Performance management of
reference sites
Literature review and empirical investigation at Multinational X
Master Thesis
University of Groningen
Faculty of Economics & Business
Master of Science in Business Administration
Specialisation Organizational & Management control
Author: Jos Megens
Student number: 1581546
Credits: 20 EC
Supervisor University: Joanna Hendriks-Gusc Supervisor Multinational X: Sandra van den Boom Second Supervisor University: Henk ter Bogt
Preface
You are reading my master thesis. This thesis is written at Multinational X, as final part of the curriculum of Master of Business Administration Organizational and management control.
The subject of this thesis is the performance management of reference sites; hospitals which demonstrate Multinational X equipment to potential Multinational X customers. I started writing this thesis in October 2007 at the Customer Visit Center , in a relatively small department. During the process of writing my thesis, I found out that this relatively small department was connected to almost every country in the world by either a visit to the Customer Visit Center or by reference sites. My narrow scope, limited solely to this department, at the beginning of this thesis widened to involving the whole world in my project. This led to a complex subject and an environment in which I really enjoyed working during my graduation internship. I am grateful that I had the opportunity to develop my personal skills and bring in practice, my knowledge obtained during my time at the University at the global company of Multinational X.
First of all I would like to thank Sandra van den Boom, my supervisor at Multinational X, for the good cooperation and the time taken to help me in the Multinational X organization, which sometimes looked like a jungle to me. Secondly I would like to thank Joanna Hendriks-Gusc, my supervisor from the university, for her critical view and patience during the process of writing my thesis. I would like to thank my parents for their (financial) support and patience during my time as student. Thanks to my girlfriend, Judith Bolt who I could always tell anything at any time.
Management summary
Reference site visits play an important role in the sales process of medical equipment. Reference sites are hospitals (public, private and university medical centers). They are not owned by Multinational X causing problems in influencing reference site visits. The Customer Visit Center, responsible for the organization of reference sites, has an agreement with the reference site that they have the opportunity to visit the site with potential customers to see the equipment in clinical use. The aim of this research is: “Developing a performance management model to improve the quality of reference site visits”
The performance management model is based on three concepts: agency theory to analyze the relationship, the Balanced Scorecard to determine critical success factors and remuneration schemes to identify the best way of remunerating reference sites.
The relationship between the Customer Visit Center and reference sites is characterized by a degree of goal conflict. Reference site visits have a commercial goal, closing the deal with a potential customer, whereas reference sites´ primary goal is providing the best healthcare services to their patients. An outcome-based contract is used to align the goals and to reduce goal conflict. This outcome-based contract is built on the Balanced Scorecard (BSC) where critical success factors with respect to a reference site visit are identified. The three most important critical success factors are:
1. Meeting all potential customers interests,
2. Personalizing the visit by using for example a personal badge for every visitor,
3. Department attitude which should be open and proactive towards the potential customers.
learning through the BSC and enhanced motivation due to the use of a quota scheme. In the figure below the performance management model is graphically depicted.
The relationship between the CVC and reference site is the arrow between the customer visit center and reference sites. The reference site hosts reference sites visits which are managed by the BSC. Key markets provide input for the BSC, which is used to manage the relationship with reference sites. KM1 fills out the VAF which is send to the CVC planning. The CVC planning sends the VAF to the reference sites who prepare the visit, based on the information specified in the VAF.
In the last chapter of this research the following five recommendations are provided: o It is recommendable to specify the required tasks in the contract e.g. prepare
clinical cases, badges etc., which have to be done by reference sites. In this way the BSC can be used to manage reference site performance. Quarterly feedback with reference sites to enhance organizational learning is recommended.
o Align the quota scheme to the most important critical success factors
o Performance management of reference sites depends to a large extent on information filled out in the Visitor Application Form (VAF) since all preparations are based on the VAF. If information in the VAF is incorrect or not
VAF Reference site Visit Balanced Scorecard KM
Customer Visit Center Reference site
Agency theory:
Outcome Based Contract
CVC - planning
filled out a site visit should not be planned because a visit might not answer the customers expectations
o Only communicate relevant information to reference sites in the Visitor Application Form. If not the reference site will not print out and distribute the VAF and the reference site staff will not be up to date concerning customer interests.
Table of content
1. Introduction... 8
1.1 Background of the thesis ... 8
1.1.1 Multinational X organizational structure ... 8
1.1.2 Customer Visit Center...10
1.1.3 Reference sites ...11
1.1.4 Relationship Customer Visit Center and reference sites ...13
1.2 Goal statement... 14
1.3 Problem statement ... 15
1.4 Research questions... 15
1.5 Scope of the research ... 17
1.6 Research design ... 17
1.6.1 Research methodology...17
1.6.2 Data collection ...18
1.6.3 Interview respondents...19
1.6.4 Timeline of the thesis ...21
1.7 Remainder of the thesis ... 22
2. Theoretical framework... 23
2.1 Agency theory... 23
2.2 Balanced Scorecard... 27
2.2.1 Introduction on the Balanced Scorecard ...27
2.2.2 Analysis on the Balanced Scorecard ...29
2.2.3 Scope of the BSC...31
2.2.4 Performance indicators development ...32
2.3 Remuneration design ... 42
2.3.1 Remuneration schemes ...42
2.3.2 The BSC and remuneration schemes ...44
2.4 Model for performance management of reference sites ... 45
3. Interview results ... 47
3.1 Overview interviews... 47
3.2 Financial perspective ... 47
3.3 Internal business processes ... 48
3.4 Learning & growth perspective ... 52
4. Discussion... 53
4.1 Research questions... 53
4.2 Performance management model ... 60
5.1 Conclusions ... 62
5.2 Managerial recommendations ... 63
5.3 Theoretical contributions ... 63
5.4 Limitations & future research ... 64
6. References ... 65
Appendix 1: Abbreviations... 68
Appendix 2: Remuneration schemes... 69
Appendix 3: Interview Script ... 70
1. Introduction
Reference sites visits play an important, yet difficult to control, role in the sales process of medical equipment, hence the managing of reference sites is a necessity. Performance management systems provide Multinational X Customer Visit Center with the opportunity of managing the complex relationship with reference sites and to guarantee a high quality outcome, in time leading to an increasing number of deals successfully completed.
