Elsevier

International Journal of Forecasting

Volume 23, Issue 3, July–September 2007, Pages 475-495
International Journal of Forecasting

Organizational factors in sales forecasting management

https://doi.org/10.1016/j.ijforecast.2007.02.005Get rights and content

Abstract

Over the past three decades, significant advances have been made in developing sales forecasting techniques that more accurately reflect marketplace conditions. However, surveys of sales forecasting practice continue to report only marginal gains in sales forecasting performance. This gap between theory and practice has been identified as a significant issue for sales forecasting research. The forecasting literature suggests that the issue should be addressed by examining organizational factors in sales forecasting management. In this paper, we propose a theory-based framework of organizational factors in sales forecasting management that integrates research on organizational climate, organizational capabilities, organizational learning and sales forecasting. Empirical evidence of the fit between sales forecasting practice and the conceptual framework is provided by a content analysis of interview texts from an extensive field study of sales forecasting management that involved 516 practitioners at 18 global manufacturing firms.

Introduction

Improving sales forecasting performance has long been a concern of managers and a focus of forecasting research (Armstrong and Grohman, 1972, Mahmoud et al., 1988, Makridakis and Wheelwright, 1977, Wheelwright and Clarke, 1976, Wright, 1988). To this end, researchers have developed and disseminated increasingly sophisticated forecasting techniques, believed to more accurately model the complexities of marketplace conditions (Fildes & Hastings, 1994). However, improved forecasting techniques are useful only “if applied to an organisation's decision making and planning processes” (Winklhofer, Diamantapolous, & Witt, 1996, p. 194, emphasis in the original). Surveys of sales forecasting practice have consistently shown that qualitative methods, such as executive opinion and customer expectations, are more widely used than quantitative forecasting techniques, even though there is an extensive body of research supporting the superiority of quantitative forecasting methods in most situations (Dalrymple, 1987, McCarthy et al., 2006, Mentzer and Cox, 1984, Mentzer and Kahn, 1994, Sparkes and McHugh, 1984). This gap between theory and practice has been identified as a critical issue for sales forecasting research.

Previous research suggests that the issue should be addressed by studies designed to investigate the organizational factors in sales forecasting management (Armstrong, 1988, Bretschneider and Gorr, 1989, DeRoeck, 1991, Fildes et al., 2003, Fildes and Hastings, 1994, Mahmoud et al., 1992, Makridakis and Wheelwright, 1977, Winklhofer et al., 1996). Despite repeated calls for this type of research, organizational issues in sales forecasting management continue to be relatively neglected. As a result, we “seem to know a great deal about the technical side of forecasting, but very little about managing forecasting related activities” (Winklhofer in Fildes et al., 2003). In a 25-year review of forecasting literature, Winklhofer et al. (1996) identified only 35 surveys and six case studies that explored sales forecasting management. While these studies provide interesting insights into sales forecasting practice, their descriptive nature limits their usefulness for explaining and predicting the relationship between sales forecasting management and sales forecasting performance. As noted by Bretschneider (Fildes et al., 2003), explanation and prediction require going beyond description to proposing causal relationships among key variables.

Sales forecasting serves a critical linking function between internal decision making and uncontrollable, external factors that have the potential to affect the demand for a firm's products (Moon et al., 2003, Makridakis, 1987). We conceptualize sales forecasting management as an organizational capability2 which is focused on fulfilling the anticipated demand for a firm's products by coordinating the deployment of organizational resources in support of the generation and dissemination of market intelligence (cf. Day, 1994a). A sales forecasting capability promotes collective learning about marketplace demand through the superior coordination of interfunctional activities. The cyclical process by which organizations learn through interaction with their environments is the core phenomenon of organizational learning research (Argyris and Schön, 1978, Cyert and March, 1963, Daft and Huber, 1987). Organizations interact with the environment, the environment responds, and these responses are interpreted through learning routines by which organizations update their beliefs about cause–effect relationships.

As managers choose structures and controls for learning routines that are responsive to corporate goals, they create climates that shape employee behaviors (Child, 1972, Weick, 1979). The climate affects behavior by defining the stimuli that confront members of the organization, placing constraints on behavior, and rewarding and punishing certain behaviors (Forehand & Gilmer, 1964). Thus organizational capabilities, such as a sales forecasting capability, are shaped by the organizational climate.

The purpose of this paper is to offer a theory-based sales forecasting management (SFM) framework to facilitate the exploration of the effects of organizational factors in sales forecasting. We propose that a firm's sales forecasting climate influences its sales forecasting capability, which in turn determines performance outcomes. The measurement of performance provides feedback loops that monitor and control the firm's sales forecasting capability and sales forecasting climate (Fig. 1). We integrate the research on organizational climate, organizational capabilities, organizational learning and sales forecasting to develop the SFM framework and propositions presented in Section 2. In Section 3, we describe our research method. In Section 4, we present and discuss the results of a content analysis of interview texts, collected in a field study that involved 516 managers in 18 global manufacturing firms. Section 5 proposes some implications for sales forecasting practitioners, and Section 6 outlines directions for future research.

Section snippets

The SFM framework

We propose a process model of sales forecasting management comprising four components: (1) sales forecasting climate, (2) sales forecasting capability, (3) performance outcomes and (4) performance measurement (Fig. 1). In the following sections, we discuss each component of the SFM framework. We begin with a discussion of the focus of the framework — sales forecasting capability — and then move to a consideration of the sales forecasting climate, performance outcomes, and performance

Research method

A content analysis of interview texts was conducted to evaluate the fit between the empirical evidence of sales forecasting practice and the SFM framework. Content analysis is a research method for the objective, systematic and quantitative analysis of large amounts of verbal data (Berelson, 1952, Holsti, 1969, Kassarjian, 1977). Objectivity requires a precise definition of categories so that different analysts can apply them and obtain the same results. Systematization means that the inclusion

Results

The results of the content analysis verified the appropriateness of the sample for the research purpose. Over 4500 units of content that related to the conceptual framework were identified, and every category of interest was represented in the analysis (Table 3). The majority of the content (60% or 2686 units) related to the focus of the framework, sales forecasting capability. Fourteen percent (639 units) pertained to the sales forecasting climate, and 11% (516 units) related to performance

Implications for sales forecasting practice

This research provides a framework for forecasting practitioners who need to evaluate and monitor the effects of organizational factors on sales forecasting performance. The SFM framework directs managerial attention to four areas: the sales forecasting climate, sales forecasting capability, performance outcomes and performance measurement feedback loops.

First, managers should include an examination of the sales forecasting climate in the search for opportunities to improve the sales

Directions for future research

The content analysis provided preliminary evidence of the fit between sales forecasting practice and the SFM framework; however, the data did not lend itself to statistical testing of the validity of constructs or the significance and strength of conceptual linkages. Future research is needed to operationalize the constructs and test the conceptual linkages proposed by the SFM framework. Prior research in organizational climate, organizational capabilities, organizational learning and sales

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