Managers implement control systems in order to ensure that individual goals are aligned with

Perspectives on Behavior-Based versus Outcome-Based Salesforce Control Systems Author(s): Erin Anderson and Richard L. Oliver Source: Journal of Marketing, Vol. 51, No. 4 (Oct., 1987), pp. 76-88 Published by: American Marketing Association Stable URL: http://www.jstor.org/stable/1251249 Accessed: 19-09-2016 18:00 UTC

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Erin Anderson & Richard L. Oliver

Perspectives on Behavior-Based Versus Outcome-Based Salesforce

Control Systems Forms of control systems used in salesforce evaluation and based on the monitoring of outcomes or of behaviors are described, contrasted, and evaluated in terms of emerging theories in economics, orga- nization theory, and cognitive psychology. Generally, the principles of behavior control as opposed to outcome control are found to be consistent with these theoretical perspectives with exceptions as noted, though studies of descriptive trends suggest that outcome control remains useful as a sales management philosophy. The authors conclude with a set of propositions intended to stimulate research on the man- agerial and behavioral consequences of the two control philosophies.

Acontrol system is an organization's set of pro- cedures for monitoring, directing, evaluating, and

compensating its employees. By accident or design, such a system influences employee behavior, ideally in a way that enhances the welfare of both the firm and the employee. One group of employees critical to the organization's functioning is the salesforce. We describe and discuss two major salesforce control sys- tems and assess the effects of these systems on the salesperson's cognitions, motivation, and behavior.

Like system frameworks generally (see Eisenhardt 1985), salesforce control systems can be classified into those monitoring the final outcomes of a process and those monitoring individual stages (e.g., behaviors) in the process. In an outcome-based control system:

* relatively little monitoring of salespeople by management is involved,

* relatively little managerial direction or effort to direct salespeople is involved, and

* straightforward objective measures of results (outcomes), rather than measures of the meth-

Erin Anderson is Assistant Professor and Richard L. Oliver is Associate

Professor, Department of Marketing, The Wharton School, University of

Pennsylvania. The authors thank Bob Trinkle of TSI for sharing his sug- gestions and ideas.

76 / Journal of Marketing, October 1987

ods salespeople use to achieve results, are used to evaluate and compensate the salesforce.

In contrast, in behavior-based control systems:

* considerable monitoring of salespeople's activ- ities and results is involved,

* high levels of management direction of and in- tervention in the activities of salespeople are in- volved, and

* subjective and more complex methods based largely on (1) what salespeople bring to the sell- ing task (e.g., aptitude, product knowledge), (2) their activities (e.g., number of calls), and (3) their sales strategies, rather than sales out- comes, are used to evaluate and compensate the salesforce.

Outcome-based control approximates a market contracting arrangement wherein salespeople are left alone to achieve results in their own way using their own strategies. Salespeople are held accountable for their results (outcomes) but not for how they achieve the results (inputs or behavior). Under such a system, the invisible hand of the marketplace pressures sales- people to perform and guides their actions. Firms us- ing outcome control systems reduce managerial over- head by capitalizing on the "direction" afforded by

Journal of Marketing Vol. 51 (October 1987), 76-88.

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market pressures, shifting risk to the salesperson (Basu et al. 1985) and sharing rewards with the salesperson in direct proportion to each individual's measurable performance. Outcome-based control, then, is laissez faire management whereby the salesperson is made an entrepreneur, responsible for his or her performance but free to select the methods of achievement.

Behavior-based control systems represent an op- posing philosophy. Active managers, backed by a sig- nificant management information-gathering staff, vig- orously monitor and direct the operations of the salesforce. Managers typically have a well-defined idea of what they want salespeople to do and work to en- sure the salesforce behaves accordingly. Sales results are presumed to follow, often in the long term. To ensure cooperation, the firm pays salespeople largely on a fixed basis (salary). Thus, the firm assumes risk to gain control. Performance evaluation and increases or decreases in salary (changes in reward) are based on more complex, subjective assessments involving what salespeople know and what they do (their inputs) rather than what they measurably achieve (their out- comes). In behavior-based control systems, the visi- ble hand of management is substituted for the invis- ible hand of the market's forces.

These extremes are stereotypes. Many salesforce control systems are a mix of approaches, containing elements of both behavior- and outcome-based strat-

egies (see Churchill et al. 1985). Nonetheless, the preceding discussion captures the major differences in the two separate philosophies.

Overview

The purpose of our article is to propose a framework for selecting an appropriate salesforce control system as it affects the job-related knowledge, motivation, behavior, and sales outcomes of the salesperson. The analysis draws from economic theories of control (transaction cost analysis and agency theory), orga- nization theory, and cognitive psychology. We elab- orate current viewpoints on salesforce control, present and integrate four theoretical perspectives on this problem, discuss the findings of studies, and describe the incidence of practices used. We then present for empirical testing a series of propositions about the im- pact of control systems on the salesperson. We con- clude with implications for managerial strategy.

Review of the Sales Control Literature

Despite their obvious managerial importance, com- pensation plans have received little empirical attention in the salesforce management literature. Moreover, few if any comprehensive conceptual frameworks are used

in practice to determine how to compensate salespeo- ple. Hence, firms follow industry norms, experiment, and use ad hoc methods to cope with the compensa- tion puzzle (John and Weitz 1984; Smyth 1968).

Outcome-Based Control

Historically, salesforce managers and the performance appraisal systems used by managers have tended to emphasize outcomes rather than behaviors (Churchill et al. 1985), particularly in determining compensa- tion. A major reason is the availability of simple, seemingly equitable measures of sales volume or dol- lars. Partly because of the ease with which orders usu- ally can be linked to the individual responsible for the sale, the dollar sales criterion is a popular and readily available measure; it is the single most commonly used performance index in published research reports (Weitz 1981) and is very commonly used in practice (Peck 1982). Sales unit volume is also a popular measure because of its intuitive appeal as an index of the breadth and depth of sales. Other widely used indices are gross margin, net margin (sales minus the cost of the sales- person), and the sales expense or cost/sales ratio (Behrman and Perreault 1982). These last indices in- clude profitability, which can reduce the incentive to maximize revenue (at the expense of margins) when dollar sales is the criterion.

