How to decrease undesired behavior at Company X?

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How to decrease undesired behavior at

Company X?

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Name

:

Arnoud Kleijn

Student number

:

1534890

Address

:

Oostersingel 156a

9711XL

Groningen

Telephone number :

06-27024858

E-mail address

:

a.kleijn@gmail.com

Institution

:

University of Groningen

Faculty

:

Economics and Business

MSc

:

Business Administration

Specialization

:

Organizational and Management Control

Coordinator

:

Drs. M Bergervoet

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Preface

Dear reader,

By finishing this research and writing my final words, my studies at the Rijksuniversiteit

Groningen come to an end. This thesis was written for my specialization Business

Administration Organizational and Management Control and started in April 2011. The

original subject changed during the course of writing this thesis from a pure focus on

formal control systems, toward a broader view on formal systems and intangible systems

as culture and perception of culture.

First of all, I would like to thank Drs. Marcel Bergervoet for his useful comments,

support and feedback during my research. Freedom in planning, getting the right

feedback and feeling responsible are essential in creating quality in terms of research.

Second, I owe great thanks to my store manager at Company X. All information, time

and resources were constantly available to me, and continuous support was offered to me,

in order to complete my research.

Last but certainly not least I would like to thank my family, friends and girlfriend for

their continuous support during my studies. It was them that put me to work, took me off

work and made me realize that it‟s important to finish what you have started.

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Management summary

This research initiated from several indications of undesired behavior that took place at

COMPANY X. Undesired behavior was discovered by mystery-shopping and internal

audits. The objective of this research is to offer COMPANY X insight in motivations and

facilitators of undesired behavior. The main research question at the start of this research

is:

“ How can COMPANY X adjust its sales force control systems in order to minimize

undesired behavior?”

Sales force control systems are divided into behavior-based control systems,

outcome-based control systems and core values. Its influence on the sales process, in which the

problem is identified, is assessed.

The research is centered around the interviews held with employees at different levels

within, and without the organization. As a result, three types of behavior can be identified

which are influenced by different control systems.

The research conclusion and corresponding recommendations are threefold. First, tighter

behavior-based controls in terms of ICT-systems and internal audits are desirable. Second,

both the nature and shape of bonus payments must be more aligned with corporate

strategy, so that employees are rewarded for behavior and results desirable to the

organization. Third and last, new and unambiguous core values should guide employee

behavior in line with corporate strategy. Overall, the effect of these changes on corporate

culture are assessed.

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This first chapter will explain the organizational context of Corporate X. The history of the company will be discussed, its mission and strategy, as well as the role of Corporate X in the Dutch telecom market. In the last section of this chapter the organizational structure of Corporate X and its daughter-brand Company X will be discussed. This thesis‟ research was conducted throughout 55 Company X stores within the Netherlands.

1.2 History of Corporate X

Removed due to privacy reasons.

1.3 Dutch telecom market - figures

The Dutch mobile telecom market is mature and offers almost no room for growth or expansion , the total value of the Dutch mobile market will reach 7 billion Euros in 2014. (Datamonitor, 2010). Mobile penetration in the domestic market stood at 120.1% in 2010 (Datamonitor, 2010), this implies a difficult situation for companies to increase its customer base. The mobile arm of Corporate X is a leading player with almost 50% market share. The Dutch telecom market is of vital importance to Corporate X, earning up to 61.9% of total revenues (Datamonitor, 2010) Corporate X competes with the largest international groups and alliances of mobile operators.

1.4 Mission

Removed due to privacy reasons.

1.5 Organizational structure

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1.6 Company X Stores

All Company X-stores are managed by a local store-manager. He or she is responsible for the store as a whole. He or she is assisted by a potential-manager, a sales person who has the ambition to become manager of a Company X store in the future. Managers are responsible for effectively managing the sales-force within a Company X-store. Within a Company X store, size dependant, a team of 4 to 10 salespersons are responsible for sales of mobile contracts, mobile phones and delivering optimal service to customers.

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Chapter 2: Research design 2.1 Introduction

This chapter will describe the research design of this master thesis. The first paragraph will describe the motivation for the present study. Based on the motivation, the next section will determine and explain the objective and main research question of the current research along with the conceptual model and sub-questions. Further, the design of the research will be explained in the methodology. Afterwards, the use of literature will be discussed and a research outline will be presented.

2.2 Reasons for this research

Company X‟s vision is the same as the corporate vision; this means Company X aims to be the most customer-friendly and transparent telecom provider within the Netherlands. Company X‟s aim is to realize this by providing total transparency on prices, discounts and conditions of each mobile contract. Further, it aims to attach as much insurances on phones as possible, so that each customer can be offered instant help in case it is needed.

Within Company X, the bonus system is designed in such a manner that it motivates salespeople to exert more effort into their jobs. However, this extra amount of effort is not always in the consumers or companies‟ best interest since some practices are not in line with Company X‟s vision.

The problems encountered at Company X are multiple: - Use of deceptive selling techniques to customers

- Blocking customer-registration to improve conversion-rates - Forging data to get a contract processed

- Taking credit for colleagues‟ effort. - Accepting expired ID-cards

The risk with these actions is the risk of discovery. If these practices are discovered, the person responsible is fired. This poses serious costs and a weakness onto the company. First costs; If an employee is fired, this vacancy has to be filled in, and the cost of hiring and registering an employee are approximately 20000 Euros. Further, a weakness is imposed on that specific store, or stores with the outflow of experience and knowledge by firing an experienced employee. Last, it takes time and costs manpower when engaging in personnel selection

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The table presented below will summarize the various stakeholders who have a special interest in the current research. The table is derived from Gardner et al.(1986), and list all those who have a special interest in congruent behavior at Company X.

Pow

er

Interest

Low High

High Sales force employees

Company X store managers

Low Customers Corporate X

Figure 2: stakeholders power-interest grid.

An explanation of the placement of several stakeholders in the stakeholders power-interest grid will be placed now:

The group least interested in the behavior of sales force employees are customers, as long as regular behavioral norms are adhered to. Further, customers have low or almost no power to change the behavior of sales force employees.

The group with the highest power, but low interest to change the behavior of sales force

employees, are the employees itself. A change in behavior could possibly harm monetary income, but in essence they can only change their behavior themselves.