1.1 Background of the thesis
This section describes Multinational X, one of the world’s top three medical equipment companies. Firstly, a description of Multinational X corporate and the department Global Sales & Services International Sales & Marketing will be provided. Secondly the Customer Visit Center (CVC) (For abbreviations see appendix 1), where this thesis is written, will be described. Thirdly an introduction to reference sites will be provided. Fourthly the relationship between the CVC and reference sites, the object of this research, will be introduced.
1.1.1 Multinational X organizational structure
This section presents the Multinational X organization and describes all Multinational X departments involved in the complex organization of reference sites.
Multinational X is part of the global Multinational X enterprise consisting further of Consumer Lifestyle and Lighting. Multinational X can be classified as a matrix organization (Daft, 2001). Geographically, the Multinational X organization can be divided in Global Sales and Services International (GS&SI), responsible for the world except North-America, and Global Sales and Service North-America (GS&SNA), responsible for North-America. GS&SI, where this thesis was written, can be divided into three groups (see Figure 1):
- Business Units (BU): Responsible for production of medical equipment
- GS&SI Headquarters: Responsible for all sales and production of medical equipment and supports KM and BU in reaching their targets.
Figure 1: Multinational X organization overview
GS&SI headquarters consists of several departments. Sales & Marketing is one department within GS&SI.
Sales & Marketing department
The head of the Sales & Marketing department and her team stated following mission: “Enable a world class marketing and sales organization in GS&SI, delivering promise of sense and simplicity in healthcare”
BU GS&SI KM Sales & Marketing Finance Human resources Business Excellence Customer Services Quality & Regulatory Ultrasound Healthcare informatics and PM Imaging systems Cardiac Care Reference sites (see section1.1.3) CVC (See section1.1.2)
Legenda: Functional lines
Within this department, a distinction can be made between marketing and sales support tools. The Customer Visit Center and Reference sites are sales support tools, providing support to all account managers and other sales persons of all Key Markets within GS&SI.
1.1.2 Customer Visit Center
The Customer Visit Center (CVC) is located at the Multinational X plant. The general manager CVC stated the following mission:
““The Customer Visit Center supports Key Markets during critical phases within the sales process, by being the key differentiator (AM’s trump card.) We will provide them with a selection of high quality reference sites. Simultaneously we shall aspire to keep the CVC environment at a level that goes beyond local activities (surplus value), where customers feel welcome and become one with the Multinational X community”
The ambition of the CVC is to provide Account Managers (AM’s) with tools used in critical phases within the sales process with two objectives: to close a deal or break open a deal in which the Account Manager does not have the lead.
To support this mission the following activities are deployed:
- Exhibit Multinational X equipment in a non-clinical state (not used for surgery); - Organize a “total package arrangement” from departing from, to arriving back at
the country of origin;
- Organize high quality international reference site visits.
The reference site manager is responsible for providing sales support through high quality reference site visits. The reference site manager stated the following mission for reference sites:
A high quality visit meets customer expectations. A reference site represents Multinational X during a visit and therefore high quality is mandatory. Reference sites do not sell equipment but support the account manager and other sales persons in closing the deal after the visit has been completed.
1.1.3 Reference sites
The use of references is a common practice within high-end business-to-business markets (Salminen & Möller, 2004 p. 137). The high-end business-to-business markets, in this case the market for medical equipment, can be characterized with capital intensive investments in expensive medical equipment. Three opportunities, among others, to address references in the sales process are:
- Reference lists - Publications - Reference visits
Within the medical equipment market, reference visits are commonly used and play an important role in the sales process. Salminen (2001, p. 488) defines a reference visit as follows:
“The visit a potential customer makes to a site (or plant) of a potential supplier’s existing, satisfied customer may be called a reference site visit”
This definition is used in this thesis. The reference site manager is responsible for providing excellent sales support by means of high quality reference site visits. High quality reference site visits can be defined as:
“Visits which meet customer’s expectations and contributing to reaching the above mentioned desirable outcomes”
“Improve sales support through transformation of reference sites into real selling sites that meet customer expectations”
The sales support provided to sales persons of the Key Markets has to be improved, thus making it easier for the salesperson to close the deal after the visit has been completed. Reference sites do not actually sell the product themselves but are a support tool.
Figure 2 describes the sales process. The first phase, brand awareness refers to creating an awareness of Multinational X as a credible and reliable partner. The second phase is the pre-tender stage in which presentations of the product are provided and a customer decides which vendors are asked for a tender. In the third phase, tender phase, each vendor prepares a tender which is evaluated by the customer, who then decides which product from which vendor they will purchase. The fourth phase is the post tender phase. In this phase the deal is already successfully closed and after sales programs such as services etc. is carried out. A reference site visit commonly takes place in the pretender and tender phase in the sales process because the equipment will be discussed in the pre- and tender phase.
Figure 2: Sales process stages and reference site alignment
Multinational X currently distinguishes two different kinds of reference sites (see Figure 2). The main difference is that regional reference sites are organized by the Key Market in which it is located and international reference sites are organized via the Customer Visit Center. Brand awareness Pre-tender Phase Tender Phase
Regional ref. site / International ref. site
The use of references within the sales process has the following desirable outcomes (Salminen & Möller, 2004 p. 137):
- Established credibility
- Convinced customer about competence - Enhanced reputation
- Reduced perceived risk
A visit which meets customer’s expectation contribute to the goals of using references and might be crucial in closing the deal at a later stage.
1.1.4 Relationship Customer Visit Center and reference sites
Figure 1 (see Section 1.1.1, p. 9) presents the organizational structure of Multinational X with the CVC and reference sites within this structure. There are two main differences between the CVC and reference sites:
1. The CVC is an organizational unit of Multinational X, as opposed to a reference site: a hospital (either public hospitals, private clinics or university medical centers) is not owned by Multinational X;
2. The CVC exhibits equipment in a non-clinical state and provides potential customers with the opportunity to touch and see the product whereas reference sites provide potential customers with the opportunity to evaluate and discuss Multinational X and the equipment in which the potential customer is interested with actual users.
The CVC and reference sites provide opportunities and value to potential customers in atheir own way.
Reference site management is under responsibility of the CVC and consists of the following activities:
The first activity refers to identifying the number and location of reference sites together with identifying hospitals which would be suitable as a reference site.
