UV0023

I.M.A.G.E. INTERNATIONAL

Hobart Reynolds, sales director of I.M.A.G.E U.S., a manufacturer of office copiers based in
Paris, France, was in his New York City office where he was defending not only the dollar
expenditures of certain line items in his budget but the presence of the line items themselves as well
as some of his policies. It was September 2000, and Marie-Christine Berthelin, assistant budget
director of I.M.A.G.E International, was working with Reynolds to draw up the 2001 U.S. sales
budget.

Company Background

I.M.A.G.E began exporting office copiers to the United States in 1991. The company was
able to secure a small but profitable foothold (estimated 6% dollar market share in 2000), which was
the result of its advanced imaging technology, aggressive sales organization, excellent service
capability, and machines that continued to win design awards for elegance, simplicity, and
functionality. The company manufactured a wide range of copiers priced from $12,700 for desk-top
models that were about the size of a PC to over $500,000 for models capable of making thousands of
copies from almost any original at incredibly high speed. In the United States, the companys major
product strength was in the smaller models. Although more expensive than the comparable United
States and Japanese copiers, LImage, as the line was called, was chosen by customers who valued
speed, definition, high-speed output on any kind of paper, and elegant styling.

The U.S. company employed several hundred people in its service and distribution activities,
approximately 20 people in its marketing functions, 200 men and women in its sales force, 25
district sales managers, and five regional sales managers. The five regional sales managers, together
with a marketing manager, a service manager, and a manager of parts and distribution, all reported to
Reynolds.

Hobart Reynolds had been hired away from a major electronics and business machines firm
to I.M.A.G.E. in 1991, as the latter began its export activities to the United States. His initial
assignments involved hiring manufacturers representatives (reps) to sell the line, making product-

This case was prepared by Derek A. Newton, John Tyler Professor of Business Administration, and revised by Alexandra
Ranson (MBA 04), under the supervision of Robert E. Spekman, Tayloe Murphy Professor of Business Administration,
as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation.
Copyright 1993 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To
order copies, send an e-mail to sales@dardenpublishing.com. No part of this publication may be reproduced, stored in a
retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical,
photocopying, recording, or otherwisewithout the permission of the Darden School Foundation. Rev. 7/04.

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line introduction decisions, building a Marketing department, and, in 1993, replacing the reps with a
company-employed sales force, which he headed along with the Marketing department. By 1995,
Reynolds was responsible for managing the whole U.S. operation. He was 49 at the time of this case,
an electrical engineer by education, and held an MBA from Columbia University. His wife was
French and a former ballerina.

The LImage sales force was widely regarded in the United States as being among the best in
the office machine industry. Almost all sales representatives were between 28 and 40 in age, college
graduates, and had been successful in sales for at least one other company before joining I.M.A.G.E.
Sales and product training was extensive: each new hire underwent a one-month training course held
twice a year in a company facility in upstate New York; all sales reps were given a one-week
refresher course in that same facility each year; and all sales reps could expect a two-day field-
training visit and performance review from their district sales manager each month. No formal
performance appraisals were given on an annual or periodic basis. In line with the Reynolds
philosophy regarding paperwork (he hated it), trust (he insisted upon it), and maturity (he expected
it), sales reps submitted no reports except under special circumstances, were not assigned quotas,
and were encouraged to discuss all work-related problems weekly or daily if necessary by telephone
with their managers.

By industry standards, the sales force was well paid. An average sales rep in 2000 expected
to earn $78,000 in salary, $50,000 in commissions, and $13,000 in a bonus based on the profitability
of I.M.A.G.E U.S. An average district sales manager in 2000 expected to earn $130,000 in salary
and $65,000 in a bonus based partly on a percentage of their commissions and partly on the
profitability of I.M.A.G.E. U.S. All business expenses were reimbursed; medical, insurance, and
retirement benefits were generous; vacations (one-month), maternity leaves (six months), and
paternity leaves (one month) were paid; and a company-leased car was provided. Each male and
female sales rep was provided annually with two Yves St Laurent-designed, navy-blue blazers with
red and white silk handkerchiefs, an $1100 cost per sales rep in 2000. According to one source, on
any given work day over 90 percent of the sales force would be wearing the LImage blazer.