After, a distinction is made between the two groups of people who have the highest interest in congruent behavior by sales force employees: managers and Corporate. Undesired behavior may lead to a harmful image, and extra costs imposed on the organization. However, Company X store managers have severe more power of changing behavior, since they have a direct link, and communicate on a daily basis with sales force employees.

The aim of this research is to find out how the management control systems at Company X can be adjusted in such a way to minimize unethical or deviant workplace behavior. Unethical behavior can lead to an unfavorable corporate image (Bellizi and Hite, 1989), which is not in line with Company X‟s current vision of becoming the most transparent and honest telecom provider.

Effects of these actions can be deducted from the table above. For employees, a direct effect is the gain of more bonus payment and thus higher total income. For Company X, if these practices are discovered, there are some costs of firing and hiring employees. A further effect, if these actions are discovered, is the elimination of that specific store from internal competitions and long-term incentives such as “shop of the year-award”.

2.3 Problem statement

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2.3.1 Research objective

The research objective presents the relevance of this study, which following Baarda en de Goede (2001) has a practical relevance for Company X. This research will collect data in order to gain insight in a practical problem. Data will be collected and analyzed in order to find a solution for a practical problem. The research objective is formulated as follows:

The objective of this research is to provide insight into the disfunctionalities of the sales force control systems at Company X, and how this can be adjusted in order to minimize undesired behaviors of sales employees.

2.3.2 Research question

After the objective has been established, a research question can be derived. With this research question, sub-questions can be formulated in order to provide an appropriate answer. The research question of this study is as follows:

How can Company X adjust its sales force control systems in order to minimize undesired behaviors of the sales force?

2.3.3 Conceptual model

After formulating the research objective and consequently the research question, we can develop a conceptual model. The conceptual model for this research is shown in figure 2.

Within Company X a corporate-wide policy is available. In this formal statement goals, mission and vision are available. Next to this, a task description, responsibilities and lines of

communication are established.

On a store level, this policy is clearly visible in two distinct factors: goals and core values. These can be, following Merchant and van der Stede (2007), labeled the hard side of figures and the soft side of intangible measurements. For the policy to have effect, it must be executed within a certain structure in which each stakeholder has certain skills, responsibilities and tasks.

I will now explain the model by first describing the left, soft side of the model; and afterwards by explaining the right, hard side of the model. In the policy of Company X, certain core values are established, which aim to create a certain culture within the organization. The corporate structure and responsibilities all are participants in the store process within Company X, and therefore influence culture within Company X.

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The aim of this model is to depict which distinct factors are present in the current research at Company X. Further, it presents an overview of the factors that will be described in the fourth chapter.

Figure 3: Conceptual model

2.3.4 Sub-questions

This paragraph will show the design of the several sub-questions. Answers to these sub-questions will be used to systematic provide an answer to the research question. First, several descriptive questions will be placed, which will describe the current situation at Company X. The second stage will be the analysis of the current situation at Company X guided by the interview outcomes. Last, suggestions for re-design of sales force controls at Company X will be made.

Description:

1. How are employees structured, and what are each employee‟s responsibilities? 2. How is the sales process at Company X organized, and where in the process are

dysfunctional actions visible?

3. What key performance indicators (KPI) and rewards are currently in place at Company X? 4. What type of systems are in place at Company X?

5. How can the culture at Company X be described? Analysis:

7. Which factors facilitate the motivation to engage in undesired behavior? Design:

9. To which requirements must the new sales force control system adhere?

10. What inputs from stakeholders are necessary in order to execute the change in sales force control system?

11. What effect will the newly designed control system have on stakeholders?

2.4 The use of literature

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Sales force control

The application of management control is widely described by several authors (Ouchi, 1979; Merchant and van der Stede, 2007; Simons, 1995), and distinguishes between action-, results-, behavior-, outcome-, cultural-, diagnostic- and belief systems controls. Within the literature, several forms of sales force control are described. According to Anderson and Oliver (1987), sales force control systems can be divided up into two distinct categories. The first is the

monitoring final outcomes of a sales process, whereas the second monitors stages in the process: outcome and behavior-based control. The control of salespeople is often described from a agency-theoretic perspective (Joseph and Thevaranjan, 1998) in which agents are in essence self-interested, and want to maximize rewards and minimizing effort (Joseph and Thevaranjan, 1998)

Behavior control and goal setting theory

The design of a sales force compensation plan is thought to be important task for sales force managers (Joseph and Thevaranjan, 1998). This can be traced back to expectancy theory, first developed by Vroom in 1964. This theory states that the more valuable the reward is the more effort an employee will exert, inducing higher performance.

Culture

Culture can be characterized in several manners, this research will rely on the Competing Values Model (Quinn and Rohraugh, 1983). Martin and Cullen (2006) have extensively research the relationship between ethical climate and dysfunctional behavior. Corporate culture can either stimulate or de-motivate opportunity-seeking by employees (Vardi, 2001)

Deviant and unethical behavior

Little attention in literature is on congruent behavior, most literature is written on how to prevent deviant and unethical behavior. Behavior is deemed deviant when an organization‟s norms, policies, or internal rules are violated by an individual or group, and threatens the welfare of the organization or its constituents (Robinson et al., 1995). Different types of deviance are combined in a framework developed by Robinson et al. (1995).

Dubinsky, Berkowitz, and Rudelius (1980) reported that salespeople often experience ethical dilemmas, and various factors could lead to deviant or unethical behavior. Several authors (Jelinek and Ahaerne, 1996; Schwepker and Good, 2007) have studied factors related to deviant workplace behavior.

2.5 Method of research

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2.5.1 Data collection

This study will, following the framework of Burrell and Morgan (1979), take an interpretive approach. According to Hopper and Powell (1985), these type of studies “will emphasize the subjective nature of the social world and will try to understand it from the frame of those being studied”. These same authors argue that for interpretive approaches, statistical surveys that treat the world as objective and measurable are not appropriate, whereas qualitative methods are more suitable for studies in which relationships are not straightforward. The first step in conducting this research was to obtain all necessary information about the organization, its goals and mission and the motivation for this research. Company information included company history, the industry, organizational structure and key stakeholders.