Advantages of outcome-based control. By its na- ture, selling is an independent occupation. The fact that salespeople spend considerable time on the road makes supervision difficult. Further, selling is a de- manding occupation in which success is difficult to predict. Contrary to popular belief, it is extremely dif- ficult to profile the successful salesperson and to spec- ify universal rules of thumb as to what makes one salesperson more effective than another (Weitz 1981). Because many types of individuals and many methods of operation appear to succeed in one setting and fail in another, developing situation-specific strategies is difficult. In the terminology of Ouchi and McGuire (1975), it is impossible to specify a universal "trans- formation process" by which salespeople's inputs be- come outputs (results). Knowing this, many managers prefer to let their salespeople use their own methods. Instead of actively directing the salesforce, they give a varied group of salespeople free rein and hold them accountable for the results.

Given the nature of the sales job and the hetero- geneity of the sales task, outcome-based control sys- tems are the path of least resistance. These methods also provide a compelling individual motivation in that nonproducers receive no compensation. Because of the often discouraging nature of selling (e.g., rejec- tion by customers, incommensurate social status, task ambiguity due to little contact with supervisors), many

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managers believe outcome-based rewards are neces- sary to maintain motivation.

Disadvantages of outcome-based control. Despite their benefits, outcome-based systems have some well- known drawbacks. For example, the inherent lack of direction in such systems can permit sales behaviors that harm the organization in the long run (e.g., lack of attention to customer satisfaction, primary empha- sis on the more profitable or, alternatively, easy-to- sell items in the product line). Further, outcome-based systems tend to focus the salesperson on activities with immediate payoffs to the detriment of long-term re- sults (John and Weitz 1984; Smyth 1968). For ex- ample, salespeople may resist investing extra effort in selling new products, prospecting, penetrating large accounts (which are often more difficult to sell), and providing service. Instead, they may be motivated to pursue immediate returns by minimizing service and by selling established products to smaller, regular ac- counts (Moynahan 1983).

Managers can avoid these problems by using mul- tiple indicators of outcomes (e.g., sales per product or per account category) rather than one or two simple indicators. However, the use of these indicators in- creases the complexity of the system, necessitates more record keeping, and may involve subjective judg- ments in combining separate indices into overall per- formance assessments. Adding complexity to the con- trol system necessitates a greater number of subjective judgments and more information gathering, thereby shifting the system toward the behavior-based philos- ophy.

Behavior-Based Control

As noted, behavior-based control systems address the process of selling rather than simply the outcome(s). Salespeople in such systems may be evaluated and compensated on any number of factors that are not themselves measures of achievement but may result in sales performance. Personableness, product knowl- edge, presentation quality, closing ability, services performed, number of active accounts, calls made, amount of correspondence, and days worked are com- mon examples (Jackson, Keith, and Schlacter 1983). Typically, salespeople are rated by managers on these variables, which then are weighted and combined into a composite evaluation upon which salary and pro- motion decisions are based.1

Disadvantages of behavior-based control. Poten- tial drawbacks to such a system are the complexity

'Patton and King (1985) find evidence that managers combine this information in a linear compensatory way, which can become a fairly complex process if more than a few variables are used.

and subjectivity of evaluation (Adkins 1979; Cocan- ougher and Ivancevich 1978). The subjectivity aspect is of particular concern because subjective ratings of salespeople by managers introduce bias, ignorance, halo effects, and lack of credibility into the evaluation system (Behrman and Perreault 1982; Jackson, Keith, and Schlacter 1983). Further, the manager builds his or her model of what is effective into the system and salespeople may perceive it to be unfair. For example, a brash salesperson (at least in the manager's eyes) may work a four-day week calling on selected ac- counts. If this salesperson outsells more personable, high effort compatriots who call on many accounts, he or she may feel underrated and underpaid in a be- havior-based system. Such an individual would be tol- erated and rewarded in an outcome-based system.

Another problem with behavior-based systems is that the more comprehensive they become, the more they strain management's ability to collect, sift, and combine the information. This difficulty may explain why sales managers commonly evaluate salespeople by using only a few indicators (often heavily quali- tative) on only a limited range of activities (Jackson, Keith, and Schlacter 1983).

Advantages of behavior-based control. The prin- cipal advantage of behavior-based control systems is the control they afford the manager. In such systems, the sales manager imposes his or her ideas of what salespeople should be and do to achieve results, some of which may be long term. Examples of such long- term payoffs include the future sales of a pioneering product line and new or repeat orders from enhanced customer goodwill and reputation. Further, in a be- havior-based system, managers can direct salespeople to perform certain behaviors as part of company strat- egy without the necessity of convincing each sales- person that the strategy is valid. One example is the strategy of low pressure expertise selling to create a particular image. Another example is the commitment of time to forecasting and planning instead of selling. In short, behavior-based systems enable companies to execute salesforce strategies that involve develop- mental work and/or certain behaviors consistent with company strategy.

Another advantage of a behavior-based philoso- phy is that it enables the manager to eliminate ineq- uities that can arise in using simple output measures. For example, in some selling jobs, factors beyond the salesperson's control have a major impact on results (Ryans and Weinberg 1979). Though it may create perceptions of inequity, subjectivity is necessary to adjust performance evaluations for these uncontroll- able factors. Otherwise, salespeople may be rewarded or punished inequitably for events they do not influ- ence (Churchill et al. 1985).

