Management discussions

Example 3 Suppose that Tom, a sales representative for a pharmaceutical manufacturer, sometimes makes cold calls to physicians’ offices, arriving without an appointment to make a sales presentation. The graph on the left side of Figure 6.2 shows the connection that Tom thinks exists between effort devoted to cold calls and sales results. The horizontal axis shows levels of effort from 0 (none) to 10 (high), and the vertical axis shows number of sales per month. Tom believes that more effort devoted to cold calls will result in more sales each month. This is shown by the linear section of the function between 0 units of effort and 6 units of effort. The more effort he exerts, the more sales he makes. Tom also believes that after 6 units of effort per month, the expected number of sales per added unit of effort increases much more slowly. In other words, he believes that 6 units of effort is the point of diminishing returns for cold calls.

� Figure 6.2.perceived and actual action-to-results connections.

The graph on the right is the actual action-to-results connection. Based on years of experience, Tom’s manager knows that cold calls rarely lead to sales. The flat section of the connection from 0 to 6 units of effort indicates that Tom can put a fair amount of effort into cold calls and get no sales at all. In fact, he must put in a great deal of effort to get even a few sales.

The example in Figure 7.1 shows an accounting firm’s billable hours; the result, on the horizontal axis, ranges from 25 to 50 hours per week. The vertical axis shows the level of evaluation, going from a very negative —10 through a neutral value of 0 to a very positive +10. Averaging 25 billable hours per week gets a very negative evaluation. As the number of billable hours increases, the evaluation becomes much less negative. Averaging 33 billable hours gets an evaluation of 0; it is adequate—neither positive nor negative.

� Figure 7.1. Results-to-evaluation connection.

As the billable hours increase to 40, the evaluation becomes very positive. Beyond 40, improvements in the evaluation get smaller and smaller. At the point of diminishing returns, the accountant may suffer burnout, which would reduce the level of future billable hours, or his or her fatigue may be too high to produce good client satisfaction.