Taking Control and Protecting Your Sales Performance Management Investment – Closing the SPM “Capability Gap”

Posted on February 20, 2012 by Bill Sorenson

Incentive compensation is the fuel that drives revenue growth and the sales back office works hard to support this critical function. As such, no one would deliberately ….

  • Cloud their compensation plan details or send mixed messages on how commissions and bonuses will be calculated
  • Pay their sales reps late or incorrectly
  • Deliver confusing reports that make it difficult to link pay and performance
  • Not promote and reinforce their carefully designed incentives throughout the year
  • Under accrue for commission and bonus costs

However, we often see these shortcomings at many companies and, when it occurs, sales reps become distracted, sales performance is diluted and finance can be in for some expensive surprises when the books are closed.

Just in the last six months we have seen –

  •  One contract technology resource supporting a compensation system that pays 4,000 sales reps, while 12 IT resources are dedicated to supporting the HR and payroll systems for home office employees
  • No maintenance on a compensation system that has been in production for 6 years resulting in major instability during monthly processing
  • Poorly trained compensation analysts who routinely employ practices which create errors, pollute data and impact financial reports
  • Accrual forecasts that are based upon incomplete information and simple linear extrapolations which have led to material restatements of earnings

Many companies are under cost pressures and must meet internal goals to reduce expenses. To hit these goals, they are squeezing their already small incentive management operations and technology teams. At the same time, sales management and new sales strategies are putting even more demands on these same groups with new business requirements.

Our viewpoint is that the potential negative impact on sales performance is much more harmful to your company than the incremental benefits of the costs saved by squeezing the incentive management back office.

When you allow your sales performance management capabilities to erode you will find “capability gaps” emerge, causing it to be more difficult to do many of the basic things that are required to grow revenue, such as:

  • quickly introducing new products/services to the market
  • aligning incentive compensation to motivate sales resources and drive growth
  • quickly launching new sales incentives
  • managing sales performance, including growing and retaining top sales talent

As your capability gaps widen, they become more complex to solve and often get to the point where the cost to transform/remediate the back-office requires significant executive sponsorship. To make the case for change you need to clearly articulate current gaps, quantify the impacts to your business and layout a new and improved future state with a plan to get there. This exercise is often difficult for teams who have not done it before and are too busy dealing with day-to-day operations.

We offer a couple of tools that can help you get your sales back office on the right track -

  • SPM Transformation Workshops – a tailored one-half to two day program for organizations looking to begin rebalancing their SPM ecosystems
  • SPM Diagnostic & Remediation Plan – a six to eight week deep dive assessment and planning effort for leaders looking for a comprehensive review, benchmarking and action plan
  • An online self-audit – a questionnaire that only requires about 8 minutes to complete and provides basic benchmarking and highlights major strengths and opportunities

If you would like to learn more about any of these services, please email
Ruthanne@compensationanalytics.com

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Stacking the Deck for SPM Success

Posted on January 10, 2012 by markcoleman

We spend a lot of time working with sales back offices helping to simplify operations and to find ways to add more value to the field.  Lately, we have been doing a lot of clean up work on incentive management system installations that got us thinking – how can an installation be done so poorly that the new system is actually worse than the one it replaced?

When evaluating a modern incentive management system, the learning curve can be significant.  What’s a config vs an enhancement vs an add-on?  What are the implications of splitting logic between pre-processor and package?  How do you customize, generate and publish field reports?  Many of the vendors use different terms for similar concepts and come at the problem from different angles which adds further to the learning curve.  I often visit vendor offices with evaluation teams and I always warn them that after day 1 their head will hurt and they will be confused – but that’s OK, in fact its normal, the picture will be much clearer after a couple more days.

From the vendor perspective, they are focused on building a highly functional and attractive tool that people are going to want to buy.  As a result, they will be less familiar with some of your specific challenges that can complicate the integration of the incentive comp application with other corporate systems, data stores and workflows.  However, after a few days getting to know their application, you will probably begin to believe that it will be easy to get it up and running quickly at your company.