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Theoretical Approaches to the Control Problem

Several major theoretical approaches relevant to the salesforce control problem are agency theory, orga- nization theory, transaction cost analysis, and cogni- tive evaluation theory. The first three are pertinent to our discussion because they suggest behaviors en- couraged or discouraged by systems that monitor be- havioral processes versus those that measure out- comes. Further, these approaches suggest the circumstances under which each system is appropri- ate. Each addresses the problem with different as- sumptions and identifies different sets of variables. Hence, it is useful to compare, contrast, and combine the three approaches. Alternatively, cognitive evalu- ation theory concerns how management philosophy may affect the individual's cognition, (job) affect, and motivation. Thus, it adds a unique psychological per- spective to our analysis. In the following section we discuss these four approaches and their application to generate recommendations for an appropriate sales- force control system.

Agency Theory

As described by Eisenhardt (1985), agency theory is an analytical, normative microeconomics/accounting approach to the question of how principals can control the activities of the agents to whom they delegate de- cision-making authority. A central premise of this the- ory is that principals and agents have divergent goals. For example, the principal (in our case, the company) desires increased profit whereas the agent (the sales- person) desires increased personal income. Goal in- congruence places principals and agents in conflict. Agency theory is concerned with the design of control systems that realign the incentives of both principal and agent so that both parties desire the same outcome ("incentive compatibility"). For example, profit shar- ing is one element of the control system that focuses both principal and agent on the profit motive.

Agency models address the risk-bearing prefer- ences of the firm and the agent (salesperson). A firm has two choices about the allocation of risk in the sell-

ing environment. One is to purchase information about the agent's behavior, which it then rewards. This "be- havior control" system may be expensive because management overhead is involved. However, the salesperson is freed of the risk that appropriate sales behaviors may not generate results for reasons beyond his or her control. This system is appealing to the agent, who usually is assumed to be risk averse whereas the firm is assumed to be risk neutral (Basu et al. 1985). Alternatively, the firm can measure outcomes (which also may be costly) and hold the salesperson account- able. "Outcome control" shifts risk from the firm to

the agent. The choice between outcome and behavior control depends on two factors, (1) the relative costs of measuring behavior versus outcomes and (2) the various forms of uncertainty that create risk in the sales environment.

Basu et al. (1985) applied agency theory to the compensation component of the control system. They modeled the percentage of compensation that should be fixed (behavior control) versus the percentage that should be variable (outcome control) when uncer- tainty takes the form of a weak link between effort and sales performance (cf. Vroom's 1964 "expec- tancy"). The analytical model they propose indicates that the weaker the link between salespeople's effort and sales results, the higher the proportion of com- pensation that should be fixed. They argue that when efforts do not lead predictably to results (high uncer- tainty), salespeople are at high risk in that they can be penalized for results largely beyond their control. It is less expensive for the risk neutral firm to assume the risk (via salary) than to pay the very high com- mission rates risk averse individuals will demand to

compensate them for the risk assumed. This hypoth- esis is consistent with Smyth's (1968) argument that when salespeople have a strong influence on whether a sale is made, they should be given incentives to ex- ercise their influence; when salespeople have little in- fluence on the sale, they should not be penalized for low sales (hence more salary).

Coughlan and Sen (1986) review the propositions generated by analytical agency theory models of salesforce compensation, an important component of the control system, and underscore the importance of a model's assumption about the salesperson's risk preference. If a salesperson is risk neutral (willing to select the option with the highest expected value re- gardless of risk), an all-commission system is rec- ommended. However, if the salesperson is risk averse, the Basu et al. (1985) position becomes more tenable. In their analysis, a salary component is recommended and that component rises as the link between effort and results weakens. A second form of uncertainty is sales volatility, which puts the salesperson at risk and makes it less expensive for the firm to offer salary than to offer the level of incentive the risk averse

salesperson demands. Coughlan and Sen (1986) point out that current

versions of agency theory ignore several factors, in- cluding the time lag from effort to outcome (sale), factors other than effort that influence sales, interre- lated demand for multiple products (i.e., synergy or competition within the product line), and the need to perform nonselling functions. Nonetheless, agency theory generates provocative propositions about a firm's choice of a control system for the salesforce.

In sum, agency theory predicts that behavior con-

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trol will be used when measuring inputs is less ex- pensive than measuring outcomes and when uncer- tainty puts the salesperson at risk. Outcome control will be used when measuring outcomes is less expen- sive than measuring inputs and when environmental uncertainty is low. These and the following conclu- sions are shown in Table 1.

Organization Theory

Organization theory (e.g., Ouchi 1979) addresses the control issue from different premises. In contrast to agency theory, organization theory explicitly recog- nizes that (1) divergent goal preferences between salesperson and firm need not be presumed in that agents can be socialized to identify their goals with the organization's and (2) measuring either inputs, outputs, or both may be impossible (Eisenhardt 1985).

The second presumption-that good measures may not exist-is in marked contrast to agency theory, which assumes anything can be measured if the or- ganization is willing to spend enough on its infor-

mation system. However, in many instances, sales- forces do not have good output measures. A major factor leading to this problem is the considerable time lag between effort and outcome in many types of in- dustrial selling (Adkins 1979), a lag ignored by ana- lytical agency theory models (Coughlan and Sen 1986). Further, data often are missing or inaccurate at the salesperson level, particularly in the case of team sell- ing, where individual impact is difficult to assess (An- derson 1985).