What follows is a partial transcript of Reynoldss conversation about the budget with
Berthelin:

Reynolds: I spent a little more on the Palm Springs Convention than I expected. I decided to
pay for golf lessons for anyone who wanted to learn, and I got 30 takers at 75 bucks per
lesson. Also, 17 of our single people brought roommates. I figured if we were paying for
spouses it was only fair to pay for significant others.

Berthelin: Bart, thats not the issue. M. Blanc wants to know why you have this convention
in the first place. You arrive on Saturday, play golf all weekend, have meetings on Monday
and Tuesday mornings, play golf in the afternoons, and leave on Wednesday. Do you know
what that cost this year? For the sales force, the managers, the marketing people, and your
service and distribution managers412 people? Almost $1.2 million!

This document is authorized for use only in Cesar Antunez de Mayolo's Gestion de Ventas. course at Universidad del Pacifico, from June 2017 to December 2017.
 -3- UVA-M-0417

Reynolds: Its a nice place. Besides, you were invited. Why didnt you come?

Berthelin: Tiens! Be serious, Bart, what am I going to tell M. Blanc?

Reynolds: Look, Marie-Christine, I know you went to Darden Business School. You know
all about morale building. Tell that skinny boss of yours how we do business in America.
Next year were having the convention at the Dorado Beach Hotel outside of San Juan.
Whats the next item?

Berthelin: Sales contests. M. Blanc suggests luggage instead of the two-week, all-expense-
paid trip to Rome, Florence, and Venice you did this year for four salesmen, four managers,
and wives. Do you know what that cost? Was it worth $200,000? What do you have planned
for next year, a trip to the Great Barrier Reef?

Reynolds: Everybodys got all the Hartmann luggage theyll ever need. Dont you remember
the contest three years ago when we introduced LImage 3030? We gave luggage away with
every installation. Everyone won something. Contests are fantastic. They produce great
short-term results.

Berthelin: Certainement. But the same people seem to win those trips every year.

Reynolds: I know. That keeps the top producers hustling, and thats where the big dollars are.
I got a new idea we just put in. Wanna hear it?

Berthelin: How much does this one cost?

Reynolds: Only 425 bucks a district. Sales of service contracts are a little slow, so each
district gets a deck of cards. The manager deals a hole card to each sales rep. The sales reps
dont know what their hole cards are. The manager pastes them face down on a display
board. Every time a sales rep sells a service contract, the manager deals him or her a card
face up. When all cards are dealt, the game in that district is up. The hole cards are turned
over, and the best poker hand wins a leather briefcase. The more service contracts you sell,
the better chance you have of winning. But the weakest sales rep still has a chance if he or
she is lucky on the draw. And nobody knows whos going to win until its all over. Neat,
huh?

Berthelin: M. Blanc doesnt think much of gambling. He doesnt think much of your
newsletter either. That cost five thousand dollars a month last year.

Reynolds: We couldnt do without it. Once a month everyone gets a copy. Glossy paper.
Professional photography. Sales standings. Promotions. A little gossip. Marriages.
Condolences. Engagements. Dont you remember? You got your picture in there once when
you sold that big installation. Before you got transferred back to Paris? Didnt you get a kick

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 -4- UVA-M-0417

out of it? Everybody does! Forget it. Well run a picture of Blanc on the cover next month.
Maybe hell stop nitpicking. Whats next?

Berthelin: M. Blanc would like to know why you do not use quotas for helping you manage
your sales force. Everywhere in Europe we use quotas.

Reynolds: I use a quota. I take last years sales by product group. I figure out what kind of
percent increase I can expect based on my analysis of industry and trade data, plus my own
gut feel. I then multiply last years sales by the percent increase I get, tell you, and then we
figure out the monthly shipment schedules.

