketing roles. From the author’s perspective it would be beneficial if future studies could align their definitions about the used terms with real firm observations. Such Copyright © 2013. Diplomica Verlag. All rights reserved.

clarification would also be desired when studies are created on related topics.

191

cp. Boulding, William/Staelin, Richard/Ehret, Michael/Johnston, Wesley J. “A Customer Relationship Management Roadmap: What is Known, Potential Pitfalls, and Where to Go” (Journal of Marketing, 10/2005) 155-166.

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65

6.4. Solution Readiness Metric #

Metric Element

T1

Customer Interactor Stability

Q1

T2

Influence on Customer Variables

Q2.1 Q2.2 Q2.3

T3

Solution Selling Process Alignment

Q3

T4

Internal Alignment (throughout the Solution Selling Process)

Q4

T5

Firm Alignment

Q5

T6

Method Competence

T7

Social Competence

T8

Strategy Adaptation

T9

Customer Intimacy

T10

Trusted Advisor

T11

Understanding of Customer Processes and related Challenges

T12

Understanding and Resolution of Customer Business Challenges

T13

Forecast Accuracy

T14

Customer Lifetime Assessment

T15

Autonomy

T16

Professional Maturity

T17

Brand Equity

T18

GMA

T19

Hay Points

T20

Report Quality

#

Question How well does the sales person enable a stable customer interaction How does the sales person influence the Customer Adaptiveness How does the sales person influence the Political Counseling How does the sales person influence the Operational Counseling How consistent behaves the sales person according to the selected solution selling process How well does the sales person handover tasks and drive necessary actions

How well does the sales person align external with internal resources How well does the sales person apply project management skills How well does the sales person apply process management skills How well does the sales person communicate How well are the team working skills developed How well does the sales person integrate into the selling team How well does the sales person demonstrate willingness to share Q7.3 knowledge How well does the sales person adapt to changes (internal and Q7.4 external) How well does the sales person align the selling strategy with the Q8 current status How well is the sales person informed about customer strategies Q9 Q10.1 Is the sales person recognized as a trusted advisor by customers Q10.2 Is the sales person able to consult the customer Does the sales person possess skills that are of interest for the Q10.3 customer How well does the sales person understand the processes within the Q11 customer How well does the sales person understand the business challenges of Q12.1 the customer How well does the sales person position the capabilities of the selling Q12.2 firm in front of the customer How well does the sales person meet the forecast customer wise Q13 How well does the sales person forecast the customer lifetime value Q14 and the correlating costs Q15 .1 How autonomous does the sales person behave Q15.2 How often does the sales person need redirection from the manager How professional do customers and internal resources perceive the Q16 sales person How well does the sales person increase the brand equity at Q17 customers Result of GMA assessment Q18 Q6.1 Q6.2 Q6.3 Q7.1 Q7.2

Q19 Q20.1 Q20.2 Q20.3

How many points does the sales person achieve on the Hay metric Do expense reports of the sales person indicate the right behavior Do time reports of the sales person indicate the right behavior Do communication reports of the sales person indicate the right behavior Summary of points achieved

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Table 5 Solution Readiness Metric for Sales Forces

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Rating 1 - 5 5 = Best

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Internet Sources Wienhold, Doreen/Egeling, Alexander “Vermarktung von Lösungen – Eine Personalwirtschaftliche Perspektive” (Hyprico) Captured 14.06.2009, available from http://www.hyprico.de/publikationen/Auswertung%20HypricoBefragung%20TUBAF.pdf.

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Sales Performance International “From Commodity Products to Solutions – “Pseudo solutions” still dominate the landscape” (www.solutionselling.com, Whitepaper) Captured 01.04.2010, available from http://www.spisales.com/memberlogin.aspx?referrer=downloadwhitepapers.aspx?id =956.

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Kantin, Bob/Nick/Nick, Michael/Sullivan, Tim "Why Johnny (and Janie) Can’t Sell" (www.solutionselling.com, Whitepaper, 2004) Captured 01.04.2010, available from http://www.spisales.com/memberlogin.aspx?referrer=downloadwhitepapers.aspx?id =960.

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Buriánek, F./Ihl, C./Bonnemeier, S./Reichwald, R. “Typologisierung hybrider Produkte - Ein Ansatz basierend auf der Komplexität der Leistungserbringung“ (Arbeitsbericht Nr. 01/2007 des Lehrstuhls für Betriebswirtschaftslehre - Information, Organisation und Management der TU München, #01/2007) Captured 08.06.2007, available from http://www.hyprico.de/publikationen/AP%20Typologisierung%20hybrider%20Prod ukte.pdf.

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Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,

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Schnerrer, Julien. The Effect of Solution Transition on Steering the Sales Force: For New Marketing and Sales Metrics : For New Marketing and Sales Metrics, Diplomica Verlag,