Organization theory recognizes that, even if a firm does have perfect information, it may not know how to transform it into action strategy. For example, a sales manager may know a salesperson's call rate but may not know whether the optimal strategy is to call at the same rate, make more calls on more customers, make more calls on fewer customers, or even make fewer calls. In short, a manager may not know what behavior to exercise to achieve desired results. Eisen-

hardt (1985) calls this situation "low task programma- bility" and Ouchi and McGuire (1975) refer to it as

TABLE 1

Recommended Control Strategies Based on Four Theoretical Perspectives as a Environment, Firm, and Individual Variables

Function of

Theory

Transaction Cognitive Variable Agency Organization Cost Evaluation Environmental Variables

High demand uncertainty Behavior High sales volatility Behavior High volatility, nonspecialized Outcome reps

High volatility, specialized reps Behavior Firm Variables

Willing to assume risk Behavior Small salesforce size Outcome Humanistic atmosphere Clan Outcome measurement

Impossible Behavior Inaccurate Behavior Behavior Objective Outcome High cost Outcome

Behavior measurement Difficult/expensive Outcome Transaction process Outcome or Outcome unknown clan

Informational feedback Behavior Controlling feedback Outcome Salesperson Variables Goal congruence Outcome Risk aversion Behavior High sales "expectancy" Outcome Experience/specialization to Behavior

firm

Intrinsic motivation preference Behavior Extrinsic motivation preference Outcome All Other Circumstances Outcome

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ignorance of the "transformation process" (wherein inputs become outcomes).

In such instances, organization theory recognizes a third type of control system, the "clan" (Ouchi 1979). Clans represent control by neither outcome nor be- havior, but by socialization. The objective of a clan is to inspire loyalty to the principal among agents, that is, loyalty to the point of identification with the or- ganization and its goals. Though how this objective can be achieved is not entirely clear (Ouchi 1981), the critical elements seem to be a warm, humanistic work atmosphere, promotion from within, long-term em- ployment, generous pay, and support and encourage- ment of each individual. The personnel practices of clans have been compared, albeit with consider- able controversy, to Japanese management techniques (Ouchi 1981). More recently, such personnel prac- tices have been described by Peters and Waterman (1982) as characteristic of a handful of "excellent" American corporations. Despite these claims of su- periority, clans are poorly understood and expensive to maintain. Hence, Ouchi (1979) does not recom- mend their use except under certain circumstances, though Peters and Waterman (1982) disagree, arguing that clans are always appropriate.

Figure 1 displays the organization theory hy- potheses about control systems. As shown, clans are reserved for situations in which little else seems fea- sible (cell 4) in that the transformation process is un- known (foreclosing behavior control) and adequate measures of outcomes are unavailable (foreclosing outcome control).2 If the transformation process is known (cells 1 and 3), sales managers can prescribe behavior, making behavior control feasible. If output

FIGURE 1 Knowledge of Process by Which Behavior

is Transformed into Outcomes8

Process Knowledge Perfect Imperfect

High

Ability to Measure

Outcomes

Accurately and

Completely

Low

Behavior or Outcome control outcome control (2)

(1)

Behavior control (3)

Socialization "clan" control

(4)

aAdapted from Eisenhardt (1985) and Ouchi (1979).

2However, Williamson (1985) suggests that in highly problematic circumstances, transactions may not even be arranged; hence sales- forces may not be formed to operate in cell 4.

measures are poor, behavior control is the only fea- sible choice, as in cell 3. Outcome control is appro- priate if adequate output measures are available (cells 1 and 2) and is the only appropriate choice if the trans- formation process is unknown (cell 2).

This framework has received partial empirical support (Anderson 1985; Eisenhardt 1985; Ouchi and McGuire 1975). In particular, the necessity of having valid outcome measures in order to employ outcome control has been supported. The clan system, how- ever, has received little attention in the literature.

Literature suggests some managers prefer behav- ior control ceteris paribus, employing it even when good outcome measures are available. In particular, managers are inclined to use more behavior control as they gain experience, which gives them confidence (perhaps falsely) that they know what behavior to pre- scribe (Jackson, Keith, and Schlacter 1983; Ouchi and McGuire 1975). Mowen et al. (1985) report evidence that even experienced sales managers err in perfor- mance evaluations by overvaluing sheer effort and failing to account sufficiently for the impact of task difficulty (e.g., variations in sales territories).

The organization theory approach is not without shortcomings. It is silent on the issue of which method, behavior or outcome, should be used if both are fea- sible (cell 1). Further, it does not address the cost is- sue explicitly. For example, it may be feasible to ac- quire knowledge of the transformation process or to develop outcome measures, but at such high cost that ignorance and the expense of a clan are preferable.

Transaction Cost Analysis

In contrast to the prescriptions of organization theory, transaction cost analysis represents the position that outcome-based control systems are to be preferred un- less certain circumstances prevail (Williamson 1985). Generally it is argued that outcome control corre- sponds to market contracting, wherein competitive forces determine survival (see John and Weitz 1984). Outcome control has the same benefit, namely that the competitive mechanism is allowed to signal success- ful strategies by eliminating practices that are ineffi- cient or unattractive to customers. Thus, outcome control is a marketing-oriented practice in that it al- lows the customer to reward desired behavior and

punish undesired behavior. Transaction costs analysts are suspicious of the firm's ability to improve on mar- ket outcomes by substituting managerial direction for the signals provided by outcomes, such as sales. Man- agement's search for the ability to direct behavior (i.e., control) is viewed as being motivated in many cases by ego considerations rather than by a genuine desire to get better results by behavior control (Williamson 1981).

Nonetheless, transaction cost analysts do ac-

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knowledge circumstances in which behavior control is appropriate. One such situation is when a salesper- son's experience with the organization creates valu- able specialized knowledge and working relationships (i.e., "transaction-specific assets"). For example, the salesperson may come to possess valuable knowledge of the applications of the brand, working relationships with accounting and shipping personnel, and close ties to customers. Such "firm-specialized" (experienced) individuals are thought to be too valuable to replace (at least readily). To retain this firm-specialized sales- person, while at the same time discouraging abuse of privilege by the salesperson and preserving loyalty to the organization, firms should shift toward behavior control.