The second activity refers to the planning of- and the actual visit to a reference site. Each account manager of a Key Market can request a reference site visit by filling out a Visit Application Form (VAF), specified with information concerning the visit date and visitors interests, and sending it to the CVC. In cooperation with the reference site, the visit date specified in the VAF is confirmed or changed and communicated to the account manager.
The third activity is quality management of reference sites to ensure professional reference site visits. In the current situation quality and performance management is limited to determining the net/win rate. This process is problematic for three reasons. Firstly, the sales process has long lead times resulting in a high outcome uncertainty if the visit will take place in the pretender phase of the sales process. Secondly, each KM has its own database to track the status of a deal making it a time consuming process to trace the outcome of a deal. Thirdly, reference sites are only one part of the total sales process. Due to the three reasons described above, there is limited performance management of reference sites in the current situation and the quality of reference site visits cannot be managed optimally. CVC management believes that, by improving the quality of reference site visits, high quality visits can be guaranteed and eventually, an increasing number of visits could lead to successfully completed deals. Paying out compensation is part of the relationship management process which also falls under the scope of quality management. Currently, reference sites earn a fixed remuneration for each visit completed.
1.2 Goal statement
The objective of this research is as follows:
1.3 Problem statement The problem statement of this research is the following:
“How can a performance management model be designed to improve the quality of reference site visits that fits within the Multinational X organization?”
1.4 Research questions
This section will develop research questions supporting the problem statement.
In Section 1.1.3 and 1.1.4 the responsibility of the CVC for the organization of reference sites and that reference sites are not owned by Multinational X was described. Multinational X delegates the demonstration of their equipment in clinical use to reference sites. Research question 1 is formulated as follows:
Research question 1: Which are the characteristics of the relationship between the Customer Visit Center and reference sites and how can the relationship be classified and managed?
Academic literature provides different performance management systems for example: the Balanced Scorecard (BSC)(Kaplan& Norton, 1992) and the EFQM-model (Sandbrook, 2001). The BSC is the main performance management system within Multinational X and will therefore be the main performance management system in this thesis. The BSC contains four perspectives: financial-, customer-, internal processes-, and learning & growth perspectives. Each perspective contains a set of performance indicators. Performance indicators in the internal processes perspective represent critical success factors (Pandey, 2005 p. 63). Research question 2 is formulated as follows:
In the learning & growth perspective the focus is on building new infrastructural capabilities and improving employee skills which are needed to enable reference sites to excel at the internal processes in the future. Research question 3 is formulated as follows:
Research question 3: Which infrastructure needs to be built in order to enable reference sites to improve future performance?
The financial- and customer perspective consists of performance indicators determining the success of the actions in the internal processes and learning & growth perspective. To implement the performance management model within the Multinational X organization, currently existing performance indicators used in different organizational levels (see figure 1, Section 1.1.1) will be analyzed concerning their applicability to reference site performance management. Research question 4 is formulated as follows:
Research question 4: Which performance indicators can be identified for the financial and customer perspective using currently existing Multinational X performance indicators?
The BSC depicts the strategy of a company in one strategic management system, providing an overview of the past results as well as insights in how a firms’ future performance might be. Kaplan & Norton (1996) argue the necessity of a good balance between leading (indicators providing insights in how future performance might be) and lagging (providing an overview of past period performance) performance indicators. A good balance between leading and lagging performance indicators provides information areas for improvement and the success of the chosen strategy. Research question 5 is formulated as follows:
The performance management model also contains a remuneration system for reference sites. Research question 6 is formulated as followed:
Research question 6: Given the characteristics of the relationship between the CVC and reference sites, which remuneration system suites the objectives best?
1.5 Scope of the research
The scope of this research is the relationship between the CVC and reference sites. Within the relationship three different activities are deployed (see Section 1.1.4). Activity two is the application for and execution of the visit. For this research the scope is limited to the execution of the visit.
Although essential for the quality of reference sites, it is assumed that the identification and selection of reference sites is performed correctly and this issue is therefore left out of the scope of this research. Activity three, quality management is also important but it is assumed that the processes in this activity are performed correctly.
The focus will be on international reference sites which are the responsibility of the CVC. Regional reference sites are not organized via the CVC and therefore out of this scope.
1.6 Research design
This section will present the research methodology, data collection and timeline.
1.6.1 Research methodology
of action research chosen here is the participant-observer approach (Remenyi et. Al, 2000, p. 50). Using the participant-observer approach, the researcher joins a team of individuals and takes part in the phenomenon in the same way as the individuals, but at the same time focuses on observing the way in which the group operates (Remenyi et. Al, 2000 p. 57). This research is phenomenological in nature (Remenyi et. Al, 2000 p. 57). Phenomenology is a theoretical point of view that advocates the study of direct experience taken at face value; and one which sees behaviour as determined by the Phenomena of experience (Remenyi et. Al, 2001 p. 286).
1.6.2 Data collection
This section presents the methods of data collection. Data will be collected for three reasons:
- To develop the performance management model
- To check if proposed performance indicators of the BSC in the theoretical framework are found to be important.
- Reveal new critical success factors for the visit.
Creswell (2003) presents four methods for qualitative data collection: observations, interviews, documents and audiovisual materials. In this study two methods of data collection will be used: observations and interviews.
Observations are used as a data collection form in the participant-observer approach (Remenyi et Al., 2000 p. 110-111) in which the researcher gathers data by being part of the group. Data collected via observation will mainly be used in the theoretical framework in order to develop a performance management model, based on the theoretical concepts.
Also interviews provide the research to “control” the line of questioning (Creswell, 2003 p. 186).
Three different forms of interviews are described by Creswell (2003): face-to-face interviews, telephone and group interviews. Face-to-face interviewing is the preferred form because of the opportunity to observe the interviewee during the interview and the opportunity to clarify misunderstood questions and/or answers. However it is not always possible to have face-to-face interviews due to accessibility problems such as geographical and financial limitations. If a face-to-face interview is not possible telephone interviews will be held.
Next to the form of interviews, Sekaran (2003) describes two different structures of answering questions: structured-, unstructured interviews. Structured interviews contain closed answering possibilities and are used when the researcher knows which data need to be collected. Unstructured interviews provide open answering possibilities with an open line of questioning. A mixed structure, called semi-structured interviews, is a third possibility which is described by Remenyi et Al. (2000 p. 111). Semi-structured interviews contain open and closed answering possibilities. Semi-structured interviews usually contain an interview guide to provide some structure to the interview (Remenyi et Al. 2000 p. 111). Semi-structured interviews will be used as data collection method for two reasons. Firstly a closed answering structure provides the opportunity to comparing the data when analyzing it (Remenyi et Al., 2000 p. 111), aimed at confirming if proposed performance indicators in the theoretical framework are found to be important in practice. Secondly semi-structured interviews provide the opportunity to reveal new critical success factors for a visit via an open answering structure.
