Centralization Versus Decentralization in Sales Force Management

In the centralized sales organization almost all activities, including sales force management, are administered from a central headquarters. The cen­tral sales office has full responsibility for recruiting, selecting, training, compensating, supervising, motivating, controlling, and evaluating the sales force. In the decentralized organization, in theory at least, all these activities are handled by field sales executives.

A decentralized sales organization is one in which there is decentral­ization in management of various selling tasks and in performance of certain important personnel management activities. For example, branch or district sales offices may do the recruiting, selecting, motivating, and supervising; the central headquarters may handle training, compensating, and evaluating; and the branches and the central headquarters may share responsibility, in proportions varying with the marketing situation and management philoso­phy, for other aspects of sales force management. It is rare, in other words, for sales force management to be either 100 percent centralized or 100 percent decentralized. Management’s appraisal of relative costs and effec­tiveness results in some aspects being centralized and others decentralized.

Centralization in sales force management varies. Smaller companies that have few salespeople and confine their operations to a small geographi­cal area, keeping the unit of sales high, the sales call frequency low, and the caliber of salespersons relatively high, incline toward centralized sales force management. Manufacturing firms relying almost entirely upon specialized wholesale intermediaries for marketing of their products need only mini­mum sales forces and, therefore, tend toward centralization. Local wholesal­ers with restricted sales areas also have small sales forces and, by the nature of their operations, are highly centralized. The principal factor determining centralization, then, is a small size of sales force, but other marketing factors, such as those illustrated, also move a company in this direction.

High decentralization in sales force management is found mainly among companies with large sales forces. Likely to have considerable decentraliza­tion, for instance, is a manufacturing firm distributing a wide line of consumer products over a vast market area and selling directly to varied retailers—all conditions indicating the need for a large number of salespeople. Wherever marketing conditions require large sales forces, the economies and effective­ness of decentralization are more attractive than are those of centralization.

Other things being equal, there is a strong pull in the direction of sales force decentralization as a company grows. This is true even though decentral­ization requires at least one more level of sales management, and the mainte­nance of branch and district offices (or both) causes additions to other fixed operating costs. With growth, the advantages of decentralized sales force man­agement increasingly outweigh the higher costs. Among these advantages are:

1. More intensive cultivation of the market and, consequently, a higher sales volume to absorb the higher fixed costs.
2. More effective control, improved supervision, and increased sales productivity resulting from the addition of at least one intermedi­ate level of sales executives, and from reduction of geographical separation of executives and sales personnel.
3. Improved customer service stemming from more effective control of sales personnel.
4. Reduced need for and costs of territorial “break-in” time, since more sale persons are recruited from the areas to which they are assigned.
5. Improved sales force morale—there are more frequent contacts with executives, reductions in travel time, and fewer nights away from home.
6. Lower travel expenses—salespeople are dispatched from decen­tralized points, and fewer field trips by home office sales execu­tives are required.
7. A “built-in” management development program—branch and dis­trict offices not only provide realistic training but serve as proving grounds for future high-level sales executives.

Source: Richard R. Still, Edward W. Cundliff, Normal A. P Govoni, Sandeep Puri (2017), Sales and Distribution Management: Decisions, Strategies, and Cases, Pearson; Sixth edition.