That could be true if your company -

  • has a clear vision of the end state for incentive management (vs paving the cow path)
  • has well documented systems and available experts
  • has relatively simple data requirements, pristine source data and few upstream sources
  • has a legacy comp system that does not include other non comp functionality
  • etc. etc.

To stack the deck for success, you need to think through the following very carefully -

  • what are the most challenging things for your organization today and how will the new solution fix it?  what needs to change from a process, people and technology stand point?  what business policies need to be reviewed,  eliminated or updated?
  • what should you be doing today that you cannot do, and how will these new capabilities be introduced?
  • what does the implementation roadmap look like that gets you from your current state to the desired end state?  how many steps?  how long?
  • what approach will you use to gather requirements, design new processes, build and test the new solution?
  • what are the risks along the way and how will you mitigate them?
  • how will you operate business as usual and transform incentive and performance management simultaneously?
  • what other initiatives will you be dependent upon and how will that work?

When we find ourselves revisiting an installation that did not go well, very few of the questions above were answered before jumping headfirst into the system implementation project.  Instead, the technology was viewed as a silver bullet.

Our leadership team has over 50 years of experience implementing sales compensation and performance reporting systems.  This past summer we presented a webinar  on ‘How to Avoid the 3 Most Common SPM Implementation Mistakes’.  If you are interested in reading it, just email  ruthanne@compensationanalytics.com and ask her to send you a copy.

Be careful out there !

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Sales Compensation Graduates to the Cloud

Posted on January 9, 2012 by Hassan

About every 10 years, there is a technology movement that captivates the world and quickly becomes embedded into the fabric of corporate information technology strategies.

In 1998, it was Java programming, with its lure of platform independence – write once, run anywhere.

Early in this century, it was adoption of web services, which would help standardize business transactions and also streamline the exchange of information.  And today, there is no doubt that cloud computing has become the darling of the Enterprise IT landscape.

Many organizations are looking to purchase  cloud based SPM solutions – and there are certainly good reasons to do so.  Monthly subscription service pricing is attractive, upgrades are greatly simplified, new value added offerings come online frequently, and the headaches of the ‘thick client’ on premise Enterprise IT application go away (in theory).  Already, hundreds of companies are using On Demand solutions and many are very satisfied.

How do you know if moving your incentive management and performance reporting to the cloud makes sense for your organization?

Here are some questions to consider when evaluating whether an OnDemand solution is right for your company -

1.  Security
Does your industry have requirements for stringent security requirements (e.g., HIPAA) that exceeds what standard cloud installations can provide?  OnDemand may still be an option however, you may need a specialized installation to beef up the out of the box security.

2.  Transaction Volumes
Does your business have high volumes of data (e.g., telecommunications) or lower volumes of data (e.g., software sales).  For companies with modest amounts of data, leveraging the cloud is straight forward.  However, for companies with gigantic transaction volumes and/or complex plans – the data transfer times and pipeline running times can exceed available processing windows.  There are strategies to deal with the larger volumes (e.g., upload and run more frequently, more powerful boxes etc.) , but careful consideration should be taken before assuming that large and complex businesses can be supported in the cloud.

3.  Existing IT Capabilities
How large and capable is your IT department?  Do you have significant investments in equipment and staffing?  If so, leveraging these resources can make the on premise installation as economical, if not more so, from a total lifetime cost of ownership than the cloud based solutions.

Recently, I have seen several instances where clients have moved commissions and performance reporting to the cloud before getting answers to the questions above.  In one case, data volumes proved to be too cumbersome, and a sophisticated pre-processing algorithm had to be developed (and maintained) after a year of operating a sluggish  solution.

In another, the organization had stringent security protocols, but somehow the cloud deployment escaped the scrutiny of the IT department, and the organization exposed themselves to unnecessary security risk with sensitive information.

The cloud has certainly been a tremendous advancement for Enterprise IT.  Make sure that you thoroughly assess your security requirements, data volumes, and internal capabilities before deciding how best to deploy your SPM solution.