1.6.3 Interview respondents
The aim of the semi-structured interviews is to reveal critical success factors of a visit. For answering the research questions defined, interviews must be held with:
1. Key Market representatives
1. Key Market representatives
Key market representatives can be divided into three groups depending on their job function: account managers, sales managers and modality sales specialists. The Key Market representatives provide input on critical success factors during a reference site visit. The identified factors will be the input for performance indicators in the internal processes- and learning & growth perspective.
Based on the following criteria a selection of potential representatives is made:
1. Candidates should be active in all eleven different Key Markets within GS&SI 2. Candidates should represent relevant positions in relation to the reference site
visit process within a KM.
Within a Key Market, different job functions exist which are all potential visitors of a reference site. The three most frequently held positions will be addressed for interviews since they have the most experience with visits.
3. Candidates should represent all relevant business lines
Multinational X is divided among different business lines, each having its own products and reference sites.
Based on the three described decision criteria over 50 interviews should be held with Key Market representatives. This would consume too much time and therefore the Key Markets will be clustered into three groups as can be seen in table 4 in Section 4.2. The division is based on geographical distance. The researcher acknowledges that great cultural differences exist between countries in each particular cluster. As a consequence the results provide an indication and might not provide a detailed overview for each particular KM.
languages or the unavailability of a description. Secondly, the CVC management team will assist by specifying appropriate contact persons in each KM.
Firstly an email, requesting an interview with selected candidate, will be sent by mail to their manager containing a brief introduction to the project and the interview schemes. If no specific candidate can be selected, an email will be sent to the appropriate contact person in a particular KM. An email reminder will be sent one-two weeks after the request. If the manager does not respond to this reminder they will be contacted by telephone. When the manager cannot be reached the selected candidate will be contacted directly.
2. CVC
The reference site manager is responsible for the relationships with reference sites. The reference site manager will provide input on the relationship between the CVC and the reference sites as described on page 6 and in paragraph 2.1.
Reference site remuneration is also a responsibility of the reference site manager and will be discussed in an interview.
1.6.4 Timeline of the thesis
The following timeline is set-up for this thesis:
Concept version theoretical framework: Monday 28 January Appointment theoretical framework Friday 8 February Improved final version with interview Monday 18 February questions
Interview results concept version Friday 28 March Appointment interview results
Concept version Friday 07 June
1.7 Remainder of the thesis
2. Theoretical
framework
This chapter presents the theoretical framework. A performance management model will be developed, based on three theoretical concepts. Agency theory, in Section 2.1, analyses the relationship as specified in Section 1.1.4. In section 2.1, the Balanced Scorecard (Kaplan & Norton, 1992) is introduced, important as main performance management system in this thesis. In Section 2.3 presents remuneration schemes, analyzing the best way to remunerate reference sites given the situation of reference sites. Section 2.4 presents the performance management model based on the three theoretical concepts.
2.1 Agency theory
Section 1.1.4 provided insights in the relationship between the CVC and reference sites. This section will analyze the relationship between the CVC and reference sites using agency theory (Eisenhardt, 1989). This section will explore if the relationship between the CVC and reference sites can be specified as a principal-agent relationship and which characteristics play a role in the relationship.
Eisenhardt (1989 p. 58) defines a principal-agent relationship as follows:
“Agency theory is directed at the ubiquitous agency relationship, in which one party (the principal) delegates work to another (the agent), who performs that work.”
Reference sites perform the tasks delegated to them by the CVC, currently against a fixed remuneration per visit completed. Based on this remuneration, the following definition of a principal-agent relationship is used in this thesis:
“An agency relationship is one in which one party (the principal) delegates work to another (the agent), who performs that work against a received compensation.”
1. Goal conflict and monitoring costs
2. Different attitudes towards risk, risk aversion
Goal conflict occurs when the principal and agent have different goals leading to the agent taking actions which differ from the best interest of the principal (Eisenhardt, 1989). Monitoring costs exist because the principal would like to assure that the agent performs the tasks delegated to him/her. In the relationship between the CVC and reference sites, goal conflict might occur because the primary goal of the reference sites is providing the best healthcare to their patients. Multinational X uses reference site visits with the intention of closing a deal at the end of the sales process. Providing the best healthcare to patients might conflict with commercial visits when reference site staff has to focus on the patient, having no time for questions from the potential Multinational X customer. Monitoring costs could exist if the CVC would like to check on reference sites actions, which is currently not an issue.
Different attitudes towards risk lead to the preference of different actions by the agent (Eisenhardt, 1989 p.). Principals are usually risk neutral where agents are risk averse because they “put all their eggs in one basket” (Shapiro, 2005 p. 265). Risk aversion does not apply to the principal-agent relationship between the CVC and reference sites. Reference sites receive a fixed remuneration for a reference site visit; this accounts for a small part of the income of reference sites.
In the principal – agent relationship between the CVC and reference sites, goal conflict could arise. Agency theory tries to resolve the goal conflict by using contracts.
Eisenhardt (1989) defines two types of contracts: a behavioral-based contract and an outcome based contract. A behavioral-based contract could contain pay-out in salary where as an outcome-based contract could contain pay-out in commissions and stock options (Eisenhardt, 1989 p.58) The contract type best suited depends on seven different variables which are described below.
present during the reference site visit which could provide feedback to the CVC. Another opportunity is to monitor employee behavior by means of the use of internet and webcams.
Task programmability is the second variable and refers to the extent to which a task can be specified and fixed before the visit. Task programmability for reference sites is low. The questions asked cannot be programmed beforehand and require specific knowledge of the reference site staff. Secondly a reference site visit requires specific knowledge about applications of the equipment which is beyond the knowledge of Multinational X guides.
Outcome uncertainty is the third variable, referring to the predictability of the outcome. Outcome uncertainty for reference sites is medium depending on the phase of the sales process, tender or tender, in which the reference site visit takes place. In the pre-tender phase, lead times are long since the deal might be completed (won or lost) one year or even longer after the visit has taken place. In the tender phase, where international reference sites usually take place, the lead times are short; the deal might be completed within three months after the visit.