This research will use both interviews and observations as data sources to obtain information on attitudes, meanings feelings and knowledge (Baarda & de Goede,, 2001). These interviews will be used to obtain the necessary information to answer the research question, and will serve as the primary data source. The interviews are semi-structured, which implies that the questions are open and not exactly known to the interviewer before the start of the interview (Leeuw, 2003). Nevertheless, the topics that will be discussed with the interviewee have been formulated beforehand.

Further, in order to assess the measurability of the culture construct, this thesis will make use of the Online Cultural Assessment Instrument (OCAI). Each respondent is asked to divide a 100 points on 4 statements, per question. The OCAI is divided into two parts: the first part assesses the current situation, whereas the second part assesses the desired situation.

In the appendix, a summary of the interview will be placed, alongside the results of the OCAI-test. The focus in the results will be on the perception of the current situation in order to assess where possible differences lie between several stakeholders.

2.5.2 Data analysis

Data analysis is “reducing the accumulated data into a manageable amount, to extract all relevant information” (Blumberg et al., 2005).The findings of this study are, following the interpretive approach, an understanding of those under study; and results will have a practical relevance only applicable to Company X. Interview outcomes will be evaluated in the light of the research question. Outcomes of the OCAI-tests will be analyzed based on outcomes and differences in opinions towards the culture within Company X. Further, its current formal focus will be placed in the description of the current corporate culture at Company X, whereas the gap between current en desired will be used in the interview for the purpose of analysis.

2.6 Research outline

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and explain how various theories collaborate following the conceptual framework in paragraph 2.3.3. The fourth chapter will describe definitions of sales force control, ethical culture and undesired behavior applicable to Company X.

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Chapter 3 Theoretical framework 3.1 Introduction

This chapter will present the theory underlying this research. Most literature in the area of sales force control can be devoted to Anderson and Oliver (1989) and Cravens et al.(1993). This chapter will describe the items as presented in the conceptual model from a theoretic perspective. Mainly, I will follow the distinction here as presented by Anderson and Oliver (1987) between outcome- and behavior-based controls, with some additions. Next, all sections below will provide a theoretical linkage between the constructs and undesired behavior.

3.2 Sales force control

Numerous authors have written about management control; Anthony et al (1984) state that “management control is the process by which managers influence other members of the

organization to implement the organizations strategy”. Merchant en Van der Stede (2007) define control as giving direction and control to the entire process within an organization. Management control systems aim to guide employees towards desired behavior and to reach organizational goals. The need of having MCSs in place within an organization arises from three main categories of causes (Merchant et al., 2007). The categories are lack of direction, motivational problems, and personal limitations (Merchant et al., 2007; Simons, 1995). All these causes address the behavior of the employees that the MCSs try to direct.

Salespeople constitute a unique group of employees who are critical for the management of customer relationships (Krafft, 1993; Jaworski, 1988), whereas they account for the largest portion of marketing personnel and marketing budget for many firms (Cravens et al. 1993). Most research in the area of sales force control (SFC) can be assigned to the work of Anderson and Oliver (1987) and Jaworski (1988).

First, Anderson and Oliver (1987); they define the SFC system as “an organization‟s set of procedures for monitoring, directing evaluating, and compensating its employees” (Anderson and Oliver, 1987). The SFC system can be viewed, according to them (Anderson and Oliver, 1987) as a continuum between behavior-based and outcome-based control. Whereas the first rewards salespeople‟s activities by subjective means, long term performance and development; the latter focuses on objective and measurable outputs, short term results and competitiveness.

Jaworski (1988), created a different set of concepts of the control system applicable to sales forces. He defines a control system as: “the set of activities designed to increase the probability that specified plans are implemented properly and desired outcomes are achieved”. Jaworski distinguishes between two determinants of control: formality (formal or informal) and type of control (process/output).

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guiding behavior and those focused on the outcome of the sales process: behavior control and outcome control. Next, it will include the perspective of Kober, Ng and Paul (2007) who found that a change in strategy requires a change in the use of control mechanisms. Kober and Paul (2007) examined a company that moved from a “reactor” typology towards and “prospector” typology in terms of Miles and Snow (1978). Their findings revealed a interactive use of management control systems. It was found that the change occurred in three phases:

pre-formation, formation and post-formation. Throughout these phases, control was more focused on bureaucratic control, cost control and professional controls. On the other hand, culture and communications were ranked lower in use at the post-formation phase.

3.3 Behavior control

In order to control for the behavior of employees within an organization, managers can take on different perspectives. Simons (1995), writes about boundary systems, which delineate the acceptable domain of activity for organizational participants. They establish limits to opportunity seeking. Further, Anderson and Oliver (1987) write about behavior-based control systems, which address the process of selling rather than the simple outcomes of the sales process. Next to these two authors, Ouchi (1979) states that in order to control the behavior of employees several action controls must be in place. Control and rewards in such systems, according to Anderson and Oliver(1987), results from measures that may result in sales performance instead of the achievement itself.

Following Ouchi‟s model (1979) as presented in section 3.1, these types of controls are especially suitable in situations where outputs are not clearly measurable and behavior of employees is clearly visible. Action control, as he (Ouchi, 1979) describes, can also be used in combination with results controls if both the process and the output are clearly specified. By focusing on the action itself, action controls work because they address one or more of the basic control problems (Merchant and Van der Stede, 2007). Action controls can take several forms: behavioral

constraints, pre-action reviews, action accountability and redundancy. Further, audits can take place, in order to ensure that all correct steps have been taken and no irregularities exist. An audit creates value in two ways (Merchant and van der Stede, 2007): the audit report ads credibility to the group under investigation; Second, the audit has the power of anticipation: it can strongly motivate individuals to conform to the standards.

The effectiveness of action controls depends upon two variables: the determination of undesired actions and the ability to ensure that undesired actions are not undertaken. These actions, or behaviors control should be: timely, understandable, objective and precise (Merchant and Van der Stede, 2007).

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and Jaworski (1988) state that several actions can be taken in order to direct employees towards desired behavior: education, training and development, periodic reviews and sanctions.

