GRC Journal - (Page 75) Governance, risk & Compliance SAP understands that there is a wide range of corporate strategies, policies and controls a company can adopt to deliver bottom-line results. In this paper, we’ll take a closer look at several different corporate strategies as well as the impact of control systems – both good and bad – on corporate performance. The paper will explain which kind of control system is appropriate based on a company’s strategic direction, culture and objectives. In conclusion, we’ll examine how a holistic approach to managing governance, risk and compliance (GRC) can help: n n n n Establish the link between policies and business strategies Embed and monitor operational controls to ensure policy execution Promote desired employee behavior Provide reporting transparency to improve operational excellence, institute business predictability and boost stakeholder confidence The Impact of Operational Controls on Corporate Strategy Whether a company wants to motivate its sales team, produce premium-quality products or promote product innovation, appropriate policies and operational controls must be in place to support the strategic direction. To support any of these corporate strategies, a company will need to institute certain operational controls. Using Operational Controls to Inspire Sales Force Performance The culture and effectiveness of any sales force is determined by how much emphasis the company places on individual performance; the extent of management intervention, contact and coaching with the sales team; and the transparency of evaluation criteria and compensation calculations. Based on research conduct and published in a recent edition of the Harvard Business Review, there are two significant – and very different – approaches to sales force controls. The first encourages sales reps to put the customer first – what is referred to as an outcome control (OC) system – and the second encourages reps to put the company in the form of a district or regional manager first. This is referred to as a behavior control (BC) system. In an OC system, what the customer wants is the primary consideration. Companies with an OC system will focus on measuring and rewarding results. Typical metrics include sales, margins, market share, sales of new products or repeat business, but most OC organizations emphasize and track only a few of these results. The two or three key metrics are then closely tied to a significant portion of the sales rep’s compensation. For an OC system to work properly, a comprehensive accounting and performance management system is required to capture metrics in a manner that is timely, accurate and appropriate. In contrast, in a BC system, the sales manager is king. Companies with BC systems measure, evaluate and reward what salespeople do – their efforts, activities, hours and expenses – rather than outcomes alone. Companies with BC systems will also measure and reward knowledge, skills and competencies. The bulk of compensation in a BC environment is fixed. While sales reps in BC systems take the customer’s side to some extent, they readily understand that the company has its own objectives that must be considered in the sales process. In the end, the company goals come before customer demands. Which Control System is Right Determining which type of sales force control system to adopt will depend on a company’s strategies and supporting corporate policies. It will also vary based on local cultural and legal norms. Outcome control systems are better received in some cultures – such as the U.S., Canada, Argentina, Italy and some parts of India – and not as well received in others areas such as Sweden, Japan or Korea. A firm with global operations might need to consider multiple control systems for various geographical regions. There are general situations that favor an OC system and others that require a BC system. As a general rule, an OC system makes sense when salespeople have a substantial influence on results. Specifically, OC is the right system when customers need detailed information, the product or sale is differentiated, and customers build relationships with sales representatives that can impact future sales. In general, a BC system is a good fit when salespeople do not need as much autonomy or the company has goals other than straight sales. Specifically, a BC system is a better fit if the sales team lacks experience, the brand needs protection and the company has other priorities – such as new product development and innovation – that it values as much or more than sales. Of course, these two control systems are at extremes. Many companies function well with a blend of management power and customer power. What is important is that the sales strategy is clearly defined and supported by corporate policies that promote the desired outcomes. www.BTQuarterly.com Business Trends Quarterly 37 http://www.BTQuarterly.com
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