SalesManagement Control Strategies in Banking

Florian Mueller

Sales Management Control Strategies in Banking

GABLER RESEARCH

Florian Mueller

Sales Management

Control Strategies in Banking

Strategic Fit and Performance Impact

RESEARCH

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Dissertation EBS Universität für Wirtschaft und Recht i. Gr. | EBS Business School |

Wiesbaden, 2010

D 1540

1st Edition 2011

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Dedicated to

my parents and Lisa

Acknowledgements

I would like to express my sincere gratitude to my doctoral supervisor Prof. Dr.

Andreas Hackethal for his academic guidance and support throughout my three

and a half years as a doctoral candidate at the European Business School (ebs),

International University Schloss Reichartshausen. He gave me the decisive, intel￾lectual impulses and freedom for the successful completion of this work. Without

his profound advice, encouragement, and trust this dissertation would not have

been possible. I am deeply grateful to him.

Furthermore, I would like to sincerely thank Prof. Dr. Utz Schäffer for agreeing

to provide the second opinion on my dissertation as well as his time and interest

in my research. His thought-provoking, scientific counsel significantly improved

this thesis.

I am also profoundly thankful to the European Business School, a truly distinct

academic institution, its excellent professorate, and the entire ebs community.

They have laid the foundation for my academic development and created a highly

supportive and inspiring research environment. Especially, I would like to thank

all the members of the HCI Endowed Chair of Financial Services and its sponsors

who have contributed to my work in many ways.

My further appreciation belongs to Dr. Tobias Weigl and Henning Syllwasschy for

countless hours of constructive discussions as well as their honest and thoughtful

feedback. Their intellectual sparring and advice was inestimable for the develop￾ment and refinement of this work.

Moreover, I would like to thank my employer Bain & Company for the support

during my leave of absence and especially the financial services partner group for

their valuable input and experience sharing. In particular, I am indebted to Dr.

Rasmus Wegener and Dr. Thomas Gumsheimer for their outstanding support and

mentorship.

VIII Acknowledgements

Lastly, I would like to express my gratitude to my parents, sister, and friends.

Without the love and belief of my parents Undine and Jürgen none of this would

have been possible. They have been a constant source of strength and support on

my path of life. My special thanks belong to my wife Lisa. She not only endured

the ups and downs of my dissertation venture, her love, patience, and encourage￾ment kept me going when my steps seemed to falter.

Florian Mueller

Table of Contents

List of Figures XIII

List of Tables XVII

List of Equations XIX

List of Abbreviations and Symbols XXI

1 Introduction 1

1.1 Problem Definition . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.2 Research Objectives and Contribution to Literature . . . . . . . 4