3.4 Outcome control

Bonus-based compensation schemes award bonuses when performance outcomes exceed preset measurable, numerical standards. Bonuses are earned when firm earnings, yearly sales, and piece rates exceed predetermined targets, quotas, or thresholds (Murphy, 2000). Since these kind of bonus schemes are based on targets, these can be labeled result controls (Ouchi, 1979), diagnostic controls (Simons, 1995) or outcome-based controls (Anderson and Oliver, 1987); Here, we will use the term outcome controls, since each of the definitions focuses on the outcome of a process. These performance measures are designed for controlling and evaluating in a setting where the sales force is held accountable for results, but not for how they are achieved (Anderson and Oliver 1987). Outcome-controls focus on results of a process and are in line with Merchant and van der Stede‟s (2006) results controls.

For results controls to be effective, several requirements must be met (Merchant and van der Stede, 2007):

1. Organizations can determine what desired results are.

2. Employees can influence the results for which they are accountable. 3. Organizations can measure the results effectively.

Further, in case of malfunction, Merchant and van der Stede (2006) propose several actions for improvement:

Figure 4: improvement for results controls.

Incentive contracts and compensation schemes can take several forms: fixed salary plus a commission or commission only (Joseph and Thevaranjan, 1998). Bonus and commission schemes are designed in order to create goal congruence between an agent and a principal and to motivate employees to work in the principal‟s best interest (Eisenhardt, 1989).

In essence, agency theory states that agents are in essence self-interested and aim to maximize their own rewards. This motivational function of a reward system can be traced back to

expectancy theory, developed by Vroom (1964) which is centered on three factors that actively determine employee motivation. The first of these factors, effort–performance (E-P) expectancy, states that an individual‟s effort is positively related to performance.

Requirement How to improve?

1. Precise Ensure correct scaling

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The higher this E-P expectancy is, the more motivated the individual will be to exert effort. The second factor is the so-called performance–outcome (P-O) expectancy, also referred to as instrumentality. It concerns a person‟s expectation that his remuneration is closely tied to his level of performance. This factor also has a positive effect on motivation to exert effort. The third factor is called valence and is a measure of the degree to which an individual values a particular reward (Vroom, 1964). Again, the higher this factor is, the more motivated the individual will be to perform better. Goal setting has been mentioned as the most effective means of motivating employees (Locke and Latham, 1990).

However, Schweitzer, Ordóῆez and Douma (2004) point at a different direction. Goal setting, in their view, should be done carefully in order to control behavior of the workforce. They state that, following prospect theory, goals over time will become reference points. This in turn implies that all outcomes less than the goals are viewed as losses, whereas outcomes greater than the goal will be viewed upon as gains (Schweitzer et al., 2004). The outcome of their research is that proximity to goal is negatively related to ethical or normal behavior; the closer to the goal, the more people tend to over-state performance or misrepresent performance. This was also found by Anderson and Oliver (1987), who stated that the main disadvantage of a outcome-based control system is the permission of sales behaviors that can harm the organization in the long run, can harm customer satisfaction and focus of easy-to-sell-items.

3.5 Culture and ethics

Organizational culture is a multifaceted construct and has been defined as encompassing the assumptions, beliefs, goals, knowledge and values shared by organizational members (Cameron and Quinn, 1999; Schwartz and Davis, 1981). Widely known is the Competing Value Model (CVM) (Quinn and Rohrbaugh, 1983); it emphasizes the conflict between stability and change and between internal and external environments. The four typologies resulting from to CVM are: clan/family, innovative-, rational- or hierarchical culture.

 Family/clan culture: interpersonal relationships, flexibility and customer sensitiveness

 Adhocracy culture: external positioning, flexibility and individualism

 Market culture: sales, external positioning, competitiveness and stability.

 Hierarchy: correct relationships, stability and controllableness.

Morris, Schindehutte, Walton and Allen (2002) argue that core values of every organization need to reflect the organization‟s ethical content and strategy; and guide employees into desired behaviors and commitment (Merchant and van der Stede, 2007). In research (Duh, Belak and Milfelner, 2010) it was found that three or four core values are sufficient to guide behavior and to create a clear image of what is desired.

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company has a clear view of which principles it wishes to adhere, and integrate these principles in its climate and culture (Kaptein, 2008) The informal dimension represents the ethical climate. Victor and Kullen define ethical climate as – „those aspects of work climate that determine what

constitutes ethical behavior at work‟ (1988). The importance of a firm‟s ethical climate has been

established in studies of its impact on other important sales force variables. Schwepker and Good (2001) reported that ethical climate was related to role stress, openness of communication, job

satisfaction, and organizational commitment. Martin and Cullen (2006) have extensively research

the relationship between ethical climate and dysfunctional ethical behavior. Their findings reveal a negative relationship between ethical climate and dysfunctional behavior. Several studies confirm this relationship (Vardi, 2001; Wimbush et al., 1997; Schwepker et al., 2007). Overall, there is strong support that ethical climates have an effect on misbehavior in organizations.

3.6 Undesired behavior

Another aspect of unethical behavior is workplace deviance. Robinson and Bennett (1995) describe workplace deviance as “violations of the norms that threaten the well-being of an organization”. The same definition is used by Vardi and Wiener (1996), who label this type of

behavior as misbehavior. All types of behavior are undesired within organizations since they pose

large costs to individuals and organizations (Simons, 1995; Robinson and Bennett, 1995; Vardi and Wiener, 1996). This is the same consequence as unethical behavior, as described by

Merchant and Van der Stede (2007). Therefore, we will label both deviant and unethical behavior as undesired behavior

Robinson and Bennett (1995) come up with a two dimensional model of deviant behavior. These dimensions are “organizational and interpersonal” and “minor and serious”. Jelinek and Ahearne (2006) model salesperson deviance in three categories, which are shown below. They state that the classification by Bennett and Robinson (1995) is not sufficient for deviance in a selling context. This is due to the fact that salespersons spend a lot of time outside the office, and most of the time within their sales territory (Jelinek and Ahearne, 2006).

The proposed measure distinguishes between (Jelinek and Ahearne, 2006):

 Deviant organizational behavior: fudged reports, misrepresents time worked, used company resources and ignoring inputs from managers

 Deviant interpersonal behavior: cursing at other co-workers, accepting credit for other people‟s work and telling hurtful thing to colleagues

 Deviant frontline behavior: made the organization look bad, using deceptive selling

techniques, did not follow specific etiquette and telling rude thing about the organization.

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Many authors (Schwepker, 1999; Kaptein, 2008; Robinson and Bennet, 1995) have researched that undesired behavior can be viewed from an equity-based perspective. Within this view,

employees compare their ratio of outcomes to inputs compared with other employees (Schwepker, 1999). Inequity may lead to undesired behavior (Merchant and Van der Stede, 2007; Schwepker, 1999).