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Incentive Management and Executive KPIs

Posted on January 6, 2012 by Bill Sorenson

How well does your incentive management enable your company to deliver on financial goals?

The push to finish strong in 2011 is over and many of us are now heads down again – focused on finalizing incentive payouts, reorganizing sales teams and launching new comp plans for 2012. At the same time, we’re all anticipating company results and how the investment community might react. But, as you prepare for the year ahead, how focused are you on the impact sales performance and incentive compensation management can have on the financial measures your executives are reporting against?

The ability to effectively design and execute on incentive compensation plans can have a significant impact on what your CEO reports each quarter. More specifically, the financial measures that investors and Wall Street care about – growing operating income, improving net profits, and improving earnings per share – are significantly influenced by sales performance. So, how well incentive management is aligned to motivate sellers to execute on these goals is a key lever in driving financial performance.

Example:

Consider incentive compensation and its impact on improving sales at a multi-billion dollar company. The company’s strategy is to provide innovative solutions to its customers, leveraging a full portfolio of products and solutions. Executing this strategy requires the sales organization to make an important transition from selling in product silos to selling across the full portfolio through national, industry-focused sales teams.

One of the company’s largest business units (Business Unit A), plans to expand its $500M in annual revenue with a strategy driven by the national sales teams. However, due to a variety of incentive compensation processing challenges (data, systems, and operations), they haven’t been able to consistently pay the national “overlay” sales teams. As a result, the national sales team’s interest has faded and after an initial push they’re no longer emphasizing a critical portion of the portfolio with customers.

Let’s examine the potential impact to executive level financial measures if the company could have executed on the compensation plans more effectively:

  •  An estimated recurring $200M of Business Unit A revenue comes from national accounts and a 25% increase in new revenue is reasonable with a motivated national team
  • The resulting $50M increase in revenue would contribute $11.5M growth in operating income, $7.5M growth in net profit and $0.06 EPS growth.

The incremental impact on YOY Net Income and EPS growth are compelling:

  • YOY Net Income Growth would increase by over 20% from ~$33M to $40M, improving the YOY growth reported from 14% to 17%
  • YOY EPS Growth would increase by over 35%, from ~$0.16 to $0.22 per share, improving the YOY growth reported from 9% to 13%

So, the ability to handle incentive compensation can have a big impact. Most CEO’s would be thrilled to improve Net Income and EPS growth as outlined above.

As you plan for 2012, take time to consider how well your sales performance and incentive compensation operation are aligned to driving company financial objectives. Is your compensation back office working tirelessly just to keep the lights on? If so, think about how this group can play a more innovative and strategic role.  By doing so, it’s likely you’ll discover ways that more effective incentive administration and performance reporting can help your company achieve its goals.

We’ll continue to share examples of how our framework aligns incentive management improvements to enable key operational and executive level financial KPI’s, including revenue growth, operating cost control and risk management.

Stay tuned and share your experiences!

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How to Select a New Sales Compensation System

Posted on December 13, 2011 by markcoleman

Recently I have received a number of inquiries that go like this – “We are evaluating company A, B and C – which one would you recommend?”  Which one is best depends on what problems you need to solve.  The most common mistake I see during the software selection process is a checkbox focus on functionality versus ‘How can this solution solve problem x for us?”  In fact, many times the biggest mistakes are made before the first vendor presentation.  Let me explain.

When looking for a sales compensation solution the first thing you should do is understand the root causes behind your current challenges.   Where do you spend the most manual effort?  Where are stakeholders most dissatisfied with current outcomes?  These answers usually come quickly.  Then ask – why, why, why and why and this will help you identify the root cause behind your issues.  For example, if your current pay cycle requires a lot of manual effort, the why-why exercise may identify issues such as -

  • Plan designs incorporate measures that are not readily available from our systems, therefore we have to manually piece performance together
  • Sales leaders can’t meet reasonable deadlines and we only get the new plan specs on a napkin a week before the next fiscal years first pay period
  • We are understaffed with only 3 people supporting 1000 payees
  • We have very complex credit allocation rules that our current system can’t support

Obviously, a new compensation system is not going to solve all of these issues, therefore, if you want the new system to be able to work its magic, your implementation program is going to need to address more than just configuring compensation rules.