Outcome measurability is the fourth variable referring to the extent of which the outcome of the agents’ actions can be measured. Outcome measurability is low for reference sites. The measurability in the current process is difficult because different databases are used to submit the outcome of a deal in. However the requestor of a reference site visit is known, providing the opportunity to mail the requestor about the status of the deal.
Degree of goal conflict is the fifth variable referring to the extent of which the goals of the principal and the agent differ. The degree of goal conflict is high, however it differs per relationship between the CVC and each reference site. As mentioned earlier in this section, the primary goal of reference sites differs from the primary goal of Multinational X, using reference site visits for commercial purposes
Contract time is the seventh variable, referring to the period in which the principal delegates the work to the agent. The duration of the contract is one year, which can be considered as a long period of time. During this year several reference site visits will be hosted by the reference sites.
Table 1 summarizes the variables described above and depending on the variable which contract suites best (Eisenhardt, 1989).
Outcome-based Behavioural-based Reference sites
Usability of information systems
Low High High
Task programmability Low High Low
Outcome uncertainty Low High Medium
Outcome measurability High Low High
Degree of goal conflict High Low High
Risk aversion High Low Low
Contract time Long Short Long
Table 1: Variables determining the contracts
Based on Table 1, an outcome based contract is expected to be the best option for performance management of reference sites. This outcome-based contract aligns the goals between the CVC and reference sites and reduces goal conflict. The outcome-based contract could specify which outcomes have to be achieved in order to receive remuneration. The critical success factors described in the BSC, in Section 2.2, can be specified in the contract.
Figure 3: Agency relationship
2.2 Balanced Scorecard
This section of the theoretical framework presents the Balanced Scorecard (BSC), (Kaplan & Norton, 1992). An introduction will be provided first. Secondly, an analysis of the BSC is made, based on two issues, the causal relationship between perspectives and the factor time. Thirdly, the scope to which the BSC applies is analyzed. Fourthly, the BSC will be applied to performance management of reference sites.
2.2.1 Introduction on the Balanced Scorecard
The BSC was designed in 1992 by Kaplan & Norton who recognized the need for a broader, more comprehensive view of firms’ performance then traditional performance systems could provide. Traditional performance measurement systems, based on financial performance indicators, have two objectives:
1. Control employee behavior 2. Evaluate past performance
Kaplan & Norton (1996) classify the BSC as a performance management system. The BSC has, in addition to controlling employee behavior and evaluating past performance, three additional objectives:
3. Communicating strategy 4. Guiding employees 5. Organizational learning
Customer visit Center - Reference site manager
Agency relationship - Outcome based contract
Lipe & Santerio (2000) classify the BSC as a tool to translate set objectives into a strategic roadmap to be followed by employees, which could be considered the same as objectives three and four.
The BSC consists of four perspectives: financial-, customer-, internal processes- and learning & growth perspective.
Balanced Scorecard perspectives
The central question in the financial perspective is how a company wants to be viewed by its shareholders. The objectives set in the financial perspective represent the firms’ long term objectives. Performance indicators in this perspective reflect the success of the strategy which is deployed in the customer-, internal processes- and learning & growth perspective (Pandy, 2005). According to Kaplan & Norton (1996, p. 67) causal paths between performance indicators in each perspective should always be linked to financial performance.
The customer perspective determines how a firm wants to view its customers. A firm identifies in which customer- and market segments it will compete, and how a firm will aspire for future growth. Performance indicators represent the success of the firm in targeted segments.
The internal processes perspective focuses on the internal processes critical in delivering value to the customers. Performance indicators in this perspective represent critical success factors in a visit (Pandy, 2005).
The learning & growth perspective focuses on the infrastructure of a firm and the capabilities needed to excel at the internal processes. This perspective identifies the capabilities, employee skills and technology that have to be developed in the near future.
Leading and Lagging Performance indicators
Each perspective consists of a set of performance indicators. Neely, Gregory & Platts (2001) define a performance indicator as follows:
A distinction can be made between leading and lagging indicators. Leading indicators can inform management of the progress on initiatives undertaken which could achieve higher profits in the future (Paulson Gjerde & Hughes, 2007). Lagging indicators reflect which result are already accomplished and therefore is a result of prior period (Paulson Gjerde & Hughes, 2007). A well balanced BSC contains both leading and lagging indicators.
Strategy mapping
The strategy mapping process is an intermediate tool frequently used as a means to translate the strategy into actions. Strategy mapping contains two steps (Bhamini et al., 2007):
1. Mapping objectives in each perspective based on the strategy 2. Linking the objectives to each other
Figure 4 provides a schematic overview of the strategy mapping process. When objectives are defined for each perspective, appropriate critical success factors and actions can be determined to deliver on the objectives.
Figure 4: Strategy mapping process; source Bhamini et. al (2007)
2.2.2 Analysis on the Balanced Scorecard
This section will present an analysis of the Balanced Scorecard (BSC). The BSC will be analyzed based on two frequently criticized characteristics:
2. Time factor: Improvement in the learning & growth perspective do not lead to improvements in the financial perspective at the same period of time (Nørreklit 2000).
Causal relationships
Within the academic literature opinions differ on whether or not the BSC improves a firms’ performance. The key message of Kaplan & Norton (1996, p. 64) is that the BSC is more than just a set of performance indicators but they are related in causal links. Just a set of performance indicators would not qualify as a BSC and would not improve performance since the performance indicators are not related to each other in causal links. The causality in the BSC can be described as follows: effective innovation and learning and growth by employees will lead to efficient internal processes which in turn lead to satisfied and loyal customers and ultimately to good financial results for shareholders (Kaplan & Norton, 1996 p. 65). Several researchers provide evidence of the BSC driving performance. Braam & Nijssen (2004) confirm the BSC reaching better performance if the BSC is properly implemented and used. BSC’s enhancing corporate strategy will lead to better performance Braam & Nijssen (2004). Ittner, Larker and Randall (2003) show in a survey among 140 US financial firms, modest evidence that improved customer satisfaction leads to improved financial performance. Davis and Albright (2004) found in a study of bank branches that banks which implemented a BSC outperform banks that use traditional performance measurement system. Criticism on the BSC focuses on the validity of the causal links.
