Wednesday, November 25, 2009

Sales Goals Revisited

A few weeks ago, I posted a column about the problems with goal-setting for individuals. Although I received comments from several people who agreed that the Western system of goal-setting and rewarding employees were destructive, I also received many responses from people who vehemently disagreed and felt that the process not only worked, but was necessary for success.

I'd like to revisit the subject and limit the discussion to goal-setting and reward systems for salespeople. The Stanford Graduate School of Business recently reported on a study conducted about the effectiveness of using sales quotas to motivate and reward salespeople ( Based on an experiment at one Fortune 500 company, the researchers concluded that removing the sales quotas resulted in a 9% increase in overall revenues.

I'll agree that conducting an experiment at one company does not necessarily prove my point that setting goals is often destructive, but since the study involved salespeople - the largest group affected by goal-setting - the results merit further discussion.

When I posted the blog, I received several confidential comments from sales professionals who wrote that they disliked the system of quotas for a variety of reasons. They stated that quotas forced them to play games with the timing of orders in order to meet a target in a given period. They knew this was not in the best interests of the organization as a whole, but felt it was necessary to keep their jobs and/or achieve their bonuses.

I've never understood why we feel it is necessary to use money to motivate salespeople but don't use the same approach with accountants, receptionists, network engineers, and other positions within the company. Are salespeople lazy? Are they untrustworthy? Do we really feel that if we don't offer them carrots that they won't produce?

Gallery Furniture

Jim McIngvale is the founder of Gallery Furniture store in Houston, Texas. Many years ago, he called on W. Edwards Deming to help him improve his business. McIngvale often tells the story about Deming telling him to change his salespeople from commission-based pay to salary. After failing to convince Deming that it wouldn't work in the retail industry, he gave in and changed his pay practices and put his salespeople on salary. In The New Economics, Deming wrote about the results of the change. " . . . steady increase in sales. Older salesmen now help beginners. Salesmen no longer try to steal business from other salesmen. they now help each other . . . sales go up month by month. Moreover, profit per square foot of floor space advances even faster." McIngvale agrees.

Like so many elements in business, it goes back to effective leadership and hiring practices.

Unfortunately, I'm betting that the Stanford study will not lead to a wholesale change in Western business practices because if people don't feel there is a problem, they won't be looking for a solution or feel there is a need for change. My hope, however, is that more studies will be conducted on the subject and more examples of companies changing their practices will be publicized and, little by little, transformation will begin to occur.

1 comment:

Joe Jenney said...

Greg I certainly agree with your viewpoints but I am not surprised at the negative reactions. It just proves that our business world is filled with practices that are accepted as correct even though they have been proven many times to be ineffective. The practice of encouraging employees to compete with each other rather than working together is a popular ineffective practice as your example shows.