1.3 Structure of Analysis . . . . . . . . . . . . . . . . . . . . . . . . . 7

2 Banking in Germany 11

2.1 Overview of the German Banking Market . . . . . . . . . . . . . 11

2.2 The Three Pillars of the German Banking System . . . . . . . . 15

2.2.1 Private Commercial Banks . . . . . . . . . . . . . . . . . 16

2.2.2 Savings Bank Group . . . . . . . . . . . . . . . . . . . . . 17

2.2.3 Cooperative Banking Group . . . . . . . . . . . . . . . . . 19

2.3 Segmentation of the Banking Industry . . . . . . . . . . . . . . . 21

2.3.1 Retail Banking . . . . . . . . . . . . . . . . . . . . . . . . 21

2.3.2 Private Banking . . . . . . . . . . . . . . . . . . . . . . . 23

2.3.3 Corporate Banking . . . . . . . . . . . . . . . . . . . . . . 25

2.4 Current Development . . . . . . . . . . . . . . . . . . . . . . . . 27

2.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

3 Terminological, Conceptual, and Theoretical Basics 39

3.1 Strategy and Strategic Management . . . . . . . . . . . . . . . . 39

3.1.1 Concept of Strategy . . . . . . . . . . . . . . . . . . . . . 40

3.1.1.1 Evolution and Definition . . . . . . . . . . . . . 40

3.1.1.2 Levels of Strategy . . . . . . . . . . . . . . . . . 45

3.1.1.3 Banking Business Strategy . . . . . . . . . . . . 47

3.1.2 Strategic Management . . . . . . . . . . . . . . . . . . . . 50

3.1.2.1 Evolution and Definition . . . . . . . . . . . . . 50

X Table of Contents

3.1.2.2 Configurational School . . . . . . . . . . . . . . 60

3.1.2.2.1 Fit Concept . . . . . . . . . . . . . . 60

3.1.2.2.2 Development of Configurations . . . 65

3.2 Sales Management Control . . . . . . . . . . . . . . . . . . . . . 66

3.2.1 Evolution and Definition . . . . . . . . . . . . . . . . . . . 66

3.2.2 Formal Management Controls . . . . . . . . . . . . . . . . 70

3.2.2.1 Behavior Control . . . . . . . . . . . . . . . . . . 71

3.2.2.2 Compensation Control . . . . . . . . . . . . . . . 74

3.2.3 Informal Management Controls . . . . . . . . . . . . . . . 78

3.2.3.1 Self Control . . . . . . . . . . . . . . . . . . . . . 78

3.2.3.2 Professional Control . . . . . . . . . . . . . . . . 79

3.2.3.3 Cultural Control . . . . . . . . . . . . . . . . . . 81

3.2.4 Underlying Theories . . . . . . . . . . . . . . . . . . . . . 82

3.2.4.1 Applicability of Theories . . . . . . . . . . . . . 82

3.2.4.2 Transaction Cost Analysis . . . . . . . . . . . . 83

3.2.4.3 Agency Theory . . . . . . . . . . . . . . . . . . . 87

3.2.4.3.1 Evolution and Definition . . . . . . . 87

3.2.4.3.2 Positivist Agency Theory . . . . . . . 90

3.2.4.3.3 Principal-Agent Theory . . . . . . . 91

3.2.4.4 Organizational Control Theory . . . . . . . . . . 95

3.3 Internal and External Influencing Variables . . . . . . . . . . . . 101

3.3.1 Organizational Structure and Characteristics . . . . . . . 101

3.3.1.1 Organizational Culture . . . . . . . . . . . . . . 101

3.3.1.2 Organizational Centralization . . . . . . . . . . . 104

3.3.1.3 Information Technology . . . . . . . . . . . . . . 106

3.3.2 Environmental Parameters . . . . . . . . . . . . . . . . . 107

3.3.2.1 Dynamism . . . . . . . . . . . . . . . . . . . . . 108

3.3.2.2 Predictability . . . . . . . . . . . . . . . . . . . . 109

3.3.2.3 Competition . . . . . . . . . . . . . . . . . . . . 109

3.4 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

3.4.1 Sales Organization Outcomes . . . . . . . . . . . . . . . . 112

3.4.2 Salesperson Behavioral Performance . . . . . . . . . . . . 113

Table of Contents XI

3.4.3 Salesperson Outcome Performance . . . . . . . . . . . . . 113

3.5 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

4 Theoretical Framework and Hypotheses 121

4.1 Theoretical Framework . . . . . . . . . . . . . . . . . . . . . . . . 121

4.2 Theoretical Hypotheses . . . . . . . . . . . . . . . . . . . . . . . 126

4.2.1 Strategy Control Fit . . . . . . . . . . . . . . . . . . . . . 126

4.2.2 Organization Control Fit . . . . . . . . . . . . . . . . . . 131

4.2.3 Influence of the Environment on Configurations . . . . . . 144

4.2.4 Performance of Configurations . . . . . . . . . . . . . . . 148

4.3 Model Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 158

5 Empirical Data 165

5.1 Data Gathering . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

5.2 Sample Description . . . . . . . . . . . . . . . . . . . . . . . . . . 169

5.3 Operationalization of the Constructs . . . . . . . . . . . . . . . . 176

5.3.1 Overview of the Operationalization Approach . . . . . . . 176

5.3.2 Sales Management Control Strategy . . . . . . . . . . . . 183

5.3.3 Bank Strategy . . . . . . . . . . . . . . . . . . . . . . . . 188

5.3.4 Organization-Specific Characteristics . . . . . . . . . . . . 191

5.3.5 Environmental Parameters . . . . . . . . . . . . . . . . . 195

5.3.6 Performance . . . . . . . . . . . . . . . . . . . . . . . . . 198

6 Empirical Analysis of the Theoretical Model 201

6.1 Analysis of the Relationships in the Theoretical Model . . . . . . 201

6.1.1 Criteria for the Evaluation of PLS Models . . . . . . . . . 201

6.1.2 General Evaluation of the Theoretical Model . . . . . . . 204

6.1.3 Strategy Control Fit . . . . . . . . . . . . . . . . . . . . . 206

6.1.3.1 Assessment of Predictability . . . . . . . . . . . 206

6.1.3.2 Testing of Research Hypotheses . . . . . . . . . 208

6.1.4 Organization Control Fit . . . . . . . . . . . . . . . . . . 213

6.1.4.1 Assessment of Predictability . . . . . . . . . . . 213

6.1.4.2 Testing of Research Hypotheses . . . . . . . . . 216

XII Table of Contents

6.1.5 Environmental Influence on Configurations . . . . . . . . 225

6.1.5.1 Assessment of Predictability . . . . . . . . . . . 225

6.1.5.2 Testing of Research Hypotheses . . . . . . . . . 227

6.2 Analysis of the Performance of Configurations . . . . . . . . . . . 233

6.2.1 Identification of Ideal Empirical Profiles . . . . . . . . . . 233

6.2.2 Performance Impact of Adherence to Ideal Empirical Pro￾files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237

6.2.3 Congruence of Ideal Empirical Profiles with Theoretical Re￾lationships . . . . . . . . . . . . . . . . . . . . . . . . . . 240