Nørreklit (2000) argues that the causal links are more of a logical than a causal kind. It is logical that effective innovation leads to better financial performance. However better financial performance may also have other causes.
Based on the analysis of the causal relationships, improved technological and employee capabilities of a reference site would improve financial performance on the long run.
The factor time in the BSC
a certain point of time, do lead to better performance of the internal processes and customer perspective at time t+1 (Nørreklit, 2000). Since the BSC measures cause and effect at the same time without considering any time lag, as such it has no time dimension (Nørreklit, 2000 p. 71). The factor time is important for the performance management of reference sites. As mentioned before, reference sites have contracts for the duration of one year, although the sales deal might not be closed in that particular year. Improvements on the learning & growth perspective might not be traced back to the customer and financial perspective in time.
This analysis shows the basic concept of the BSC. When implementing performance indicators, it should be clear how they influence each other.
2.2.3 Scope of the BSC
In this section the scope to which the BSC applies is presented. A reference site visit, from application until sending back feedback, contains components of a visit: pre-visit, visit and post-visit component. The BSC will be applied to this process with the focus on the visit component. The visit component is the task delegated to the reference sites within the principal-agent relationship and will be managed with the BSC. In the contract the tasks could be specified which are delegated to the reference site. The focus will be on those critical factors influential by reference sites. According to Salminen (2001 p. 500) a reference site visit contains six stages:
1. The sales representative meets the potential customer as early as possible to get acquainted with each other.
2. The host at the reference site presents the plant
3. The visitor may have a try at running the equipment themselves
4. The potential customer and reference site discuss the equipment properties and the suppliers’ abilities and reliability.
5. Having lunch together with the host (if possible).
6. Give some kind of business gifts as a thank you to the host
Figure 5: Reference site visit stages
The BSC as performance management system is the main part of the performance management model used by the CVC to assess the performance of reference sites within the relationship as specified in Section 1.1.4.
International reference site visits, to which this BSC will be applied, are a tool used by sales persons of the Key Markets to close a deal or to break open a tender process in which the competitor has the lead. Sales persons of Key Markets will provide the input on critical success factors.
2.2.4 Performance indicators development
In this section performance indicators for each perspective will be developed. The strategy mapping process, as described in Section 2.2.1, will be used to map objectives for each perspective. Then actions or critical success factors will be defined to reach the objectives. Performance indicators will be developed which reflect the actions determined and critical success factors identified.
2.2.4.1 Financial perspective
This section will continue with the development of performance indicators for the financial perspective, reflecting the success of the strategy.
1. Objectives
Reference sites play an important role in completing sales deals (won or lost) with potential customers. The financial perspective measures the success of the chosen strategy in providing the best sales support. The existing mission statement and strategy provide no financial objectives. Central theme in this mission is: “improved sales
Welcome & presentation
Equipment visit
support” from reference sites to sales persons of the Key Markets. Good sales support delivered by reference sites to account managers in the KM, leads to more successful deals. The objective is set as follows: “Finishing more deals successfully”.
2. Performance indicators
This section will contain a discussion based on the following six performance indicators: - Revenue from new products
- EBIT - Total Sales
- Order intake equipment - Comparable order intake - Net/win rate
Revenue from new products
This indicator reflects revenues of new products during the first three years from the introduction. This indicator is not applicable due to two reasons. Firstly reference sites do not have much influence on the new product introduction process because of many uncontrollable factors. For example a delay in delivery time by Multinational X to the customer is not influential by reference sites. Secondly this indicator reflects only a small part of the equipment’s life cycle. The equipment can be sold over 5 to 10 years. Reference sites are still needed in the remaining time of the life cycle.
EBIT/Total sales/Order intake/Comparable order intake
low. Secondly an international reference site visit is not involved in every successfully sales deal. The indicators make no distinction between earnings/sales/order intake in which a reference site visit was involved and a deal which did not involve a reference site visit so the accountability is low.
Net/win rate
This indicator reflects the number of deals, in which an international reference site visit is involved, completed with success, divided by the total number of deals completed in which a reference site is involved. This indicator might not be applicable due to long lead times and problematic traceability, as described in Section 1.1.4.
Discussion
The applicability of most of the indicators described above is problematic. Comparable order intake and the net/win rate are the most applicable for performance management of reference sites. Comparable order intake has the advantage of translating the success of the strategy into financial results where as the net/win rate only determines the number of deals without any financial value. For example a deal concerning 10 scanners is more important than four deals concerning 1 scanner. The net/win rate can be specifically fitted to reference sites where comparable order intake is a very aggregated indicator. Reference sites are only a part of the total sales process and not each deal finished successfully requires a reference site visit. The contribution made by reference site is not traceable in a highly aggregated performance indicator as comparable order intake. Based on this discussion, the net/win rate will be proposed as financial indicator for performance management of reference sites.
2.2.4.2 Customer perspective
This section will develop performance indicators for the customer perspective.
1. Objectives
meeting customer expectations. For the customer perspective, improved sales support and meeting customer expectations can easily be used as the objectives.
2. Performance indicators
This section will have a discussion on the applicability of six existing BSC performance indicators for the performance management of reference sites given the set objectives. The indicators will be analyzed on their applicability to performance management of reference sites. The indicators are:
- Market share
- % Market share equipment - Customer profitability - Net promotor score - Customer satisfaction
Market share & % Market share equipment
“% Market share equipment” refers to multinational X market share in equipment, compared to the total market size of equipment. “% market share equipment” is not applicable due to the same reasons as described in the analysis of the market share indicator as well as different deals involve a different number of equipment being purchased.
Customer profitability
This indicator refers to the profitability of a customer. This indicator is not applicable for two reasons. Firstly reference sites do not carry any profit responsibility. Secondly, the costs for visits made to international reference sites are accounted to the CVC and not to reference sites.
Net promotor score
The NPS refers to one central question: “Would you promote Multinational X to your colleagues?”, and provides insights in future growth possibilities. The NPS might be applicable to performance management of reference sites. The NPS provides an indication about customer expectations met and sales support if an account manager would promote a particular reference site to other account managers.
Customer Satisfaction
Customer satisfaction is derived from the list of KPI’s that are used within Multinational X and refers to the satisfaction of a customer. In case of reference sites, customer satisfaction could be used to determine account managers’ satisfaction with the visit. Customer satisfaction might be applicable to performance management of reference sites because it can provide direct response to the sales support delivered and expectations met.