Anderson (1985) finds some support for this po- sition whereas John and Weitz (1984) find stronger support, including evidence of a clanlike system (e.g., promotion from within, long-term employment, warm atmosphere) in which such salespeople predominate. Though transaction cost analysis does not address the clan mechanism in detail, it does acknowledge the value of providing a "satisfying exchange relation," includ- ing promotion from within and long-term employ- ment, to individuals who have become valuable be- cause of their transaction-specific assets (Williamson, Wachter, and Harris 1975). Some empirical support for this assertion is provided by Pfeffer and Cohen (1984), who find promotion from within is most likely to be practiced by firms in which employees tend to accumulate firm-specific skills.

The role of uncertainty is less straightforward in transaction cost analysis than in the agency theory and organization theory approaches. When sales environ- ments are highly volatile (uncertain) and salespeople are readily replaceable, transaction cost analysis sug- gests outcome control is the most appropriate choice, albeit at high commission rates to compensate for in- creased risk. Salespeople can be replaced if they fail to find a way to cope with the uncertain environment. Capable salespeople will be self-selected into such firms because they know they can handle uncertainty and will collect high compensation under an output con- trol system. The firm reaps the advantages of high performing salespeople, yet retains its flexibility, for example, by minimizing overhead.

However, if salespeople are not readily replace- able, perhaps because of experience benefits, flexi- bility is sacrificed. The firm will be reluctant to ter- minate nonperforming salespeople and cannot credibly threaten to do so. Uncertainty aggravates the normal problems of directing a salesforce and, with outcome control and little credible threat of replacement, man-

agement may be faced with a lack of action alterna- tives. Hence, substituting behavior control for out- come control is a recommended solution in this

situation. Replaceability moderates the uncertainty/ control system relationship in that high uncertainty and irreplaceable salespeople suggest behavior control; otherwise, the recommended response to high uncer- tainty is outcome control.

Transaction cost analysis acknowledges, as does organization theory, the need to move toward behav- ior control when output measures are inadequate. An- derson (1985) and John and Weitz (1984) find strong support for this position. The transaction cost ap- proach also highlights a factor related to costs: when little money is at stake, committing overhead to be- havior control is pointless because overhead is likely to outweigh any performance gains that can be achieved. The implication is that behavior control is undesirable and hence unlikely in very small sales- forces.

Cognitive Evaluation Theory On the basis of Deci's (1975) work in the area of in- trinsic motivation, a more general theory of individual perceptions of personal causality has been advanced by Deci and Ryan (1985). Their "cognitive evaluation theory" is relevant to our discussion because it ad- dresses the motivational characteristics of outcome-

contingent and behavior-contingent reward structures and offers behavioral guidelines for designing perfor- mance feedback programs. Implicit in the Deci and Ryan scheme is the belief that individuals prefer their activities to be self-determined rather than other-de-

termined and therefore that they also prefer intrinsi- cally motivated states to extrinsically motivated states. In this context, it is argued that behavior control sys- tems allow for a greater range of intrinsically moti- vated attributions on the part of the salesperson.

The attributional basis (cf. Sujan 1986; Weiner 1980) for cognitive evaluation theory is a critical as- pect in our application because the success of an out- come- or behavior-based strategy for individual sales- people hinges on the salesperson's perceptions about his or her success or failure (i.e., to what he or she attributes the outcome). Attributions are thought to encompass three dimensions, internal/external locus of causality (self- vs. other-determination), stability, and controllability. Though the latter two dimensions may be germane to sales activities, the first dimension has the greatest role in cognitive evaluation theory, primarily because of its effect on intrinsic motivation. Essentially, individuals must feel they are responsible for the results of their efforts if intrinsic motivation is to be enhanced.

Thus, Deci and Ryan (1985) propose that external events with behaviorally relevant implications (e.g., rewards) will affect motivation to the extent that they influence attributions of locus of causality (self- vs. other-determination), and to the extent that they in-

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fluence secondary attributions of personal compe- tence. Internal locus ascriptions and perceptions of competence (e.g., "I did it and I did it well") are thought to increase intrinsic motivation.

In cognitive evaluation theory, the mechanism by which a person makes intrinsic ascriptions is the re- ward structure. Rewards are thought to mediate judg- ments of self-determination and competence by virtue of the informational or controlling nature of the feed- back they provide. If feedback is interpreted as pro- viding information relevant to improving one's per- formance and competence, internal locus ascriptions are enhanced and intrinsic motivation increases. Al-

ternatively, if feedback is functionally similar to a control system, intrinsic motivation is decreased. Thus, informational feedback results in perceptions of self- determination and the ability to enhance one's com- petence, thereby increasing intrinsic motivation, whereas controlling behavior decreases levels of these variables. This scheme is shown in Figure 2.

These propositions are based on early work by Deci (1971, 1972), who found that rewards contingent on task performance decreased intrinsic motivation. Later studies (e.g., Enzle and Ross 1978; Ryan, Mims, and Koestner 1983) have shown that contingent rewards generally decrease intrinsic motivation unless those rewards are seen as informational and noncontrolling.

In relation to the salesforce control system, cog- nitive evaluation theory raises consideration of two is- sues. One is the degree to which the control system used by management is inherently more conducive to intrinsic than to extrinsic motivation. The content of the reward feedback should enable the salesperson to rectify performance deficits. This requirement is not easily met by outcome-based control systems. Sales outcomes, by their nature, are subject to numerous forces not under the control of the salesperson. As a result, the informational nature of sales results is com- promised because only a small and perhaps unknown percentage of the variance in sales is due to the sales-

FIGURE 2 Central Concepts of Cognitive Evaluation Theory

Feedback Phase

I II

Rewards - No

Fe

Rttribution Phase

Self- Determi ned

Performance Self- Internally 'Informative'--_ Eracement " Confidence- Motivated

/jyf~~~~~~ ~~~~State ,ture of

ecback

eacExternally Externally 'Controlling'-.- Exern Motivated Irnded

State Performance

Changes

person's efforts (cf. Churchill et al. 1985). The second issue raised by cognitive evaluation

theory is the degree to which feedback can be pre- sented that is perceived by the salesforce as infor- mational and noncontrolling. Because outcome con- trol systems link pay and other rewards to sales results, an outcome-based system may be perceived as con- trolling by the salesforce. In effect, outcome-based systems entail "fate" control, as low producers face potential termination. Though high sales levels can be seen, in some sense, as positively informative in out- come systems, inadequate performance can be seen only in the context of negative feedback and personal incompetence. The inability to redefine low perfor- mance into positive information is a major drawback of outcome control.