3.7 Summary

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Chapter 4: Describing Company X’s sales force control 4.1 Introduction

This section will provide an answer to sub-question 1 to 3 in order to describe sales force controls at Company X. First, several a description of sales force control following the literature will be given. Second, those dimensions applicable and different to COMPANY X will be identified, and relevant definitions will be presented. Third, the responsibilities of the employees at Company X are described, as well as the sales process within a store. Subsequently, the following sections will analyze the various control systems in place at Company X, starting with outcome based controls, followed by behavioral controls. This chapter ends with a short summary of the control system within Company X.

4.2 Definitions applicable to Company X

For this thesis, the definition of sales force control will depend on the activities Company X employees in order to control its sales force employees. For Company X, the main difference compared to existing literature is that all employees, for this thesis specific, work within a store, at a definite physical location. In literature, sales force control is focused on personal door-to-door selling, and each employee has its own set of fixed customers. In the Dutch telecom industry, almost all telecom providers operate their own physical stores, in which employees are

responsible for selling products and providing service to customers.

I therefore will define the sales force as following:

A sales force is a group of employees, whose responsibilities are sales results, providing service and carrying out company’s vision.

Consequently, I will define sales force control. Here, the definition used by Anderson and Oliver (1987) is incomplete, the notion to add “motivation” as a construct has to be made here.

Motivation is of crucial importance for sales force employees to perform well (Anderson and Oliver, 1987; Krafft, 1999) and can stem from intrinsic and extrinsic factors (Herzberg, 1968). For this thesis, I will use the following definition of sales force control:

An organization’s set of procedures for monitoring, motivating, directing, evaluating, and compensating its employees.

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4.3 Describing the store process at Company X

4.3.1 Company X store employees‟ responsibilities

Within a Company X store, the division of employees is as follows: 3 to 10 employees responsible for sales and customer contact, this can be part-time or full-time employees. Each Company X store has a manager, responsible for sales results, conversion rates and customer satisfaction. Further, the manager has additional tasks such as reporting to a regional manager, back-office administration, team-building among its sales force and creating schedules. Sales employees are responsible for sales results and customer contact. Further, all store-related activities such as cleaning and group activities are part of their responsibilities.

4.3.2.1 Sales process at Company X

By being responsible for the generation of sales within the organization, each employee has the task of selling mobile phone subscriptions to customers. An employee serves as an intermediary between customer and Company X. The sales process is always located within a physical store, in which 1 to 4 colleagues are present. The store is usually about 40 square meters in which, an employee has the availability of a pc program (XXXXXXX), a cash desk and a database with all prices of mobile subscriptions and mobile phones. In XXX, an employee can prolong

subscriptions, change subscriptions and enter new subscriptions. Within this program, several checks are automated: an 18-year-old check based on current date and date of birth of the customer and a customer check based on bad debt registrations. A further credit check has to be performed by the employee: each customer has to perform a 1-cent pin-transaction to confirm the given bank account number is valid and working. Next to the credit check, a ID-check has to be performed by the employee: check for expiration date and authenticity, date of birth and whether the ID belongs to the customer in front of the employee. In the cash desk, a computer program, all prices of mobile phones and subscriptions are preloaded. These prices can be calculated by employees in the case of a contract prolonging by deducting a customers‟ personal discount based on historical usage and expenses. Next to the regular sales process, step 6 in figure 3 will show “backward alterations”. These are alterations necessary due to a mistake made by an employee, or if a customer decides to change his/her contract within 24h of closing a contract. . A cycle of the sales process can vary greatly in time. A simple contract prolonging can be finished in 10 minutes, whereas a new subscription can take up to an hour. Most time here is spent in section 1 and 2, where a customer has to be convinced.

1. Customer contact

3. ID, adress and bank account

checks

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All detailed descriptions of explicit acts, responsibilities and actions will be placed in the appendix 1. This information is all retrieved from XXXXX, an intranet-website on which all work-instructions are described step-by-step.

The process within Company X can be placed in the framework of William Ouchi (1979). Outcomes of the process are sales, these are highly measurable, since all items sold are registered on the cash deck. Further, it is in an employee‟s own interest to register these sales, since one‟s own evaluation is dependent on these outcome results. This will be more elaborated in section 4.5. Next, the process itself is easy to monitor since several colleagues are present who are able to hear and see how the process is progressing. Following Ouchi‟s reasoning (1979), a combination of both outcome- and behavior-based controls should be in place, with an emphasis on the lowest cost option.

4.3.2.2 Dysfunctional actions in the sales process

In recent years several dysfunctional actions were discovered during internal audits and regular checks; these will be explained later. Some customers were told by sales force employees a higher price than necessary, in order to sell an extra item. Mostly, these items cost 10 Euros and are either XXXXXXXX. However, most of these dysfunctional actions can be placed in step 3 and 4 in the sales process. A contract can formally be not being processed if ID, address and bank-account are verified. However, it was found that some contracts were processed with expired ID-cards, different date-of-births and different addresses. Next, several fake contracts were processed, and later withdrawn. Next to the step 3 and 4 dysfunctional actions, step 6 also poses a threat to the company. Any alteration possible can be done using a “repair-order”-form. Changing a contract from 2 years to 1 year or making a XXXXXX were done. These actions are formally forbidden, and the only sanction to these actions is to dismiss that employee.

4.4 Processes at Company X

Within Company X several processes are in place in order to check for internal consistency with rules and procedures. These will be explained in the following sections.

4.4.1 Internal audit

Every half year, an audit takes place in order to secure consistency with guidelines and rules. This audit is performed by an internal audit committee, and is done unexpected. This audit, following Merchant and van der Stede, can be labeled a compliance audit, to check for compliance with laws, rules, procedures and administrative policies. This audit consists of 5 separate parts, which I now will describe. The complete evaluation form is added in appendix 4. Some of the measures used are objective, but can be put under behavior-based control, since quality of sales and administration is measured, instead of the amount.

1. General Front Office: this part aims to ensure all necessary elements in the store are

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2. General Back Office: this part is concerned with the safety and completeness of the back

office. Mainly, safety rules like free exit in case of fire; first aid kit and fire disposal equipment is checked. Next, separated inventory, reservations and DOA‟s are checked.