Berthelin: I admit you have been very accurate. Why dont you convert these numbers into
quotas for individual salesmen?

Reynolds: Its childish. All my salesmen are grown-ups. They have a lot of incentive
financial and otherwiseto sell all they can. And they get a lot of encouragement and
training from my managers. If I put everyone on a quota based on beating last years figures,
it would place too much burden on my best people and too little challenge on my weaker
people. My managers would be spending too much time explaining to their people where the
numbers come from. Besides, what is a quota? Is it a number you have to beat or you lose
your job? Is it a number the average salesman can be expected to make? Or is it some high
target figure that everyone should be aspiring to make?

Berthelin: In France, we base our quotas on potential. We use a regression equation to

calculate next years sales. We then assign a quota to each salesman equal to the percentage
of his territorys expected share, based on commercial sales activity in France, of I.M.A.G.E.
sales.

Reynolds: I am familiar with your equation and impressed with the R-Square. Basing my
forecast on potential would be less accurate, however, than my method, because what is
potential? What I should get or what I will get? You are more interested in what I will get.
The historical methodwhat we call the ratchetis better for that.

Berthelin: I agree, but the potential method is better for comparing one persons performance
with anothers.

Reynolds: In theory, yes. But what is potential? Is it all the business out there? Everyone
without a copier? Without 10 copiers? Is it all the business minus what the competition has
locked up? Is it all the business minus the salesmans lack of skill or luck? Is it all the
business minus problems with our product line? What does potential really mean when we
only have a 6% market share? The whole world is our oyster! I do not think potential is a
hard number. Its a management judgment. Its even more arbitrary and harder to explain to
salesmen than ratcheting last years figures. Also, its the reverse of the ratchet: it places too
much burden on the weaker people and too little challenge on the stronger ones.

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Berthelin: Well, then, how do you do it?

Reynolds: I use the historical method to supply you with data for making up shipment
schedules. I use a modification of Sales Management magazines Buying Power Index (BPI)
for office equipment to compare performance among territories. My senior managers and I
use those data only among ourselves to detect and correct problems and to make sales
territories as equal in workload and earning opportunities as possible. And I use personal
objectives, not arbitrary quotas, to stimulate my salesmen to improve their performance. You
know how those work. You had a territory in New England for a year.

Berthelin: Yes, my manager and I analyzed all my major customer and prospect accounts,
and together we developed dollar targets for each major account. If her target on any account
was higher than mine, she agreed to spend extra time with me on that account in order to
make the higher figure. At the end of the year, I was way over my objectives, so you could
never use that method for forecasting. Also, my objectives were personal, so you could not
compare my sales performance with someone with different objectives.

Reynolds: But you were way over your objectives, werent you? Youre right. I dont use
personal objectives for forecasting, nor for evaluation. I dont use them for calculating the
monthly sales standings either.

Berthelin: How are you calculating the monthly standings now?

Reynolds: Same as I always did. I assign pointsone through the number of sales reps I
havein each of four categories: cumulative sales year-to-date; percent sales gain over same
month last year; percent cumulative sales gain against territory BPI; and a category we select
and announce a month in advance to emphasize certain products or activities, such as
opening new accounts, selling service contracts, or moving slower items. The sales reps are
then ranked from top to bottom based on the fewest points. I have a separate sales standing
for rookiessales reps who have been with us less than one year. I substitute average
monthly cumulative sales year-to-date for the first two categories until category two applies
to them. At the end of the year, based on average monthly standing, the top ten sales reps,
the top rookie, and their district managers win an all-expense-paid trip with spouses to the
Super Bowl.

Berthelin: That cost $81,000 last year!

Reynolds: Right! And the top salesman and district manager in each region got to go to
Rome, Venice, and Florence. Next year the winners will be going to the Far East: Singapore,
Bangkok, and Tokyo.

This document is authorized for use only in Cesar Antunez de Mayolo's Gestion de Ventas. course at Universidad del Pacifico, from June 2017 to December 2017.