In contrast, behavior control affords greater flex- ibility to the manager because feedback is subjective, involving criteria instrumental only to the eventual sales outcome. Thus, unfavorable evaluations on select cri- teria may be compensated by favorable evaluations on others. Managerial judgments of on-the-job behaviors such as key account maintenance, prospecting, fore- casting, and customer service can be made more in- formative and oriented toward enhancing the esteem and the competence of the salesperson and, thus, less intimidating and controlling. Of greater importance, however, is the indirect correspondence between salesperson behaviors and sales outcomes; the sales- person is not held directly responsible for a lost sale.

Summary The conclusions drawn from the review of the four

theoretical perspectives are summarized in Table 1. The variables identified as moderating a preference for outcome or behavior control are categorized as en- vironmental, firm, and individual influences. Gener- ally, environmental uncertainty, difficulty in the quantification or translation 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. Clans are a special case, reserved for corporate atmospheres of the humanistic variety. We now examine studies indicating the incidence of these practices among firms.

Descriptive Studies of Salesforce Control Systems

Empirical research relating the theoretical perspec- tives to salesforce control systems is generally lack- ing; one objective of our article is to stimulate such research. However, some literature describing the in- cidence of types of control systems in salesforces is

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available. For the most part, the studies focus on one element, compensation. The elements of complete- ness of monitoring, amount of direction, complexity of evaluation, and subjectivity of evaluation receive little attention.

As early as 1968, Smyth detected a shift toward more behavior control in two forms: (1) greater com- plexity, in particular making payment contingent on achieving multiple objectives, and (2) more use of sal- ary, even as a supplement to what are essentially in- centive plans. Smyth's prediction is consistent with the findings of Coughlan and Sen (1986), who tracked the popularity of various kinds of compensation plans from 1972 to 1982. They show the overwhelming ma- jority (70 to 75% in most years) are combination sal- ary-plus-commission plans, with salary generally ac- counting for approximately 80% of total pay. Salary- only plans are less common (15 to 25% of all plans) and commission-only plans are rare (generally less than 10% of all plans).

These figures appear to support the popularity of behavior- over outcome-control philosophies in sales- forces, but whether the salary plan alone is indicative of the control system used by management is not known. John and Weitz (1984), in a descriptive study of compensation practices, provide some insight on this issue. They discovered that salesforces using a high proportion of salary in their compensation pack- ages also used a low span of control, long-term em- ployment, and promotion from within. This finding suggests that managers actively directed their people (facilitated by the low span of control), as would be expected in behavior-based systems. Further, these salesforces used elements of a clan system (secure employment, promotion from within) to control their salespeople. John and Weitz' finding is somewhat en- couraging because it suggests the behavior control concept applies in the field as salary, monitoring, and direction are correlated in their data.

Thus, the Coughlan and Sen figures cited before may be suggestive of the degree to which firms use some amount of behavior control over their sales-

forces as judged by the high proportion of pay that is fixed (salary) in many salesforces. This finding is striking, given the independent nature of sales work and the widespread belief that only incentive pay mo- tivates a salesperson to make calls and face rejection.

Coughlan and Sen (1986) report additional data from John and Weitz (1984), who also found that the proportion of compensation that is fixed (salary) goes up when outcomes are difficult to measure and also goes up when inputs (behavior) are easy to measure. This finding supports the emphasis of agency theory on the cost of collecting information. As noted before, the John and Weitz data also support predictions that salary would be used to a greater degree for difficult-

to-replace, experienced salespeople. Eisenhardt (1985) differs from other descriptive

salesforce researchers in considering retail clerks in small specialty stores rather than industrial salespeo- ple. This context introduces an important difference for our analysis. In such a setting, the manager is al- ways in the store. Hence, the manager may find it easier (less expensive in agency theory terms) to mon- itor behavior than to monitor outcomes. Not surpris- ingly, Eisenhardt found a strong tendency to use be- havior control, especially in smaller stores where the manager is always present and where the entrepreneur is unable to afford a powerful information system to track outcomes. Nonetheless, incidences of outcome control (incentive payment basis) were found, espe- cially when salespeople were more readily replaceable and when outcomes were easier to evaluate. Further-

more, the author discovered that outcome control was used less rather than more often when sales environ-

ments were volatile. This finding is in keeping with agency theory, though it contrasts with the tenets of transaction cost analysis.

On the question of how managers evaluate their salespeople, Darden and French (1970) find there is no universal method; managers not only use different criteria but differ in how they weight and combine their information. However, survey results show one measure is overwhelmingly popular-the single, sim- ple output measure of sales volume (Dubinsky and Barry 1982; Jackson, Keith, and Schlacter 1983; Jackson, Ostrum, and Evans 1982; Jackson and Schlacter 1980; Patton and King 1985).

At first this finding appears inconsistent with the greater salary component of compensation noted in the John and Weitz data, which is conducive to behavior control. However, the use of volume as a performance criterion is often supplemented in a way that resem- bles behavior control. Jackson, Keith, and Schlacter (1983) and Jackson and Schlacter (1980) find heavy reliance on subjectively assessed input measures such as attitude, aggressiveness, judgment/decision mak- ing ability, and planning.3 Further, Dubinsky and Barry (1982) find evidence of extensive use of call reports and expense reports to monitor activity and frequent coaching of salespeople by their managers. Such ac- tivities represent the active monitoring and direction characteristic of behavior control. Similarly, Patton and King (1985) find considerable reliance on the in- put factor "product knowledge" rather than on output factors in promotion and transfer decisions.

