2. Sales organization

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Chapter 2: 

Chapter 2 The sales organization

PowerPoint Presentation: 

Prof. Sunitha Ratnakaram, Associate Professor, VVSB MBA, M. Phil, MFM, M. SC. (Psychology), UGC – JRF , (Ph. D)

In this chapter we will discuss:: 

In this chapter we will discuss: Role of a sales organization Basis for designing a sales organization Types of organization Types of sales force structure Sales culture

Introduction : 

Introduction What is organization? What is sales organization? Its main component – sales force Role & importance of sales force

Role of a sales organization: 

Role of a sales organization Achieve customer & employee satisfaction through matching its structure & personal relationships Works as a medium of achieving objectives Following are the specific roles Permit development of specialists Achievement of company objectives Achieve coordination and balance Economize on executive time

Basis for designing a sales organization: 

Basis for designing a sales organization Mission & objectives of the company Target market segments Core competence Organizational relationships Flexibility Organizational culture Size & type of sales force Terms of employment Staffing activity Compensation system Market orientation Technology Company size

Types of organization: 

Types of organization Following are the structural variables based on which organizations are classified Formalization Centralization Departmentalization

Types of organizational structures: 

Types of organizational structures Formal & Informal organizations: Classified based on structures, reporting relations and flow of communication Vertical & Horizontal organizations: Classified on the no. of hierarchical levels present in the organization & the span of managerial control Centralized & Decentralized organizations: Classified on the basis on delegation of authority Line & staff organizations: Line functions involve all activities that directly contribute to creating, developing and delivering an output Staff functions are of a supportive & consultative nature

Formal organization: 

Formal organization Rigid structures & reporting relationships Bureaucratic structure Inflexible & slow

Formal organization – Advantages : 

Formal organization – Advantages Clear cut reporting relationships Easier evaluation of performance Structured & defined format for every task Clearly defined policies, procedures & hierarchical relations provides clarity of idea.

Formal organization – disadvantages: 

Formal organization – disadvantages Extensive departmentalization & confined activities leads to fail in developing cross functional expertise Slower flow of information resulting out of rigidity in reporting relations Hierarchical relationship may create personal distance among employees

Informal organization: 

Informal organization No rigid hierarchical structure No rigid communication channels No rigid reporting relationships

Informal organization – advantages : 

Informal organization – advantages Sales personnel can redefine responsibilities & relationships which leads to better performance Interaction between people helps in learning of happenings in other departments of organization & environment Shared decision making helps in developing positive norms and values within the organization

Informal organization – disadvantages: 

Informal organization – disadvantages It may not support the goals & objectives established by the overall formal organization Informal leaderships may give rise to unhealthy relations among group members

Vertical organization: 

Vertical organization More hierarchical levels, narrow span of control Management holds the power of decision making, strategy formulation, control and allocation of capital

Vertical organization – advantages : 

Vertical organization – advantages As the classification is based on functions, departments & tasks in stage wise, it gives rise to functional excellence Small span of control reduces the loss of information down the hierarchy Less chance for application of authority because of smaller span of control

Vertical organization – disadvantages: 

Vertical organization – disadvantages The higher no. of hierarchical levels makes it difficult to coordinate various departmental activities Presence of many hierarchical levels complicate the communication of objectives, policies & plans

Horizontal organization: 

Horizontal organization It is one in which both management levels & departmental boundaries are reduced greatly Helps in meeting customer expectations Cross functional team approach Participative decision making

PowerPoint Presentation: 

Chairman GM PRODUCTION GM MARKETING GM R&D MANAGER (CONSUMER PRODUCTS) REGIONAL MANAGER (CONSUMER PRODUCTS) CHIEF MANAGER (CONSUMER PRODUCTS) MANAGER (AUTO COMPONENTS) REGIONAL MANAGER (AUTO COMPONENTS) CHIEF MANAGER (AUTO COMPONENTS) MANAGER (FOOD PRODUCTS) REGIONAL MANAGER (FOOD PRODUCTS) CHIEF MANAGER (FOOD PRODUCTS) a model Horizontal organization

