General electric company history and operations

Larry Barr, who serves as district sales manager for General Electric Appliances, must produce a 14% sales increase in the following year (2002). His division is considered a high-growth area for GE and he is expected to meet his numbers, regardless of economic conditions. Barr must find a way to allocate the 14% increase across the various salespeople who handle his division's territories, but the situation is complicated.

The various territories in Barr's division have varying degrees of potential, which makes it difficult for Barr to simply increase every salesperson's quota by 14%. Further, one of Barr's sales representatives will soon be leaving the company, and that territory can not be expected to initially achieve significant growth under a new sales person. Another division, which handles large, contract orders, is expected to lose a major account, and there is not much GE can do about it, so that division also can not be expected to experience significant growth.

Finally, personnel and compensation issues complicate the matter. Barr must achieve an equitable allocation to keep the morale of his salespeople high. Also, part of each salesperson's income is derived from the percentage of their quota the salesperson achieves. So, if Barr provides a salesperson with an unreachable quota, that salesperson will take a financial hit. Barr also receives financial incentives based on how well his salespeople perform relative to their goals, and he earns a larger bonus if more salespeople meet or exceed their goals. Barr, therefore, has a financial incentive to keep the allocations equitable and achievable.

Major alternatives

We have two major alternatives for allocating the 14% quota increase across territories and sales personnel. Our first option is to allocate it equally - the advantage of this plan is that we could argue that it is equitable, with no sales person receiving preferential treatment. Everyone gets a 14% increase. The disadvantage is that we know that not all territories have the same potential for growth, and we also know we are likely face serious challenges in two territories. If the sales personnel in some territories miss their quotas badly, their compensation - and Barr's compensation - will be adversely affected.

Our other major alternative would be to allocate the 14% quote increase unevenly across the territories, taking various market and environmental factors into account. The advantage of this plan is that it creates more realistic sales projections that would hopefully be less likely to negatively impact compensation levels. The disadvantage is that we may, of course, predict incorrectly or some salespeople may feel that they have been singled out for large increases while other salespeople were let off the hook.

Criteria for success

Our criteria for success are fairly simply. We need to allocate the 14% sales quota increase in a way that gives the division the best possible opportunity to meet the increase. Second, our plan must not have a significantly adverse effect on the compensation levels for the salespeople and for Barr.

Analysis of major alternatives

When we apply our criteria for success against our first major alternative - allocating the 14% increase equally across all territories - we see that this would be a poor strategy. First, given the sales challenges expected in two territories, we can feel confident that this does not give us our best opportunity for success. We know that a 14% increase in those markets is highly unlikely. Because we know those markets will likely not achieve 14% sales growth, this alternative would also negatively impact compensation levels for sales personnel in those territories, and also for Barr.

Clearly, allocating the quota increase unevenly across the territories is our best bet. Because this strategy takes various market and environmental factors into account, it gives the division the best chance to meet the increase. Second, this strategy aims to implement realistic sales increases across the territories, which would hopefully prevent compensation levels from being adversely impacted.

The plan

When allocating budgeted sales increases across the various territories, we will start with a basic principal - it is not acceptable for any division to head backwards. For example, we may have a new salesperson in territory 9963, but it sends a damaging message if we tell that person that we do not expect him or her to produce at the level of the previous salesperson. Similarly, in territory 9961 we may lose a large account, but we need to send the message to the salesperson that we expect those sales to be replaced.

We also need to be reasonable. We can not expect as much growth from territories 9961 and 9963 as we do from our other territories. Therefore, we will budget increases of just 7% for territories 9961 and 9963 in 2002. The sales staff may grouse, but this increase will be much less than what the other territories will receive, so there will be limited room to complain. Therefore, territory 9961 will have to increase sales by roughly $178,000, while territory 9963 will have to find an additional $184,000 in sales.

Territory 9967 has grown sales 32.5% over the past two years (including 2001 projections). This is a rate of about 16.25% a year. By passing a 22% increase to this territory, we are expecting it to produce an additional $660,440. It is not unreasonable to suggest to this territory's salesperson that we are mindful of the territory's growth history and would simply like to see acceleration in 2002.

Territory 9962 presents an interesting challenge. This salesperson has not met his budget in 1999 or 2000 and is expected to miss the budget again in 2001. In fairness, the salesperson often comes close. He only missed his budget by $15,000 in 2000 and is projected to miss his budget by $104,000 (a variance of 6%) in 2001. In short, we can not expect this territory to exceed its budget, but we can expect it to come close to meeting it. Budgets for this territory have increased by an average of roughly 10% a year. We need to pass a slightly larger increase on to the salesperson in this territory, while acknowledging that it can not be much more than 10% over projected 2001 sales. If we allocate an increase of 12% over the 2001 projected, we budget an increase of $194,760.