Discussion
satisfaction has the advantage to measure in a direct way if the sales support is provided and if the expectations about the visits are met, by directly asking sales persons out of the Key Markets. Net Promotor Score is one question providing no clarified answers on the extent to which customer expectations are met and the extent to which sales support is provided. Customer satisfaction provides the opportunity to measure directly if customer expectations are met and if sales support is provided. Customer satisfaction will be the proposed indicator in the customer perspective based on this discussion.
2.2.4.3 Internal processes perspective
This section will develop performance indicators for the internal processes perspective. This section is structured differently from section 2.2.1 and 2.2.2 in the way it differs in step 2. Step two will identify critical success factors instead of performance indicators because of the interviews with Key Market representatives. Interviews based on critical success factors are much more clearer then interviews based on performance indicators. In step 3 performance indicators will be described based on the critical success factors.
1. Objectives
In the internal processes perspective, critical processes are identified in delivering a high quality visit to the customer’s of the CVC, sales persons of the Key Markets. Account managers take potential Multinational X customers, further referred to as visitors, to a reference site visit for a demonstration of the equipment in clinical use. In Section 1.1.4, four desirable outcomes, enhanced reputation, enhanced credibility, reduced perceived risk and enhanced perceived competence (Salminen & Möller, 2004 p. 137), were identified. The following objectives are set in the internal processes perspective to reach the desirable outcomes:
- Demonstrate and discuss visitors’ interests regarding the equipment according to the VAF.
- Deliver a personalized visit to the visitors
The first objective, demonstrate and discuss visitors’ interests regarding the equipment, is the most important objective for a reference site visit. Visitors would like to see procedures that match procedures they would like to use the equipment for when they purchase it. The features of special interest to the visitors have to be known by the reference site. The action identified to reach the first objective, demonstrate and discuss all interests of the visitors, is:
- Identify all visitors’ interests according to the Visitor Application Form (VAF). As mentioned in Section 1.1.4 a VAF is filled out containing amongst others the interests of the visitors.
- Demonstrate and discuss visitor’s interests during the equipment visit and discussion.
- Provide trained personnel. Currently, three forms of training are provided by the CVC:
1. Commercial awareness: focuses on the communication between reference site staff and the visitors. Commercial awareness training provides selected reference site staff with skills to bring a negative message in a neutral way. For example: “This feature is sufficient for our procedures” instead of “We only use a part of this feature because the use of this feature is very complex”. 2. Cultural awareness: focuses on providing selected reference site staff with
basic knowledge about different cultures. For example, in Japan it is considered polite to speak to the persons with the highest job level first.
3. Know-how training: Trains reference site staff about new features of the equipment.
- Availability of a physician for the discussion and the equipment visit.
The second objective, deliver personalized visits, provides a personal touch to the visit to let visitors feel they are welcome and special. Identified critical success factors in reaching the second objective, deliver personalized visits, are:
- Badges for each visitor containing the name and job function of the visitor.
- Personalized presentation where the first sheet is up-to-date with the visitors’ hospital name and visit date, providing the feeling that a presentation is tailored to the visitors.
- Personalized wrap-up meeting where a CD-Rom containing information about the reference site they visited such as the number of beds and procedures carried out, is handed out.
3. Performance indicators
Step three is based on the critical success factors, as defined in step two of the internal processes perspective.
Demonstrating and discussing visitors’ interests
Four critical success factors identified in reaching this objective: identify visitors’ interest, demonstrate and discuss visitors’ interests, availability of trained personnel and availability of a physician. Respectively, the following performance indicators are developed:
1. “% of times VAF acquired and distributed”: This performance indicator reflects if the interests filled out in the VAF are spread among reference site personnel who will be present during the visit and for the necessary preparations. Visitors’ interests are identified in the VAF as filled out by the account manager.
2. “% customer expectations met”: “% customer expectations met” reflect if all interests are discussed during the visit to the equipment and the discussion. 3. For the availability of trained personnel the following three performance
indicators can be defined:
a. “% personnel followed commercial training”: This performance indicator can be calculated via: personnel who followed commercial training present during a reference site visit / total of personnel present during the reference site visit.
the reference site visit/ total of personnel present during the reference site visit.
c. “% personnel followed know-how training”: This performance indicator can be calculated via: personnel who followed know-how training / total number of reference site staff.
4. % availability of a physician: This performance indicator can be calculated via: times the physician was present for at least half an hour during a visit / total number of visits.
Personalized visits
Four actions were identified to reach this objective, badges for each visitor, an announcement at the hospital lobby, presentation up-to-date and handing out CD-ROMS. Respectively the following four performance indicators are developed:
1. “% badges made for visitors”: this is calculated as follows: (# of badges provided to the visitors / # total of visitors) * 100%.
2. “% announcements placed”: this is calculated as follows: (# of announcements placed / total # of visits) * 100%.
3. % presentations up-to date”: this is calculated as follows: (# of presentations up-to-date with visitors’ hospital name and visit date / total # of visits) * 100%.
4. “% CR-Roms handed out”: this is calculated as follows: (# of CD-ROMS handed out / total # of visitors) * 100%.
2.2.4.4 Learning & growth perspective
This section will develop performance indicators for the customer perspective.
1. Objective
perspective is depicted which new infrastructural capabilities and employee skills need to be built in the near future. The following objective is set for this perspective:
- Built-up infrastructure that enables reference sites to deliver personalized visits and demonstrate and discuss visitors’ interests according to the VAF.
2. Actions
In this paragraph is identified which capabilities need to be developed in order to improve future growth. The following infrastructural capabilities have to be build:
- VAF distribution system - Badges
- Announcement
- Employee training plan
3. Performance indicators
Performance indicators are developed based on the actions described above.
VAF distribution system
This indicator reflects the progress in setting up a process to enable the distribution of customer interests and expectations. In the internal perspective is defined that a subtraction of the VAF should be acquired and distributed in order to meet these interests. This is a lead indicator reflecting the ability of a reference site to show all features to interest of the final customer during a visit.
Badges process set-up according to plan
This indicator reflects the progress in setting up the process to produce and distribute badges. This is a lead indicator determining the ability of the reference site to produce badges and make a visit feel personal.
Announcement lay-out according to plan
reference site to place an announcement in the lobby and provide a personal feeling to the customer.
