Sales Incentive Programs Can Have Impact Across the Organization

Sales Incentive Programs Can Have Impact Across The Organization By Frank J. Katusak It’s all about sales; or is it? Although increasing sales and profit is of paramount importance when planning sales incentive programs, there are other factors that must be taken into consideration, according to the latest study released by The Incentive Research Foundation, “Assessing the Impact of Sales Incentive Programs: A Business Process Perspective.” The study, conducted by Srinath Gopalakrishna, associate professor of marketing at the University of Missouri-Columbia, demonstrates the impact a sales incentive program can have on other functional areas of an organization. An analysis of sales incentive programs must embrace the entire business process to gain a more complete perspective of their overall effectiveness. The study addresses the following questions: Are there effects of a sales incentive program that go beyond the sales function? If yes, can those effects be documented and quantified? From a cross-functional perspective, how can sales incentive programs be managed more effectively? Sales incentives are a multi-billion dollar industry and their use is quite extensive among businesses. This study shows how a well-known United States based hand tool manufacturer, concerned about years of slow sales and increased competition, decided to implement its first incentive program. It is described step by step in the study. Plunging into a sales incentive program without any regard for the likely impact on other parts of the organization is a naïve approach. Such a shortsighted view can generate serious and often unanticipated side effects for the business operation that may turn out to be detrimental in the long run. Other areas of the organization must be taken into consideration. They include: Finance. New customers are great but prompt-paying new customers are even better. If there is a delay in invoice payments, accounts receivable is impacted and a shortage of cash can create issues for meeting payroll and other obligations. Operations: New customers entering the sales system may order products at highly erratic schedules. Without careful planning, excess inventories and shipping schedules may have an adverse impact on the amount of money invested in carrying inventory. Procurement: The fact that more products must be produced to handle sales increases is often overlooked. This places greater demands on procurement, whose primary goal is to secure all necessary materials, supplies, and services for the company at the optimum quality, in the right quantity, in a timely manner, and at the best possible prices. Production: Higher production volume may necessitate additional labor hours to produce the extra goods. Human Resources: Planning for additional workers involves considerable expense. Beyond the cost of hiring, the cost of training the new workers must also be considered. In fact, it was when these other business processes were factored into the sales incentive program equation that projected return on investment (ROI) went from a negative position (if the company focused solely on sales growth) to an ROI estimated at 84 percent. It is important to design and execute a sales incentive program that involves a study of different parts of the organization to assess what its impact will be. This approach enables the planning and creation of the needed infrastructure and additional investments wherever necessary to support the results arising from the sales incentive program. The study, “Assessing the Impact of Sales Incentive Programs: A Business Process Perspective,” is available from The Incentive Research Foundation, 304 Park Avenue South, 11th floor, New York, NY 10010; phone: (212) 590-2518; fax: (212) 590-2517; www.TheIRF.org

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