516 The Marketing Book
the company, as this is of fundamental interest
to its shareholders. In other words, is the
business operating in attractive markets and
industries where shareholder value can be
created? If not, the long-term strategy should
be either to change the competitive environ-
ment in order to make it more attractive (e.g.
rationalize the industry or develop a new form
of sustainable competitive environment) or to
exit from this industry in order to invest in
more attractive areas.
This top level of performance measure says
very little about the relative performance of the
business and its managers. In certain very
financially attractive industries, the relatively
few companies involved may all earn super
profits and hence create shareholder value.
Equally, in an extremely over-supplied, very
unattractive industry, the best management
team in the world should lose less money than
all the others, but they will find it impossible to
create shareholder value. Thus, the second tier
of performance measure is needed to put the
absolute level of economic performance into an
appropriate relative context; a 40 per cent p.a.
return on assets looks less impressive if all
competitors are achieving over 60 per cent!
This introduces a key issue for perform-
ance measures. Some performance measures
are designed to reflect the economic perform-
ance of the total business or of a particular part,
while others focus on the managerial perform-
ance of the people running the business or parts
of it. Few performance measures work success-
fully in both areas because, while economic
performance measures must take into account
all the factors affecting the business, managerial
performance measures should only include
elements where the manager can exert a degree
of control. It is unfair, and extremely demotivat-
ing, to hold managers accountable for some-
thing over which they can exercise no control.
At the very top of an organization (e.g. the
main board of directors in a publicly quoted
group of companies) there may be very little
need to distinguish between economic and
managerial performance measures. If the cur-
rent areas of activity become unattractive, the
board can reorganize the group to focus on
more attractive areas and could even exit from
the now unattractive businesses. At lower
levels within the business, managers have
increasingly less freedom of action or manage-
rial discretion. Hence different managerial per-
formance measures must be used for different
levels. The challenge is to ensure that each level
of performance measure is consistent with the
overall objectives of the total business. This
concept, which is generally known as goal
congruence, is based on the simple maxim of
‘what you measure is what you get’, i.e. people
tend to try to achieve the objectives they are set.
If, by achieving their objectives, they move the
business away from its long-term objectives
and strategy, it is the fault of the people setting
the objectives, not the people doing the
achieving!
Salesforce performance measures can pro-
vide two examples of these problems. Any sales
manager with responsibility for a normal field
salesforce has, in reality, relatively little discre-
tion in terms of the cost of that salesforce.
Salesforce total costs are made up of a large
number of different items, as illustrated in
Table 20.2. At first sight, therefore, it appears
that the responsible manager can influence the
total salesforce costs of £10 million in a number
of ways. However, on closer examination it
becomes clear that there is only one real cost
driver for the field salesforce.
If salaries per employee are reduced to
levels below those prevailing in the industry,
this is likely to lead to the loss of the best
salespeople. Similarly, attempting to reduce
petrol or car expenses per head or accommoda-
tion and subsistence per salesperson will
reduce the effectiveness of the salesforce, if
these relationships have been properly estab-
lished in the past. The separate cost items per
salesperson can be defined fairly tightly for
most industries, so that the only real con-
trollable variable is actually the number of
salespeople employed by the company. The
financial evaluation and control process should