Horizontal organization – advantages : 

Horizontal organization – advantages Reduces the hierarchical levels which results in reduction in costs Faster response to market changes is possible Facilitates team work & collaboration among employees Participative decision making gives rise to shared responsibility More flexibility Reduce response time in addressing customer requirements

Horizontal organization – disadvantages : 

Excessive reduction in levels many result in losing people with experience & expertise Not suitable to all kinds of operations To make employees work in cross functional teams they need to be trained & which requires huge investment Horizontal organization – disadvantages

Centralized organization: 

Centralized organization Authority & decision making power lies entirely with the top management Mostly followed in smaller organizations Low authority & limited freedom to sales force

Centralized organization - advantages: 

Centralized organization - advantages Sales force activities can be easily aligned with corporate mission & objectives as both are set by the top management Better suits for small organizations as it allows close monitoring No conflict arises between different functions as the decision making is centralized Centralized sales force structure is economical than separate sales force

Centralized organization - disadvantages: 

Centralized organization - disadvantages Longer response time may irritate the customer Lack of skills development in sales personnel Lack of authority to take decision may affect the morale of the employees

Decentralized organization: 

Decentralized organization Delegation of authority & resources to lower levels Each division has its own sales force

Decentralized organization - advantages: 

Decentralized organization - advantages Information which the sales person possesses can be better utilized as he is the decision maker Increased morale & job satisfaction as they themselves formulate strategies Helps in utilizing the expertise & knowledge of divisional managers also Greater flexibility Top management can focus on strategic issues instead of routine matters Response time to customer gets reduced Encourages innovation & risk taking at lower levels of management also

Decentralized organization - disadvantages: 

Decentralized organization - disadvantages Increases the costs As responsibility lies with divisional managers, it may give rise to conflicts & unhealthy competition between them Loss of control on division managers Ground realities are not known to top management which makes it difficult for them to address the problems of sales people

Line organization: 

Line organization It is the simplest form of organization Authority flows from top to bottom Advantages: Less expensive Quick decision making because of a well defined hierarchy Prevents conflicts arising due to differences in thinking

Line organization – disadvantages: 

Line organization – disadvantages Lacks staff perspective & may cause problems like unsuitable recruitment and training of personnel etc. As the line manager gets too involved in operational matters he may loose the strategic or competitive focus

Line & staff organization: 

Line & staff organization Added advantage of staff specialization Reporting relationships vary Advantages: Presence of staff personnel improves quality of decisions Best suited for organizations with few products Suits for organizations operating in a stable environment

Line & staff organization - A model: 

Line & staff organization - A model Chairman GM (production) GM (finance) GM (HR) GM (marketing) Manager (market research) Zonal Manager (sales promotion) Manager (advertising) Regional manager (north) Regional manager (south) Sales personnel Sales personnel Sales personnel Sales personnel

Line & staff organization - disadvantages: 

Line & staff organization - disadvantages Conflicting objectives may give rise to problems Lack of coordination may lead to dilution of focus on customer Chances of innovation gets reduced because of poor coordination

Types of sales force structure – influencing factors: 

Types of sales force structure – influencing factors Type of market Region or country Type of industry being operated in Customer to which it caters Level of sales desires Size of sales force Width & depth of product mix influences sales force structure

Types of sales force structure: 

Types of sales force structure Product based sales force structure Geographical based sales force structure Customer based sales force structure Combination sales force structure

Product based sales force structure: 

Product based sales force structure Here sales force responsibilities and activities are divided according to the type of product sold Suits for companies that manufacture a variety of complex technical products that are dissimilar or unrelated

Product based sales force structure - A model: 

Product based sales force structure - A model Chairman Deputy director (new device evaluation) Deputy director (product quality) Director (toxicology devices) Director (hematology devices) Director (microbiology devices) Manager (sales) Sales force

Product based sales force structure - advantages: 

Product based sales force structure - advantages If sales person handles multiple products, he can promote all of them in a single sales call It is suitable when customer buy s from a set of closely related and complementary , competing products When territory assigned is large& much of the time spent in traveling this structure reduced costs and saves time as sales person deals with multiple products

