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Control-systems are divided into those monitoring outcomes, and those monitoring the individual stages of a process (behaviors), “many sales-force systems are a mix of behavior and outcome-based control”. Choosing a system is dependent on “the relative costs of measuring behavior versus outcomes and the various forms of uncertainty that creates risk in the environment” (Anderson & Oliver, 87). “Organizations can choose to screen employees at the gate, incur high screening and staffing costs, and then rely on output controls. Or, organizations can be less selective in choosing employees, and rely on behavior controls by investing heavily in monitoring and training systems” (Challagalla & Shervani, 97). Different systems have their own relative impacts on organizations.
Managers monitor employee behaviors, directing and evaluating based on subjective measures of abilities and activities; not just outcomes. The manager makes sure that employee input and behavior reflects his expectations. Results should be at a certain level, long term, if the employee is deemed to be following the defined behaviors of the firm. “To ensure cooperation the firm pays largely on a fixed basis (salary). The firm assumes risk to gain control” (Anderson & Oliver, 87). This attracts the risk-averters who are contented with a secure source of income and happy to follow direction and have performance reviews. Along with this shelter and security comes employee loyalty and commitment to firms.
Managers make decisions to increase or decrease salaries, promote or sanction employees’ using “more complex, subjective” evaluations based on behaviors not measurable outcomes (Anderson & Oliver, 87). Managers dictate the level of performance required, not market pressures. Management cost increases because more monitoring is required. In
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Behavior-systems afford managers more control over employees through interaction and relationships, employee participation and corporate culture. Managers impose their own ideas of “what salespeople should be and do to achieve results”. Managers can have employees’ focus on the firms’ long-term strategy as opposed to their individual goals to earn maximum commission seen in outcome-based systems. Emphasis is placed on enhanced customer service, goodwill and reputation, and “pioneering new product lines” instead of focusing on the products that are easier to sell. “Managers can direct salespeople to perform behaviors as part of company strategy”, this enables development (Anderson & Oliver, 87).
Behavioral-systems “eliminate inequities that arise using output measures”, when “factors beyond employee control have major impacts on results”. Whilst subjective judgments are often considered bias, situations can arise in which they are necessary to adjust evaluations (Anderson & Oliver, 87).
In firms that have high levels of training (firm-specialization), “when experience with organizations creates valuable specialized-knowledge and relationships” these employees are valuable and irreplaceable. “With outcome control and little credible threat of replacement, management may have a lack of actionable alternatives”, if there is “high uncertainty and irreplaceable salespeople” (Anderson & Oliver, 87) the behavioral-control system is necessary.
Experienced managers prefer behavior-control, they are confident in their ability to direct effectively. “Ego considerations” are used in behavioral-systems to avoid issues arising from error or shortcomings because managers “may not know what behavior to exercise to achieve desired results” (Anderson & Oliver, 87). Behaviour-control “tends to blur the distinction between descriptive and normative theory” in that it “embraces the rational assumption: managers use the practices that are best for firms” (Snell, 92). Managers are required to know exactly which directives have the best impact on their firm, this is unlikely.
Behavioral-control has disadvantages wherein complex and “subjective ratings of salespeople by managers introduce bias, ignorance, halo effects, and lack of credibility” in evaluation. Managers’ beliefs can be perceived as unfair, “a brash salesperson who outsells a more personable, high effort compatriot” would not be as highly valued in a behavioral-system as they would in an outcome-system (Anderson & Oliver, 87). As complexity increases more strain and cost is placed on management.
The output-control system involves objective measuring of results with little direction creating a semi-autonomous relationship with management. Salespeople are allowed to achieve using individual strategies and held accountable for results only. Market pressure dictates performance, reducing managerial costs, and making each salesman an “entrepreneur” (Anderson & Oliver, 87). Rewards are “in direct proportion to each individuals performance” (Anderson & Oliver, 87), most commonly commissions. Judging is simple; output is quantified and related to the employee who generated it.
Selling is an independent task; employees’ are often geographically separated from management making “supervision difficult”. “Salespeople are replaced if they fail”, therefore firms must provide greater compensation for risk assumed. The firm enjoys high performance salespeople, yet remains flexible by minimizing overhead. Risk and reward is placed with individuals and they develop “loner” attitudes” and disloyalty. Firms “are perceived as exploitative of results”, employees’ “express a willingness to switch employers readily” (Challagalla & Shervani, 97) if they are displeased. High employee turnover can be detrimental to any firm.
Output-control induces “compelling individual motivation in that non-producers receive no compensation”. I believe that this only applies to employees’ desiring greater risk and reward. Many individuals prefer “being freed from short-term pressures and being rewarded for desired behaviors” (Anderson & Oliver, 87) in behavioral-systems.
Outcome-control has disadvantages; employees’ behave in a manner that is detrimental to firms in the long-run, having no desire to provide customer service, to create good reputation or to sell newly devised products with no consumer loyalty. They focus on prospects with immediate returns. To counteract this, managers need to employ more subjective measures of judging employees, no longer using the simplistic output-control system. Furthermore “it is less expensive for the risk neutral firm to assume risk (via salary) than to pay high commission rates that risk averse individuals will demand” as compensation (Anderson & Oliver, 87).
Certain variables should be considered when deciding between outcome and behavior-control. For long-run objectives in large firms with big markets - positive reputation, comprehensive product knowledge and firm-specialized employees are necessary. These employees’ are expensive to replace so managers need to be able to exercise control over them. Employees should feel integrated and be intrinsically motivated. “In behavior based systems the agency’s interest comes first because it is the agency that shelters from risk”, gaining loyalty. Employees’ needs are ranked after the firm. Employees don’t perform as well output-wise but they serve future goals and focus on customer satisfaction. Therefore “risk averse orientation” and “intrinsically motivated environments” (Anderson & Oliver, 87) are desirable. Maintaining this complex system is often very costly, but salaries are less risky opposed to commissions.
Behavior-control is expensive and can be cost ineffective for companies operating in small markets with little money at stake. In a small business, concerned with sales output at present, output-control is preferential. It attracts the best salespeople, willing to accept risk, relying on their stronger abilities to earn commissions. These employees’ rank their personal needs ahead of the firm and feel no loyalty as it offers them no protection. Outcome-control is simplistic and cheap to maintain, but commissions can be relatively expensive.
In general, “environmental uncertainty, difficulty in the quantification of sales outcomes, and risk averse, firm-specialized, or intrinsically motivated salespeople argue for behavior control” whereas “small firms with high relative measurement costs and direct links between sales effort and performance argue for outcome control”. In Summation, “No single control system is the best in all circumstances”, therefore “we should ask under what circumstances each system functions well” (Anderson & Oliver, 87).