3. Administration Back Office: this part questions the administration of the back-office.

Mainly, here is checked for correct handling and documentation of discounts, rosters, inventory and safe transactions.

4. Quality Back Office: This section checks the quality of the back office in terms

completeness of contracts, percentage of inventory differences and percentage of manageable discounts.

5. SOX-items: Oxley items are those items specifically described in the

Sarbanes-Oxley act (2002), and deal with items such as seal bags, signatures and archiving of receipts.

4.4.2 Mystery shopping

In order to monitor the quality of each Company X store separately, Company X engages in mystery shopping. Mystery shopping, a form of participant observation, uses researchers to act as customers or potential customers to monitor the quality of processes and procedures used in the delivery of a service (Wilson, 1998). Unlike customer satisfaction surveys, the mystery shopping approach is being used to measure the process rather than the outcomes of a service encounter (Wilson, 1998). Every month an external party, called XXXXX, a researcher actively acts as a potential customer and reports its findings. The findings of a mystery-shopper are indicative for the quality of sales-conversations, and employee attitude. An example of a mystery-shop report can be found in appendix 5.

4.4.3 Netto Promoter Score

A Netto Promoter Score (NPS) is obtained as follows: each customer is asked, before leaving the store how they evaluated their store-visit. Several items are asked such as: waiting time, etiquette of sales employees, attention of sales employee, help of sales employee and overall quality impression. It was introduced by Reichheld in his 2003 Harvard Business Review article "The One Number You Need to Grow". The main idea behind the NPS is to let companies become more focused on quality and service instead of output and sales.

4.5 Systems at Company X

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weights, based on a company broad strategic direction, which is indicated by on-target-performance points, XXX (CAO XXX 1.2, 2011).

The bonus payment (XXXXX) starts when the monthly store-target is reached for 75%, indicated by 75 XXX-points. All scores above 100 XXX are doubled up, clearly indicating an incentive to keep performing even though the bonus is achieved. Bonus payment is linked to the amount of XXX-points achieved by the store as a whole in a month, as a 15,75 percentage of fixed salary (CAO XXX 8.7, 2011). Fixed salary here, is the monthly salary based on the amount of contract-hours per week. All results and figures can be checked in SAP. SAP is a large software package, specialized in business information systems. Within SAP, one checks its own results and

compares these with other employees, or with store-average result.

In evaluating a salesperson‟s performance, sales figures are important but the main performance indicator. Observations from the manager and potential-manager are the basis of one‟s

performance evaluation. These observations are highly subjective, but can be tested along a fixed set of measurements. An example of a evaluation scheme can be found in appendix 5. One‟s year-end evaluation differs from bad to reasonable to good, very good and excellent. Based on this evaluation, combined with sales figures a yearly pay-rise is given.

4.6 Culture and policy at Company X

Culture within Company X is mainly focused at the generation of sales results. On a store level, each store has several incentives, such as trips, holidays and gadgets. These can be won by performing good in terms of sales. Each incentive has its own structure and calls for a different focus in sales results. In order to closely monitor the progress of the incentive, and to see which stores are doing well, and update is given every day by email.

Results of the OCAI-test, appendix 6, indicate that the dominant culture perceived by all 10 respondents is mainly focused on so-called market arrangement in which sales are essential. In appendix 3, the red shape is the currently perceived culture, whereas the blue/transparent shape indicates the desired culture. Following McGrath and Quinn, within this culture “motivation is based in the believe in performance and belief in results as the forbearers of rewards”.

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Figure 6: Company X average OCAI-results.

Next to the measurable data, each Company X employee is expected to behave in compliance with the core values.

-Energetic: being enthusiastic and creating personal contact.

-Headstrong: asking those questions to trigger customer attention, closing the deal.

-Handy: knowledge on current offers, clearly communicating general conditions, offering the best deal for Company X and the customer.

-Innovative: asking for feedback, sharing new tips and tricks,

-Connected: With the customer, by asking different questions in order to getting to know the customer. With the company: by filling in monthly questionnaires and providing feedback for management.

These core values are enforced in several meetings, by repeating them, and continuously explaining these. Next, they are also a guideline for periodic HR reviews (appendix 3). Next to this, a special list of grey-zone actions is present within each store. These grey-zone actions are actions that a possible to do in the software system, but are undesired by Company X. These actions are explained, and an explanation is given why these actions are undesirable.

The store manager monitors each employee‟s behavior. These evaluations will be discussed in monthly coaching moments. During these sessions, each employee‟s performance will be discussed on both behavior and result, following the evaluation sheet added in appendix 5.

Next to this, it is the task of the store manager to ensure that the atmosphere and interpersonal relations are going well. Setting up a team meeting in which first work-related items are discussed, and drinks are provided afterwards to create an informal setting usually does this.

4.7 Summary

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Chapter 5: Analysis 5.1 Introduction

The previous chapters have examined the impact and role of undesired behavior at Company X. This section will examine interview results in order to identify those factors underlying undesired behavior. All interview results are documented in appendix 6 and is divided into three sections: 1. General interview results on different levels of employees.

2. Specific statements on types of behavior from which the typologies stem from. 3. Specific statements on core values

4. Results of OCAI-tests.

An investigation is made into three different kinds of undesired behavior, which are all influenced on different levels. The section will finish with a short examination on how to decrease undesired behavior.

5.2 Types of undesired behavior

Results from the interviews, appendix 6, show that undesired behavior at Company X can be classified into three distinct categories:

 Type I: Fraud to generate more sales

 Type II: Fraud for personal gains

 Type III: Behaviors contrary to corporate strategy and mission

The first category consists of fraudulent actions in order to generate more sales in order to reach the lower limit of 75 for bonus payments. Examples of these actions are processing contracts with expired ID, registering fake sales, use of wrong discounts and timing issues. The last item

consists of contracts processed at a favourable time on an employee‟s or manager‟s own name, which can be withdrawn.

The second category consists of fraudulent actions which are not aimed at generating more sales, but are actions aimed at direct personal gains. Personal gains here include shortened terms of own mobile contract, changing own contract into a sim-only subscription and the use of old

remunerations to buy a new phone for oneself.