Product based sales force structure - disadvantages: 

Product based sales force structure - disadvantages Possibility of duplication of activities There is a possibility of clash of objectives between product division and top management

Geographical based sales force structure: 

Geographical based sales force structure Here sales force is grouped by physical territories Advantages Reduces time & expenses on travel It is the simplest method to allocate equal territories and equal responsibilities Sales person gets better local knowledge

Geographical based sales force structure - A model : 

Geographical based sales force structure - A model CEO AMERICAS EUROPE ASIA PASICIFIC CANADA USA LATIN AMERICA CARIBBEAN SCANDINAVIA EASTERN EUROPE WESTERN EUROPE COUNTRY MANAGER SALES FORCE AUSTRALIA FAREAST SOUTH ASIA

Geographical based sales force structure – disadvantages : 

Geographical based sales force structure – disadvantages Lacks specialized training pertaining to the product Local mangers lack supporting staff for non selling activities like market research, advertising and sales promotion Sales personnel are limited to their respective territories, which makes integration and standardization of selling activities across product lines difficult

Customer based sales force structure: 

Customer based sales force structure Here the sales force is divided on the basis of customer needs Advantages: It is advantages when the company has a wide range of products to offer to customers Disadvantages: Different functions may have difference in emphasis resulting in lack of coordination Some sales personnel may pressurize the management for special favors like higher discounts and credits tailor made to specific customers

A model: 

A model Vertical business units Horizontal competing units Regional business units Customer

Combination sales force structure: 

Combination sales force structure A structure which combines various types of structures and takes the best of each structure by eliminating the demerits Suitable for larger companies, with large sales force and a wide range of products Collaboration and net working relations between various departments and business units are needed

A model: 

A model PRESIDENT DIRECTOR (HUMAN RESOURCES) VICE PRESIDENT (TECHNOLOGY) SENIOR V P (RESOURCES & STRATEGY) VICE PRESIDENT (FINANCIAL SERVICES) DIRECTOR (PLANNING) DIRECTOR (RAWMATERIAL) VP (CHEMICALS) VP (LUBRICANTS) VP (FUELS) GM (DISTRIBUTION) GM (PRODUCTION) GM (MARKETING) GM (DISTRIBUTION) GM (PRODUCTION) GM (MARKETING) GM (DISTRIBUTION) GM (PRODUCTION) GM (MARKETING)

Combination sales force structure – advantages : 

Combination sales force structure – advantages Offers flexibility to handle diverse product lines, operate in territories with varying potential Balance can be maintained between corporate and divisional goals Here all the advantages of other structures are combined and short comings are eliminated

Combination sales force structure – disadvantages: 

Combination sales force structure – disadvantages Large no. of staff with specialized skills is required Difficult to coordinate different structures because of differences in operational styles Longer time gaps exists in between formulation of strategy and implementation at the operational level

Sales culture: 

Sales culture What is culture? Sales culture’s success is dependent on the acceptance of sales people Organization differs in setting sales cultures E.g. Xerox – respect individuals & service to the customers HP – respect for others, community spirit and hard work Sales culture’s influence on sales personnel It motives them and increases Productivity Profitability Customer loyalty Extensive understanding of sales culture is needed

Components of sales culture: 

Components of sales culture Symbols Jargon Ceremonies Rituals (routine) & rites (planned) Role models Tales and stories Values and beliefs All these components are learned by sales people in the process of socialization

Role of sales culture in developing a sound sales organization: 

Role of sales culture in developing a sound sales organization Stages in formulation of sales culture in an organization Symbols, tales & stories ceremonies, routine activities, role models language, values & beliefs These are imbibed By sales personnel Meanings are interpreted by sales personnel Interpretations are evaluated by sales personnel The learnt culture becomes a routine behavior for the sales personnel Organization takes steps to modify or create a better sales culture

Success of sales culture depends on:: 

Success of sales culture depends on: Strength of sales culture Direction or fit of the culture