Monitor and Control
CHAPTER 22 MONITORING AND CONTROLLING FIRM PERFORMANCE AND FUNCTIONING v2201
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When you have completed this chapter, you will be able to: • Describe critical elements in the monitor-and-control process. • Implement key principles of the monitor-and-control process. • Measure input, intermediate, and output variables. • Monitor and control ﬁrm performance versus objectives. • Monitor and control ﬁrm functioning. • Understand and recognize success factors.
OPENING CASE: SONY ELECTRONICS
Sony has been a consumer electronics leader for many years. Ron Boire, President Sony Electronics Sales, talked about Sony’s careful focus on well-chosen measures and how it uses them to secure the behavior it requires. “Sony is really driven by the concept of, ‘If you can’t measure it, you can’t do it.’ Sometimes that’s straightforward; sometimes it’s very complicated. Interactions that Sony salespeople have with our retail trade channel customers are a good example. “With national customers like Best Buy, Sears, Target, and Walmart or a strategically important regional chain, we used to do classic sales compensation. Each salesperson had a sales budget, and we measured salespeople performance against budget. If you had a budget target of $1 million for a product category, and you sold at $1.1 million, you did a great job and you made a good bonus. Regardless of what was stuck in the barn at the end of the month or the end of the year. Regardless of whether or not they could pay for it. Regardless of whether you delivered it to them on time. 541
I M P L E M E N T I N G T H E M A R K E T S T R AT E G Y
“Today, we base up to 70 percent of our inventory management/asset management group’s compensation, and 50 percent of our salespeople’s compensation, on customer scorecards. We agree on metrics individually with each national and strategic customer. Most focus on simple things like ontime delivery, percent in-stock, forecast accuracy, and gross margin return on inventory [GMROI] — the key retail performance metric. To set these metrics we ask each customer: ‘What’s important to you? What are your targets? What are your strategic concerns?’ Best Buy’s current target is 90 percent on-time delivery, plus or minus one day, and 95 percent in stock. We may or may not hit that metric due to a variety of reasons, but everybody has the same goal in mind. Depending on their size, we track retailers either monthly or weekly. And our salespeople are bonus compensated twice a year based on their customer scorecards. “As the saying goes, ‘People do what they’re paid to do.’ When you change the basis of people’s paychecks, it really is remarkable how fast they change their behavior. We’ve seen a tremendous shift in the behavior of the organization, and a very positive reaction from the marketplace. No one else in the consumer electronics industry is doing this. And in most industries that our customers do business in — appliances, software, consumer electronics, or computers — all sales forces are compensated on sell-in. It’s revolutionary in consumer electronics for a salesperson to say, ‘No, I won’t take your purchase order, because you have too much inventory.’ Everybody talks about aligning with your customers, but if you’re paying your salespeople to stuff the box you can’t be aligned — it’s impossible.” Sony wants to know customer proﬁtability. Boire continued, “We measure customer proﬁtability from a contribution margin perspective. Once you get past that sell-in mentality, you can focus on simple measurements like contribution margin; incremental contribution margin is the best ongoing measure of a marketing relationship with our trade channel customers. Marketing holds the P&Ls on these major customer accounts, but the only thing we load in are direct costs attributable to that customer; we include the...