UV0023

Rev. Feb. 28, 2019

I.M.A.G.E. International

Hobart Reynolds, sales director of I.M.A.G.E US, 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
2015, and Marie-Christine Berthelin, assistant budget director of I.M.A.G.E International, was working with
Reynolds to draw up the 2016 US sales budget.

Company Background

I.M.A.G.E began exporting office copiers to the United States in 2001. 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 $15,000 for desktop 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 company’s major product strength was in the smaller models. Although more expensive than the
comparable United States and Japanese copiers, L’Image, as the line was called, was chosen by customers who
valued speed, definition, high-speed output on any kind of paper, and elegant styling.

I.M.A.G.E US 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 5
regional sales managers. These regional sales managers, together with a marketing manager, a service manager,
and a manager of parts and distribution, all reported to Reynolds.

Reynolds left a major electronics and business machines firm in 2001 when hired by I.M.A.G.E. 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-line introduction decisions, building a marketing
department, and, in 2003, replacing the reps with a company-employed salesforce, which he headed along with
the marketing department. By 2005, Reynolds was responsible for managing the whole US operation. He was
40 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 L’Image salesforce 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 US where training in sales

This case was revised by Robert E. Spekman. It was originally 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 Emeritus,
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 email to sales@dardenbusinesspublishing.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 means—electronic, mechanical, photocopying,
recording, or otherwise—without the permission of the Darden School Foundation. Our goal is to publish materials of the highest quality, so please submit any errata
to editorial@dardenbusinesspublishing.com.

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and product 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 took a one-week refresher course in that same facility each
year and could expect a two-day field-training visit and performance review from their district sales manager
each month. Yet sales reps received no formal performance appraisals on an annual or periodic basis. In line
with Reynolds’s 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, I.M.A.G.E US paid its salesforce well. On average, a sales rep in 2015 could expect
to earn $70,000 in salary, $50,000 in commissions, and $13,000 in a bonus based on the profitability of
I.M.A.G.E US. On average, a district sales manager in 2015 could expect to earn $90,000 in salary and $65,000
in a bonus based partly on a percentage of commissions and partly on the profitability of I.M.A.G.E. US. The
company reimbursed all business expenses and provided generous medical insurance and retirement benefits.
The company also gave paid vacation leave (one-month), maternity leave (six months) and paternity leave (one
month), and provided a leased car. Each male and female sales rep got an annual gift of two Yves St Laurent
navy-blue blazers with red and white silk handkerchiefs, a $1,100 cost per sales rep in 2015. According to one
source, on any given workday more than 90% of the salesforce would be wearing the L’Image blazer.

What follows is a partial transcript of Reynolds’s 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, that’s 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 salesforce, the
managers, the marketing people, and your service and distribution managers—412 people? Almost $1.2
million!

Reynolds: It’s a nice place. Besides, you were invited. Why didn’t you come?

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

Reynolds: Look, Marie-Christine, I know you went to the Darden School of Business. You know all about
morale building. Tell that skinny boss of yours how we do business in America. Next year we’re having the
convention at the Kiawah Island Golf Resort in South Carolina. What’s 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: Everybody has all the Hartmann luggage they’ll ever need. Don’t you remember the contest three
years ago when we introduced L’Image 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.

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Reynolds: I know. That keeps the top producers hustling, and that’s where the big dollars are. I got a new
idea we just put in. Want to 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 don’t 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 who’s going to win until it’s all over.

Berthelin: M. Blanc doesn’t think much of gambling. He doesn’t think much of your newsletter either. That
cost $5,000 a month last year.

Reynolds: We couldn’t do without it. Once a month everyone gets a copy. Glossy paper. Professional
photography. Sales standings. Promotions. A little gossip. Marriages. Condolences. Engagements. Don’t
you remember? You got your picture in there once when you sold that big installation. Before you got
transferred back to Paris? Didn’t you get a kick out of it? Everybody does! Forget it. We’ll run a picture of
Blanc on the cover next month. Maybe then he’ll stop nitpicking. What’s next?

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

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

Berthelin: I admit you have been very accurate. Why don’t you convert these numbers into quotas for
individual sales reps?

Reynolds: Because it’s childish. All my sales reps are grown-ups. They have a lot of incentive—financial and
otherwise—to 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 year’s 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 there a number the typical sales rep expects to make, or is there some high
figure that they are aspiring to make?

Berthelin: In France, we base our quotas on potential. We use a regression equation to calculate next year’s
sales. We then assign a quota to each sales representative equal to the percentage of his territory’s 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. Is potential what I should get or what I will get? You are
more interested in what I will get. The historical method—what we call the ratchet—is better for that.

Berthelin: I agree, but the potential method is better for comparing one person’s performance with another’s.

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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 salesperson’s 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. It’s a management judgment. It’s even more arbitrary and harder to
explain to salesmen than ratcheting last year’s figures. Also, it’s the reverse of the ratchet, because it places
too much burden on the weaker people and too little challenge on the stronger ones.

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 magazine’s 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, weren’t you? You are right. I don’t use personal objectives
for forecasting, nor for evaluation. I don’t 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 points—one through the number of sales reps I have—in each of
four categories: cumulative sales year-to-date; percentage of sales gain over same month during the last
year; percentage of cumulative sales gain against territory BPI; and a category we select and announce a
month in advance to emphasize certain products or activities like opening new accounts, selling service
contracts, or moving slower items. Then we rank the sales reps from top to bottom based on the fewest
points. I have a separate sales standing for rookies—sales 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 10 sales reps, the top
rookie, and their district managers win an all-expense-paid trip with spouses to the Super Bowl.

Berthelin: But 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 Prof Brajesh Bolia's MBA Exec Tri 2nd Batch 2021-22 1.6.2022 at KJ Somaiya Institute of Management Studies and Research (SIMSR) from Jan
2022 to Jul 2022.