The Two Dimensions of Sales Effort: Internal vs. External

 

Salespeople’s work spans two fundamentally different domains:

 

• Internal Effort: Activities performed within the firm, such as coordinating with manufacturing or managing delivery schedules. These are typically easier—and less costly—to monitor and verify.

• External Effort: Activities conducted outside the firm, such as building customer relationships or differentiating products in the marketplace. These are far harder, and often prohibitively expensive, to monitor directly.

Both dimensions are critical. Internal effort can reduce operational costs and improve delivery, while external effort drives revenue and market differentiation. However, the ease of monitoring these activities varies dramatically, shaping the economics and effectiveness of any control system.

 

The Four Pillars of Salesforce Control System Design

 

Academic research synthesizes insights from organization theory, agency theory, and transaction cost analysis to identify four key factors that should guide salesforce control system design:

 

1. Outcome Observability: How reliably can the results of sales activities be measured?
2. Behavior Observability: How easily can the specific actions and processes of salespeople be monitored?
3. Transaction-Specific Assets: To what extent does the sales process rely on unique, relationship-based, or firm-specific knowledge?
4. Task Programmability (Environmental Task Uncertainty): How clearly can the activities that lead to success be defined and standardized?

These dimensions determine not only which control system is feasible, but also which will be most effective for a given sales environment.

 

Three Control Systems: Outcome-Based, Behavior-Based, and Social-Based

 

Research identifies three primary control systems, each with distinct strengths, weaknesses, and appropriate contexts:

 

Control System	What It Emphasizes	When It Works Best	Key Strengths	Key Drawbacks
Outcome-Based	Final results (e.g., sales volume, new accounts)	Outcomes are observable, tasks are less programmable	Empowers salespeople, aligns with results	May ignore quality of process, reactive
Behavior-Based	Specific activities (e.g., calls made, reports filed)	Tasks are programmable, behaviors are observable	Ensures consistency, direct control	High monitoring costs, limits flexibility
Social-Based	Shared values, culture, peer influence	Outcomes and behaviors are hard to observe or program	Builds commitment, supports adaptability	Hard to formalize, slow to implement

 

Outcome-Based Control

When outcome measures are reliable and task programmability is low, outcome-based control is optimal. This system grants salespeople discretion in how they achieve targets, fostering adaptability and entrepreneurial behavior. However, it is inherently reactive and may fail to address the quality of underlying processes.

 

Behavior-Based Control

When tasks can be clearly specified and behaviors are observable, behavior-based control is preferred. This approach standardizes activities, reduces variability, and ensures compliance with best practices. The downside is the high cost of personal surveillance and the risk of stifling innovation and flexibility.

 

Social-Based Control

When neither outcomes nor behaviors are easily observable or programmable, social-based control—rooted in shared values and peer influence—becomes essential. This system is particularly valuable in complex, ambiguous environments but requires significant investment in culture and is slow to yield results.

 

The Role of Monitoring and Incentives: A Strategic Trade-Off

Organizations have two main levers to direct their salesforce: monitoring and incentives. Each has distinct implications for costs, talent attraction, and effort allocation:

 

• Monitoring: Particularly cost-effective for internal activities, monitoring allows firms to reduce reliance on incentive pay. This enables the recruitment of more risk-averse (and typically less expensive) salespeople, reducing overall compensation costs. However, monitoring tends to overemphasize the monitored activity (internal) and underemphasize unmonitored activities (external), potentially leading to an inefficient allocation of effort.

• Incentives: Relying heavily on incentive pay requires attracting risk-tolerant salespeople, who command higher reservation wages. This can drive up compensation costs and increase turnover as salespeople self-select based on their risk preferences. Moreover, excessive focus on incentives can lead to neglect of less measurable but strategically important activities.
  

The optimal mix depends on the relative importance of internal and external activities, the cost and feasibility of monitoring, and the risk preferences of the available talent pool.

 

Compensation Design: Beyond “Everyone on Incentive Pay”

Research cautions against the blanket application of incentive pay as a panacea for salesforce motivation. Instead, a nuanced approach is recommended:

 

• Fixed Salary Plus Commission: The most effective compensation plans combine a base salary with commission tied to gross profits, not just sales volume. This aligns salesperson incentives with organizational profitability and discourages unprofitable deals.
• Risk Premiums and Reservation Wages: Salespeople’s risk tolerance directly impacts the cost of compensation. Firms that rely less on incentives and more on monitoring can attract risk-averse salespeople, reducing the risk premium and total compensation outlay.
• Turnover Implications: Changes in compensation structure often trigger turnover, as salespeople self-select into roles that match their risk preferences. This dynamic should be anticipated and managed proactively.

When Is Monitoring Most Valuable?

The value of monitoring is highest when:

• The importance of internal activities is high (since these are easier to monitor and directly impact operational efficiency).
• The optimal level of incentives is low (often due to high environmental uncertainty or high marginal cost of risk tolerance among salespeople).

In these situations, introducing monitoring can yield substantial compensation savings without unduly sacrificing performance. However, leaders must be vigilant about the risk of misallocating effort—overemphasizing what is easy to monitor at the expense of what is strategically vital.

 

Strategic Implications for C-Level Leaders

To maximize salesforce performance and control costs, executives should:

• Diagnose the Sales Environment: Assess outcome observability, behavior observability, transaction-specific assets, and task programmability before selecting a control system.
• Balance Monitoring and Incentives: Use monitoring where it is cost-effective (typically for internal activities) and reserve incentives for activities that are hard to monitor but critical to success (typically external activities).
• Align Talent with Control Structure: Design control systems and compensation plans that attract salespeople whose risk preferences and skills match the firm’s strategic needs.
• Beware of Over-Monitoring: Excessive monitoring can distort effort allocation and stifle the entrepreneurial drive needed for external, customer-facing activities.
• Invest in Culture Where Needed: In complex or ambiguous environments, social-based control may be the only viable option—requiring sustained investment in values, norms, and peer influence.

Conclusion: The Blueprint for High-Performance Salesforce Control

Effective salesforce control is not about choosing between monitoring and incentives, nor is it about blindly applying the latest compensation trend. It is about orchestrating a tailored mix of control systems—outcome-based, behavior-based, and social-based—aligned with the realities of your market, the complexity of your sales process, and the capabilities of your team.

By leveraging the four pillars of control system design and making informed, strategic trade-offs, C-level leaders can drive profitable growth, optimize compensation costs, and build a salesforce that is both efficient and effective. The future of salesforce management belongs to those who move beyond intuition and tradition—embracing evidence-based frameworks to unlock lasting value.

 

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Inna Hüessmanns, MBA