Is It Better To Incentivise Competition Or Cooperation In Sales?
- Exchanging advice is especially important for sales workers, as there are many uncertainties to navigate in the selling process
- Individual incentives promote advice seeking behaviour, team incentives promote advice giving
- Managers have to be careful combining both approaches, to avoid creating tensions by incentivising competition and collaboration at the same time
The ‘carrot and stick’ metaphor might be a Victorian invention. Its origin is unclear, but it would make sense for a society in the throes of another industrial revolution to think carefully about how it is best to motivate one’s employees.
A question that still haunts corporate managers today. Based on a survey of 2,000 UK employers, the Chartered Institute of Personnel and Development (CIPD) found 40 percent of them have had to make counteroffers to retain staff tempted by higher wages from rivals in the last 12 months.
Instead of just offering improved salaries, employers could consider offering other incentives, such as flexible working, additional paid holiday, opportunities for career development, or better pension contributions, recommends Jon Boys, senior labour market economist at the CIPD.
This could be especially important given the current state of the UK economy. With still over one million job vacancies as of June, employers are operating in a volatile and changeable business landscape. Firms want to retain talented employees but avoid worsening inflation by sparking a ‘wage-price spiral’.
Staying afloat in a VUCA world
First used in a military context, the term VUCA (volatility, uncertainty, complexity, ambiguity) is often used to describe the current international business landscape.
In volatile environments, advice from co-workers is a valuable resource. According to a Panopto report in 2018, US knowledge workers spend 5.3 hours on average per week seeking advice from colleagues.
“The need for information is especially important in the sales profession, as there are many uncertainties to navigate through the selling process,” says Christian Homburg, Professor of Marketing at University of Mannheim Business School.
A study published by Homburg and colleagues from University of Münster, Catholic University of Eichstätt-Ingolstadt, and others, finds it is important to balance individual and team incentives to foster a supportive and high-performing salesforce.
“The need for information is especially important in the sales profession, as there are many uncertainties to navigate through the selling process,”Christian Homburg.
Their findings are based on a nationwide survey they conducted in cooperation with the inside sales organisation of a fastening and assembly technology firm, drawing on a network data of 540 salespeople. Individual incentives have been a staple tactic for managers of salesforces for a long time. Sales contests, bench programmes, and bonuses for workers who display higher performance all stimulate rivalry between employees to out-compete each other, explains Homburg.
On the other hand, he and his co-researchers note that the strength of individual performance has become less critical for profitability.
The strength of collaboration
In her book Making the Team: A Guide for Managers, Leigh Thompson, Professor of Dispute Resolution and Organisations at Northwestern University’s Kellogg School of Management points to a WorldatWork report which finds that 83 percent of sales organisations highly value team incentives that promote cooperation. Adding to this, Homburg’s research finds that team incentives promote advice-giving among sales workers, as team members want to ensure their peers are working as effectively as possible.
However, the findings also show people often become less likely to seek advice because employees are less focused on their own performance.
In contrast, Homburg says individual incentives have the opposite effect. Employees wish to boost their own performance in relation to their colleagues, so are more likely to seek advice but less likely to want to give it. In extreme cases, the chances of sales workers giving bad or disingenuous advice increase, the study reveals.
Finding a balance
The researchers advocate balancing both types of incentives through carefully structured and skilfully implemented reward schemes, to avoid both approaches clashing. This is because their underlying aims are contradictory, which could create challenging environments where rivalry and collaboration are both encouraged, they explain.
To avoid creating points of tension, they recommend managers target different types of incentives for specific tasks.
“For instance, sales leaders can provide separate team bonuses or rewards to promote cross-selling or team-selling activities. This would facilitate the sharing of customer and product information, as well as colleagues exchanging advice in difficult selling situations,” says Homburg.
At the same time, these incentives could be isolated from the overall incentive framework, which could remain focused on individual achievements. This way, the researchers believe managers can ensure competitive rewards do not become tangled up with incentives for collaboration.
Recognising team players
They also suggest a tactic which is not often used in practice – including advice givers in individual incentive leaderboards. This could take the form of individual winners being asked to name their advisers, who would then receive some form of recognition or reward for their help.
Mentorship-type schemes are another possibility to combine both incentive approaches, they believe, either in the form of managers mentoring new recruits or advice-giving between peers.
“High-performing salespeople could partner with colleagues in need of assistance, or new hires, to help them improve in exchange for receiving a bonus or partial commission for their partner’s first two or three successful sales,” explains Homburg.
Previous research finds that salespeople who have been employed for longer at a company are often less likely to seek advice. It has been suggested that managers should introduce horizontal career paths.
This would provide opportunities for constant learning and progression. It also aligns with anecdotal evidence which suggests it is not always beneficial for companies to promote people based solely on their performance.
Homburg and his co-authors’ findings reinforce this view. They find that longer tenure salespeople are more likely to be advice givers than seekers. But those who have worked in the same unit for a long time are actually less likely to share advice with colleagues.
These individuals could be approached with opportunities for horizontal development and managers should look for positions that are natural offshoots of their current responsibilities, suggests Homburg.
How do you incentivise and reward good performance in your organisation? Let us know in the comments below.
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