Thus, to some extent, the descriptive studies tend

3Jackson, Keith, and Schlacter (1983) find a strong preference for subjectively determined input measures. Objective measures such as average cost per call are avoided, perhaps because of the record-keep- ing burden such measures entail.

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to support the theoretical perspectives we examine, though in many cases the data were not collected with the specific intent of identifying outcome and behav- ior control philosophies. However, these studies il- lustrate the complexity of the issues by showing the diversity of plans used by management. In the next section we attempt to specify strategies for optimizing the weighting of outcome versus behavior control. The setting used for discussion is the sales agency (man- ufacturers' representative), an independent organi- zation that represents the product lines of multiple manufacturers on a commission basis. We use the

manufacturers' representative setting because of the latitude of management strategy it provides. In the sales agency, salespeople balance their personal needs with the demands of customers, principals (i.e., the man- ufacturers they represent), and the sales agency. Thus, the agency, principals, and customers compete, to a large extent, for the salesperson's loyalty and effort. Other sales organizations (e.g., corporate sales staffs) are restricted cases of this environment in that only one principal controls management of the salesforce.

A Suggested Framework In the preceding discussion we compare four ap- proaches to the control problem. Implicit in these ap- proaches are arguments about the impact of a control system philosophy on salespeople. We develop these ideas further by examining how two philosophies, outcome control and behavior control, may affect the thoughts, feelings, and behaviors of salespersons. We now frame suggestions as sets of propositions for the purpose of stimulating research in the area of sales control. Of necessity, some of the propositions are more speculative (less firmly grounded in theory) than oth- ers. Propositions are not presented for the clan-ori- ented philosophy, as that notion has been defined as ill-developed and somewhat difficult to measure (Bar- ney 1986).

Control system strategies. Behavior-based mana- gerial philosophies, when properly implemented in sales organizations, result in salesforce control systems that differ on several dimensions from those resulting from

outcome-based philosophies.

P1: In behavior-based control systems, sales- people are monitored more closely, sub- ject to considerable direction, evaluated on an input basis by subjective and more complex measures, and rewarded with a higher proportion of fixed compensation. In outcome-based control systems, sales- people are monitored less frequently, of- fered little direction, evaluated on out- come measures by objective and simple methods, and rewarded with a higher pro-

portion of incentive (variable) compen- sation.

Salesperson cognitions and capabilities. Given the differences in control systems resulting from these two philosophies, we propose the following differences in salespersons' job-related cognitions and capabilities.

P2: The more a control system is behavior- based rather than outcome-based, the more product knowledge, company knowl- edge, and integrated sales expertise the salesperson will have and the more professionally competent the salesperson will be.

The reasoning behind this proposition is that behavior control removes the pressures and incentives to sac- rifice long-term for immediate results. Salespeople are freed to develop their knowledge and professional competence. Moreover, the possession of knowledge and expertise is intrinsically rewarding and behavior- based control systems are thought to enhance intrinsic motivation.

Salesperson affects and attitudes. Given our sug- gested interpretation of salespeople's response to con- trol systems, we propose that the type of control sys- tem has the following effects on the salesperson's job- related affects and traditional measures of job atti- tudes.

P3: The more a control system is behavior- based rather than outcome-based, the more a salesperson identifies with and feels committed to the sales organization, is willing to accept direction and cooperate as part of a sales team, accepts the au- thority of sales management, and wel- comes management performance re- views. Further, behavior-based control systems are more likely than outcome- based systems to attract, nurture, and re- tain risk averse salespeople.

Acceptance of authority and direction reflects the pur- pose of behavior control-substituting managerial di- rection for marketplace signals. Loyalty, commit- ment, and cooperation spring from being freed from short-term pressures and being rewarded for desired behaviors. Further, by assuming risk, the firm is sig- naling commitment to its salespeople, which inspires commitment in return. Performance reviews are wel-

come, partly because the action suggestions are in- formative and partly because management can reduce performance ambiguity in the review process by clar- ifying desired behaviors as defined by the firm. Fi- nally, behavior control attracts and nurtures the risk averse salesperson because this individual is required to assume little risk. In contrast, risk seekers chafe

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under salary ceilings and prefer rewards commensu- rate with expected high levels of sales results.

Salesperson motivation. The control system should affect both the salesperson's level of motivation and its direction.

P4: The more a control system is behavior- based rather than outcome-based, the more the salesperson has higher levels of in- trinsic motivation, is motivated by peer recognition, and is motivated to serve the sales agency.

By transferring all risk and reward to the individual, outcome-based systems encourage "loner" attitudes and a lack of loyalty to the agency. These effects are thought to occur because the agency offers no protec- tion against downside risk and may be perceived as exploitive of the salesperson's results. In single-prin- cipal (e.g., corporate) salesforces, the equivalent of a "prima donna" attitude may arise whereby salespeo- ple are unwilling to be influenced by management or other salespeople and express a willingness to switch employers readily.

P5: The salesperson's hierarchy of motivation differs across outcome-based and behav-

ior-based systems.

Behavior-Based

Systems

Sales agency Customers and principals Self (personal goals)

Outcome-Based

Systems

Self (personal goals) Customers

Principals Sales agency

In behavior-based systems, the agency's interest comes first because it is the agency that shelters the sales- person from risk and, by active monitoring, forms a strong communication bond with salespeople. Cus- tomers and principals rank next in the hierarchy be- cause, though neither offers the direction, authority, and risk assumption of the agency, both are critical to the agency's success. Personal needs are ranked last because of the aforementioned loyalty that behavior control engenders.