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5.3 Factors influencing undesired behavior

From the interviews held with 9 employees in different positions at Company X and 1

ex-employee, the following factors can be identified

:



Bonus system

 Core values

 Corporate culture

 ICT systems

 Processes

 Tasks and responsibilities

5.3.1 Bonus system

The bonus system, as explained in chapter 4 and appendix 3, initiates several effects on types of behavior explained in the previous section. The first type of behavior is directly aimed at

generating bonus payments (ie. reaching 75- level), and therefore has a direct link with the bonus system. The bonus system here can be best described as the motivation to engage in type I behavior. From interviews it followed that fraudulent practices were most visible in situation where only a few sales would lead to a 75 XXX-score. Most statements that characterize this proposition are found in appendix 6.2. Next, most practices could be described as sales enhancing, and aimed at the generation of extra XXX-points and thus extra bonus payments.

Second, the bonus system plays an important role in type III behavior. In order to generate as much XXX-point as possible, a sales person might use deceptive selling techniques in order to sell those item he or she prefers from the viewpoint of the scorecard.. The results most likely will lead to higher XXX-scores but are not initiated from a customer-friendly perspective. The tendency among employees is that they rather help or talk to a buying-customer than to a non-buying customer who is in need of assistance. Especially employees and the ex-employee confirm this statement, as can be read in appendix 6.1. These actions were supported by some employees who stated that “I receive no bonus for a happy customer” and “a non-buying customer consumes time in which I could have sold something”.

To be complete: interviews did not reveal a relation between type II behavior and the bonus system. Most likely, this is due to the fact that most items on the scorecard a one-year or two-year subscriptions and do not provide an immediate gain.

5.3.2 Core values

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The core values of Company X are established in order to guide behavior into a desired form of behavior, not what type of behavior. Results from the interviews, appendix 6.3, show a clear discrepancy in the functioning and perception of the core values at Company X. The largest gap can be seen when analyzing the interview results of top management, and sales force employees. Top management perceives the core values as essential in guiding behavior; core values direct and steer employees towards an ambassador of the brand Company X, which in turn will generate sales.

On the other hand, regular sales force employees regard the current core values as merely a few words on which attitude is expected from a sales force employee. Core values are perceived as the display of a favorable image for employees, not as an essential tool in guiding behavior. Further, it was found that core values were poorly communicated towards employees. However, employees and ex-employees who knew the core values were not ambiguously about the value or meaning of all values.

This discrepancy has several influences on the types of behavior presented in paragraph 5.3.2. Interview results showed an influence of the core values on type I and type II behavior. Especially sales employees and the ex-employee interviewed were soon to admit that the core value “handy” is often interpreted as being creative, and knowing how to use the system in one‟s own advantage. The biggest gap however can be found when looking at type III behavior. Interview results in appendix 6.3 indicated that no direct link between the core values and the current business strategy was found. None of the respondents found that the five values were directly associated with the aim of becoming the most customer-friendly service provider, however, neither were they associated with actions and behaviors contrary to the current business strategy.

5.3.3 Corporate culture

Corporate culture within Company X has been described in paragraph 4.6 and was characterized by a market culture and a family culture. First, this section will examine what influence a dominant culture has on the three types of behavior. The dominant market-culture is

characterized by a desire for achievement, competition and success. The binding-factor within this culture is the emphasis on winning. Winning here is defined as measurable output. This is line with Corporate X‟s bonus system, which measures the amount of sales, type of sales and amount of phones sold. Further, performing well is emphasized within Company X since extra payment is based on performance in terms of sales.

Second, the family type culture is emphasized within Company X. This culture is characterized by human resource development, morality and care for people.

Results from interviews show that corporate culture has influence on type I and type III behavior. Here, some employees felt “pressured” or “did not want to underperform” and “wanted to gain allure”. From OCAI-test results, presented in appendix 6.4, it followed that the electronic

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More sales and higher performance might lead to more esteem and a better reputation among other managers and employees. No link between organizational culture and type II behavior was found.

5.3.4 ICT at Company X

The computer system at Company X is dividable into two distinct parts: a cash deck and a online system in which contracts can be entered. As described in chapter 4 and in appendix 4, entering a contract requires the use of both parts. This paragraph will describe what influence ICT systems at Company X have on the behavioral types.

The main influence, which was found, was an influence on type III behavior.

ICT systems, MOL and the cash deck were, following interview results, unable to deliver optimal customer-friendly results, and were thus hindering employees in executing company strategy. Employees are unable to gain precise insight in historical usage, billing specifications and technical details.

No link between type I and II behavior and ICT systems were found. However, ICT systems did play an important role in these types of behaviors. ICT systems were found to be very open; almost no restrictions were placed on actions. Registrations on the cash deck are not linked with the program in which contract adjustments can be made. First, the cash deck is the source that registers all sales and contracts, and processes them to the scorecard. It is however possible to simply register a sale, whilst no actual sale has been made. However, no registration is made on the use of remuneration for non-reparable phones, and no monetary amount is linked to the remuneration-codes. Second, contract alterations can be made such as shortening the term of the contract or lowering the monthly cost (sim-only). Third, all can be done from home and without valid ID-cards or student cards.

No check is placed on ID cards or student-cards in order to obtain a student discount. A common statement in interviews was that “all is possible”. Throughout appendix 6.1 it can be read that ICT systems can be seen as a facilitator to type I and II behavior, and can be seen as a possible

explanation for type III behavior.

5.3.5 Processes

Several processes are in place at Company X in order to monitor if employees are performing well, and are acting in line with core values. These processes; (NPS, mystery-shopping and internal audit) were not found to correlate highly with either type of behavior. All effects found showed a negative relation with type I, II and III behavior.

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Respondent X stated that “results from mystery-shopping and NPS are primary in place to measure accordance with core values”. Results from interviews reveal that these tools were found valuable across managers and employees in assessing accordance with strategy, but there were no concrete consequences in place to enforce results. However, several managers found mystery-shopping too subjective and broad. Concluding, systems at Company X have merely a preventive influence on type I and type II behavior, and it monitors type III behavior.

5.3.6 Tasks and responsibilities

From interviews, it followed that employees are responsible for their own actions. However, a store manager is responsible for all actions that occur within his/her store. Therefore, it should be a managers task to ensure no type I and type II behavior occurs within its own store, and to stimulate customer-friendly behavior among its employees.