Employee training according to plan
This indicator reflects the progress of training reference site personnel to improve skills. It is a lead indicator for the ability to show and have an in-depth discussion about all equipment features of interest to the final customer.
2.3 Remuneration design
Research question six focuses on remuneration design for reference sites. In the future, reference site remuneration will be linked to their performance. In this section, academic literature on remuneration is reviewed and analyzed on the applicability to performance management of reference sites. After having identified the best suited remuneration scheme, the scheme will be linked to the BSC.
2.3.1 Remuneration schemes
In the academic literature, several studies of remuneration schemes (Bonner et al., 2000), (Ghosh & John, 2000), (Sprinkle, 2000) are available. Bonner et al. (2000) classify the most remuneration systems into five categories; flat-rate, piece-rate, variable-ratio, tournament and quota schemes. Ghosh & John (2000) investigate the effects of a flat-wage contract, an incentive-based contract and a mixed version. Sprinkle (2000) distinguishes a flat-wage and an incentive-based remuneration scheme. All authors provide remuneration schemes divided in a fixed and variable scheme. The classification of Bonner et al. (2000) provides the most details and will therefore be used to analyze the opportunities for performance management of reference sites. An explanation of the different schemes is provided in Appendix 2. The focus here will be on the discussion of which remuneration scheme is the best suited for reference sites.
2. Support organizational learning to improve future performance
Different schemes have different effects on performance and motivation. Bonner et al. (2000) rank the positive effects of different schemes on performance as follows in descending order: quota schemes, piece-rate schemes, tournament schemes and flat rate schemes. According to Bonner et al. (2000) flat-rate, piece-rate and variable ratio schemes provide no positive motivational aspects which will restrain reference sites from putting in effort and organizational learning, therefore making them unusable for reference sites. They are reluctant about the motivational aspects of tournament schemes which can be classified as a competition schemes. Competition schemes might detract effort and motivation when reference sites, in this case, see no possibilities to perform better or when reference sites think the performance evaluation is biased (Bonner et al., 2000). The quota scheme provides the highest motivation by setting explicit goals (Bonner et al., 2000 p. 39)
This is similar to the conclusion of Sprinkle (2000) who provides evidence that individuals with an incentive based contract outperform individuals with a flat-wage contract by both spending more time on the task and learning from past actions. Incentive-based contracts provide higher motivation to reach a certain level of performance.
Ghosh and John (2000) examined a flat-wage, an incentive and a mixed option from which the last is preferred by both principals and agents. The mixed option can be compared to the quota scheme having the same findings as Bonner et al. (2000).
Figure 6: Quota scheme
Quota schemes provide a clear goal towards reference sites on which performance they need to deliver before they can earn extra remuneration. This is called the performance threshold as can be seen in figure 6. Until that performance threshold is reached, reference sites earn a fixed remuneration per visit. After the threshold, reference sites can earn remuneration according to their delivered performance.
2.3.2 The BSC and remuneration schemes
The BSC can be used as the basis for remuneration design. Many studies link the BSC to remuneration systems, amongst other Budde (2007), DeBusk & Crabtree (2006) and Ittner, Larcker & Meyer (2003). According to DeBusk and Crabtree (2006 p. 47) sixty percent of the users of the BSC provided financial incentives to employees for meeting or exceeding targets. The BSC can be used to determine the performance threshold and the pay for performance relationship. Kaplan & Norton (1996) argue that, in order to obtain a more balanced provision of managerial effort, incentive payments should only be granted if pre-specified threshold levels are met for a whole set of performance indicators.
Although very important, it is outside the scope of this research to determine the optimal division between fixed and variable remuneration which can be earned by reference sites.
Fixed remuneration
Performance Remuneration
2.4 Model for performance management of reference sites
The performance management model is based on three theoretical concepts which were analyzed and applied to reference sites. This resulted in the performance management model depicted in figure 8 below. This model is based on the model depicted in figure 4 (see Section 2.1, page 25) and extended with the Balanced Scorecard concept. Reference site remuneration is defined in the contract and will be based on the BSC.
The dashed arrow between the Customer Visit Center and reference sites is the principal-agent relationship as identified and analyzed in Section 2.1. A contract, signed by the CVC and a hospital, implies the start of the relationship. In Section 2.1 it was proposed that an outcome-based contract would best suit performance management of reference sites. The BSC can be used to manage the relationship between the CVC and reference sites and needs to be specified in the contract. Specifying the content is beyond the scope of the present study, however suggestions for the content are the following:
- The tasks delegated to reference sites, demonstrating Multinational X equipment in clinical use.
- What is expected from reference sites during a reference site visit, based on the BSC (represented by the black double arrowed line between the BSC and reference site visit)
- The remuneration which can be earned based on the quota scheme and performance evaluation based on the BSC (represented by the black arrow between the BSC and the principal-agent relationship between the CVC and reference sites)
Reference site
visit Balanced
Scorecard
Customer Visit Center Reference site
Figure 7: Performance management model of reference sites
In the current contract is not described which tasks are delegated to reference sites and what is expected of them during a visit. It is important to describe the delegated tasks in the contract because in this manner reference sites know what is expected of them before the contract is signed. This provides Multinational X the opportunity to manage reference sites and the site visits. For the BSC extension towards management of reference sites input is needed. The empirical part of the thesis attempts to explore the possible input for the BSC from KM representatives.
Based on the theoretical framework, an interview guide (added as appendix 3) is designed. In the following sections data will be collected via interviews with Key Market representatives whether or not all relevant critical success factors are identified.
3.
Interview results
This chapter presents the results of the semi-structured interviews. As described in section 1.6.. The results were analyzed, based on the interview guide (see appendix 3). The analysis of the interview results is added as appendix 4.
3.1 Overview interviews
This section will present the results of the input of Key Market representatives with respect to the BSC. In Section 1.1.6 the process of selecting potential candidates from the Key Markets was described. Therefore the Key markets were clustered into three groups. In cluster one and three, one interview was held and in cluster 2, 6 interviews were held.
Group Key Markets Number of
interviews
Cluster 1 • Key market A 1
Cluster 2 • Key market B • Key market C • Key market D • Key market E • Key market F • Key Market G 6
Cluster 3 • Key market H • Key market I • Key market J
1
Table 2: Key Market overview
3.2 Financial perspective