In contrast, outcome-based systems create an ego- centric attitude because the salesperson is not shel- tered from risk and because the agency has made no commitment. Because the agency does not share the salesperson's loss if "wrong" behavior is practiced, salespeople may feel the agency has no "right" to di- rect their behavior. The equivalent concept in single- principal (corporate) sales staffs might be represented by an independence of attitudes expressed in the all- commission salesforce. Here, the self comes first and the agency (or management) comes last. Customers

are ranked after personal needs because they offer di- rect rewards (orders). Principals are ranked next be- cause there would be little to sell without them. How-

ever, the attraction and retention of good principals is viewed as the agency's problem. If the agency's port- folio of principals declines, the salesperson can readily switch agencies or, if the product line becomes less competitive, the salesperson can just as easily switch manufacturers.

Salesperson behavioral strategies. A salesper- son's selling strategies also should be a function of the type of control system.

P6: The more a control system is behavior- based rather than outcome-based, the more a salesperson can be expected to plan for each call, make fewer calls, operate at a lower ratio of selling to nonselling time, and spend more time on sales support ac- tivities. Further, salespeople are more likely to use an "expertise sell" and "open" rather than "closed" techniques in behav- ior-based systems (Spiro and Perreault 1979) and to use "customer-oriented" strategies (Saxe and Weitz 1982).

Behavior-based control systems remove immediate pressure to sell, reward long-term outlooks, and heighten intrinsic motivation. These factors encourage more thoughtful ("working smarter"), planned, low pressure selling styles that often are combined with customer service to ensure repeat business and favor- able word-of-mouth. "Open" sales techniques, whereby the salesperson has no "hidden agenda" and no de- ception is contemplated, are consonant with such a long-term, service orientation.

Salesperson performance. Ultimately, the differ- ences in attitudes, motivation, and behavioral strate- gies should result in varying levels of performance across control system philosophies.

P7: In control systems that are more behav- ior-based than outcome-based, individual salespeople will come closer to achieving the sales agency's goals and to serving customer needs, but will perform more poorly on traditional output measures of individual-level performance.

Serving customer needs (a long-term strategic consid- eration) and meeting the agency's goals follow from management's ability to direct salespeople to ignore immediate market cues and follow management di- rectives instead. This emphasis may hurt short-term performance (e.g., current sales) and, in fact, is very likely to do so as the purpose of behavior control is

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to influence salespeople to sacrifice in the short term to fill the firm's long-term strategic needs.4

Conclusion

Four theories spanning diverse perspectives, including macro and micro approaches, are reviewed as they pertain to the type of salesforce control system rec- ommended for different environmental, firm, and in- dividual variables. Generally, we find that little over- lap is evident in the identifying conditions specified by each theory and that the various perspectives lead to complementary rather than conflicting predictions.

Most of the theories predict that environmental un- certainty, be it a weak link between effort and sales (demand uncertainty) or "natural" volatility deriving from the timing of need for the product (e.g., electric utility installations), argues for behavior control be- cause outcome measures would be unstable and per- ceived as inequitably distributed across salespeople. In this case, the firm is advised to absorb environ- mental risk and monitor the behaviors of its salespeo- ple. In so doing it can focus effort on the types of behaviors deemed most likely to generate sales in un- certain environments and "smooth" the irregularities of incoming orders.

At the firm level, measurement and philosophical issues appear to be key factors. Generally, the more objective the measures and the more costly the be- havior measurement process, the more outcome con- trol is recommended. Alternatively, inaccessible or inaccurate output measures argue for behavior con- trol. Philosophically, a willingness to assume risk for the salesperson and to provide informational, sup- portive feedback appears to coincide with a behavior control perspective, whereas a humanistic philosophy seems to support (indeed require) a clanlike system.

4A possible objection to P7 is posed by the findings of the Churchill et al. (1985) meta-analysis of salesforce performance studies. Church- ill and his colleagues found that, of six categories of variables influ- encing performance, organizational/environmental factors (which may include the salesforce control system) had the least impact on sales- person performance. However, they note that a possible explanation is the general lack of variability and restriction of range in these fac- tors as only five studies were examined. They further note that other factors such as aptitude also yielded low levels of predictability when considered as sole determinants. Interestingly, the predictive power of organizational/environmental factors was highest for sellers of in- dustrial products to institutional clients, the sales context best repre- sented here.

Finally, outcome control may be more feasible for small salesforces and behavior control may be more feasible for larger ones.

At the individual salesperson level, high sales "ex- pectancy" (cf. Oliver 1974; Vroom 1964) and high goal congruence permit outcome control because the salesperson would perceive fewer obstacles to sales success. Under goal congruence, the firm would ben- efit as well. Alternatively, a risk averse orientation and a preference for intrinsically motivated work en- vironments favor behavior control. The latter prefer- ence, in particular, requires the flexibility of infor- mational feedback that is possible only in behavior control systems. Finally, experienced, firm-special- ized salespeople are retained best in behavior-based systems as explained by transaction cost analysis.

Embedded in these four theoretical rationales for

the appropriateness of behavior or outcome control are ideas about how control systems influence salespeo- ple. We extend these ideas to suggest a series of prop- ositions about the impact of a control system on a salesperson's cognitions, attitudes, motivation, be- havioral strategies, and, ultimately, performance. These propositions reflect the basic notion that behavior con- trol and outcome control are very different philoso- phies that produce very different results. Hence, no single control system is "the best" in all circum- stances. Rather than asking whether behavior or out- come control is preferable, we should ask under what circumstances each system functions well. The gen- eral propositions are the ones available from the lit- erature at the present time. We expect others to emerge as future theoretical and empirical work is conducted in this area. Our review is hoped to stimulate such work so that a more general theory of sales control strategies will be found.

In summary, our review suggests that the type of control system is instrumental for the proper func- tioning of many phases of the sales management pro- cess. In particular, it may have potential second-order effects on other performance determinants such as motivation and ones not considered here (e.g., role performance, sales skills). Among the factors thought to be related to performance, managerial strategy for the control system is probably more important than early efforts in the recruitment and selection process (Churchill et al. 1985, p. 117), a consideration worthy of further study.

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