6.2.3.1 Strategy Control Fit . . . . . . . . . . . . . . . . 240

6.2.3.2 Organization Control Fit . . . . . . . . . . . . . 247

6.2.3.3 Environmental Influence on Configurations . . . 255

6.3 Discussion of the Results . . . . . . . . . . . . . . . . . . . . . . . 260

7 Conclusion 265

7.1 Final Comments and Recommendations . . . . . . . . . . . . . . 265

7.2 Implications for Future Research . . . . . . . . . . . . . . . . . . 272

Bibliography 275

Appendices 337

List of Figures

Figure 1.1: Structure of the Study . . . . . . . . . . . . . . . . . . . . . 10

Figure 2.1: German Banking Market - Specialized Banking Institutions 13

Figure 2.2: German Banking Market - Universal Banking Institutions . 13

Figure 2.3: German Banking Market - Universal Bank Branches . . . . 14

Figure 2.4: The Three Pillars of the German Banking System . . . . . 15

Figure 2.5: Development of the German Cooperative Banks since 1970 20

Figure 2.6: Sample Structure of a Retail Banking Branch . . . . . . . . 22

Figure 2.7: Sample Structure of a Private Banking Division . . . . . . . 24

Figure 2.8: Retail and Private Banking Customers’ Requirements . . . 24

Figure 2.9: Corporate Banking Service Offering . . . . . . . . . . . . . 25

Figure 2.10: Sample Structure of a Corporate Banking Division . . . . . 26

Figure 2.11: Development of National Margins (Net Interest Income/Total

Assets ) in Banking 1990-2003 . . . . . . . . . . . . . . . . 28

Figure 2.12: Development of National Margins (Net Non-Interest In￾come/Net Interest Income) in Banking 1990-2003 . . . . . . 28

Figure 2.13: Development of National Margins (Income before Tax/Total

Assets) in Banking 1990-2003 . . . . . . . . . . . . . . . . . 29

Figure 2.14: Trends in the German Banking Market . . . . . . . . . . . 30

Figure 2.15: German Banks - Decreasing Number of Institutions,

Branches, and Employees . . . . . . . . . . . . . . . . . . . 32

Figure 2.16: German Banks - Increasing Total Assets . . . . . . . . . . . 32

Figure 2.17: Branches of Foreign Banks Gaining Market Share . . . . . . 33

Figure 3.1: Deliberate and Emergent Strategies . . . . . . . . . . . . . 44

Figure 3.2: Three Levels of Strategy . . . . . . . . . . . . . . . . . . . . 46

Figure 3.3: Evolution Phases of Strategic Management . . . . . . . . . 53

Figure 3.4: Classificatory Framework of Fit Methodologies . . . . . . . 61

Figure 3.5: Consequences of the Perceived Control System . . . . . . . 68

Figure 3.6: Linking Environment, Control, and Consequences . . . . . . 69

Figure 3.7: Comparison of Behavior and Compensation Control . . . . 77

Figure 3.8: Output Behavior Measurement Matrix . . . . . . . . . . . . 100

XIV List of Figures

Figure 3.9: Overview of the Performance Dimensions . . . . . . . . . . 114

Figure 4.1: Theoretical Framework . . . . . . . . . . . . . . . . . . . . 125

Figure 4.2: PLS Model of the Theoretical Research Framework . . . . . 163

Figure 5.1: Distribution of the Sample and the German Banking Market

along Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . 170

Figure 5.2: Distribution of the Sample along Segments . . . . . . . . . 170

Figure 5.3: Distribution of the Sample along Average Total Assets . . . 171

Figure 5.4: Distribution of the Sample along Full Time Equivalents . . 172

Figure 5.5: Average Customer Consultants, Sales Support, and Ratio of

the Total Sample . . . . . . . . . . . . . . . . . . . . . . . . 173

Figure 5.6: Average Customer Consultants, Sales Support, and Ratio of

Commercial Banks in the Sample . . . . . . . . . . . . . . . 173

Figure 5.7: Average Customer Consultants, Sales Support, and Ratio of

Credit Cooperatives in the Sample . . . . . . . . . . . . . . 174

Figure 5.8: Average Customer Consultants, Sales Support, and Ratio of

Savings Banks in the Sample . . . . . . . . . . . . . . . . . 175

Figure 5.9: Distribution of the Sample in Germany . . . . . . . . . . . 176

Figure 6.1: Test of the Strategy Control Fit Hypotheses . . . . . . . . . 212

Figure 6.2: Test of the Organization Control Fit Hypotheses - Consis￾tency, Adaptability, and Involvement . . . . . . . . . . . . . 223

Figure 6.3: Test of the Organization Control Fit Hypotheses - Communi￾cation, IT Sophistication, and Organizational Centralization 224

Figure 6.4: Test of the Environmental Influence on Configurations Hy￾potheses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232

Figure 6.5: Empirically Derived Ideal Profiles . . . . . . . . . . . . . . 236

Figure 6.6: Test of Congruence of Ideal Profiles with Strategy Control Fit

Hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . . 246

Figure 6.7: Test of Congruence of Ideal Profiles with Organization Con￾trol Fit Hypotheses I/II . . . . . . . . . . . . . . . . . . . . 253