A manager has the same bonus payments as regular employees; the ex-employee in particular found this to create a conflict of interest. from interviews it followed that this might be an incentive to approve or not judge fraudulent actions since it is the managers interest as well to receive bonus payments. No link between type II and type III was found in relation to job tasks and responsibilities.

5.4 Summary

In summary, figure 10 illustrates the factors that influence the different types of undesired behavior at Company X. The figure does not differentiate between different levels of influence; this is due to the fact that influences are not measurable. Factors with positive relations should be minimized, and factors with a negative relation, should be stimulated. Suggestions for

improvement will be made in chapter 6.

B onu s s ys te m C ore va lues C orporat e c u lt ur e ICT Syst em s (N PS /A ud it /Mys te ry s hop p ing) R es pon si b il it ie s Type I behavior ++ + + + - + Type II behavior + + 0 ++ - 0 Type III behavior + - + + - 0

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Chapter 6: Design 6.1 Introduction

The design chapter will answer the last three sub-questions and will provide improvements to the current sales force control system at Company X. First the design requirements will be

determined, after which improvements for the design of management control systems at Company X will be presented. Next, its effect on corporate culture will be examined. Last, suggestions for implementation will be made.

6.2 Design requirements

The design of a management control system for Company X will follow the path of Ouchi (1979). In his article, he describes that the design of control mechanisms aims to eliminate the problems of evaluation and control in three manners: by looking at markets, bureaucracies and clans. All three forms have a form of social requirements and informational requirements for them to function well.. These requirements are present in the table below:

Type of control Social Requirement Informational Requirements

Market 1. Norm of Reciprocity 4. Prices Bureaucracy 1. Norm of Reciprocity

2. Legitimate Authority

5. Rules

Clan 1. Norm of Reciprocity 2. Legitimate Authority 3. Shared Values, Beliefs

6. Traditions

Table 8: Social and Informational Prerequisites of Control provided by Ouchi (1979)

1. Norm of reciprocity: usually this means “an honest day‟s work for an honest day‟s pay”(Ouchi, 1979).

2. Legitimate authority: an agreement on the authority or legal form.

3. Shared values and beliefs: a common belief in how to act with a common vision and goals.

For the next sections I distinguish between outcome-based and behavior-based controls of Anderson and Olivier (1987) and core values from cultural controls of Merchant and van der Stede (2007). After the design of core values has been presented; the influence of the change in control systems on corporate culture will be examined.

6.3 Design of outcome-based controls

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6.3.1 Shape of bonus payments

Undesired behavior was especially found to take place near the 75 XXX-lower-limit. The solution to this problem is simple according to the top management respondent in his interview: “in order to get rid of behaviors or fraud to reach the 75 XXX lower-limit, we must get rid of the lower limit”. This in turn, would mean a pay for performance system or no bonus system. A bonus system serves several functions, where the main goal is to reward employees for actions, results or behaviors the organization finds desirable. However, this bonus is only paid out to employees if a store-average lower limit is reached. However, as several employees stated in their

interviews: “if nobody can jump a bar, isn‟t the bar too high?” and further: “it‟s not like no money is made if we don‟t reach the lower limit”.

Suggestions for re-design here include to lower the limit, or to start bonus payments from a 0 XXX point, in which every sale counts to increase bonus payments. These alterations minimize the direct link between the 75 XXX lower-limit and undesired behaviors, and thus minimize type I and type II behavior. However, this does not eliminate the agency theoretic perspective in which employees want to maximize their own rewards. This measure would take away the direct

motivation to “jump a bar”; however, it would not eliminate to motivation to “jump higher” and thus earn more bonus payments.

6.3.2 Nature of bonus payments

Result measures, must adhere to the characteristics, which are explained in paragraph 3.4.

1. Precise: to ensure correct scaling, Company X can stick to the XXX system which is present in the current system. However, it should carefully choose which amount of point it attaches to which specific item.

2. Objective: Measurements, especially those with a subjective character such as customer satisfaction or core values, should be measured by independent people. These persons have no incentive to prefer one‟s results over other‟s results. Next, these measurements can be verified by external auditors to ensure subjectivity.

3. Timely: measurement of subjective items should be done on a regular base, multiple times per bonus-payment-period, in order to minimize variance in measurements.

4. Understandable: employees must know what they are accountable for. Training and

communication from top management are the tools to ensure that employees are aware of their responsibilities as an employee. Second, employees must know what to do to influence the measure. This is the problem in the current situation, in which employees knew how to falsify the measure. This can be prevented in several manners; however, this will be subject in paragraph 6.3.3.

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organizational strategy to become the most customer-friendly service provider and causes

negative side-effects to the organization. Here, the bonus system should be aligned with corporate strategy; this can be done in order to create a competitive advantage and superior performance (Dent, 1990).

Customer satisfaction, can be measured only on subjective scales and on measures on which employees have no direct influence. These measures, NPS and mystery shopping, can be incorporated as a correction factor to bonus payments (Wilson, 1998). This means a set standard must be attained over a period of time, in order to receive a full XXX-bonus. Another option is to measure it against the all-store average. If the attained level of NPS and mystery shopping falls below a certain value, then bonus payment must be negatively adjusted. Obviously, an employee will have to make a trade-off between qualitative measures and sales. Since a low score on quality-items might lower bonus payments, a high score is desired in order to minimize type III behavior.

Further suggestions are to incorporate the monetary amount of discount into the scorecard. The more monetary discount a store gives the fewer bonuses it will receive, since giving a lot of discount makes it easier to sell certain products. Next, all repairs a correct measurement of repairs and providing service must be made to measure productivity correctly.

6.4 Design of behavior-based controls

Consistent with the work of Anderson and Olivier (1987), I propose that Company X should focus more on a behavior-based sales force control system (BBSFC) to minimize undesired behaviors.

Behavior based controls at Company X include the following factors that were found in the analysis:

- ICT Systems - Internal Audit

6.4.1 ICT Systems at Company X

Here, Company X can place behavioral constraints on the type of actions it finds undesired. These types of constraints can be viewed as negative, since it restricts the type of actions an employee can execute. In order to minimize type I, type II and type III behaviors; the ICT system has to be adjusted. The openness, the facilitation of undesired actions and the inability to

How to decrease undesired behavior at Company X?