This exercise will also help keep you grounded in what you need when the software vendor starts confusing you with all of their terminology, pricing plans, special offers and add-ons.
Once you have a vendor short list, I would also recommend that you plan to visit the offices of the 2-3 final contenders to review how they propose to solve your problems.  I find that a visit can be helpful for many reasons including -

  • You can get a real feel for the company, quality of the people, culture etc.
  • When you ask a question in their main conference room, its tough for them to say they left the expert back at the office
  • Its an opportunity to begin building relationships with senior executives that may come in handy down the road

Over recent years Compensation Analytics has diagnosed dozens of  compensation operations and helped facilitate numerous software selections.  Feel free to reach out to us at info@compensationanalytics.com or on (612) 919-6904 for a free half hour consultation.

 

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Sloppy Sales Compensation is Expensive

Posted on October 6, 2011 by markcoleman

Processing accurate commissions and delivering high impact performance feedback to sales reps is not a slam dunk for every company. In fact, for some companies it can be a really big hassle for everyone who is involved.  The financial impact of these “hassles” (e.g., inaccurate payouts, ineffective reporting, system flexibility etc.) is significant.  And since most sales organizations are outwardly focused, issues in the sales back office can really fester before getting everyone’s attention.  This is when these challenges can become very expensive.

Do you have reps that have experienced multiple embarrassing commission mistakes?  If one more foul-up is the last straw for only a handful of reps, it could cost your company millions to replace them.

The inaccuracies themselves can be very expensive.  Some studies have shown up to 4% of your incentive budget can be wasted through commission over-payments.  You may also pay concessions to producers to smooth situations when errors occur which adds even more to the cost side of the equation.

What about all the lost productivity during the back-and-forth between the field and the home office?   Is product x eligible for bonus comp?  Why didn’t this deal get paid on the last pay check?  Also, if statements and reports are confusing, sporadic, or incomplete, then your reps will spend time building and updating their own tracking systems to make sure they get paid for everything they sell.  Very few reps are good enough to be productive while their nose is stuck in a spreadsheet or while they are on hold with the home office.  These little distractions can really add up to hours of lost productivity each week.

If your organization is like most companies, you probably spend a lot of time thinking about and perfecting your sales incentives.  To maximize the influence of the compensation plan, it must be communicated effectively and reinforced frequently.  What if your reps rarely receive a comprehensive view of their performance or frequent encouragement to help them attain their goals?  Without understanding and reinforcement, your carefully designed incentives will never have a chance to fully work their magic.

Finally, since many sales comp back offices are consumed with the day-to-day, there is little capacity to support the urgent and important initiatives that will help the organization hit its sales targets (e.g., SPIFs, contests etc.).  These missing capabilities can result in an organization missing its top line numbers and disappointing investors.

Below is an illustration of how shortcomings in the back office can really add up to impact revenue and profitability.  Don’t let your back office quietly fester and your profits leak away.

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The State of Performance Reporting In the SPM Arena

Posted on August 7, 2011 by Hassan

In the 10 years that I have been a business intelligence architect in the compensation space, I must admit that I am surprised at the lack of progress I see in the arena of performance reporting.  In this time, very few companies have graduated from the basic transactional and summary style reports they have produced within their organization for years.  Often, when an SPM implementation is in its visioning phase, there are grand plans for comp plan design, handling compensation dispute resolution, quota management, and the like, but when it comes to reports, dashboards, and analytics,  companies often want to replicate the reporting they have rather than strive to produce more value add business intelligence.

By choosing this path, companies are not realizing the benefits of modern technology and more sophisticated analysis techniques.  For compensation operations management, heatmaps, geographical breakdown maps, KPI tracking and the like are powerful tools that provide at-a-glance reviews of critical information.  Combined with the ability to drill down into information and get specific product, rep, and territory level information these tools are valuable both strategically and tactically.  Such tools also make it easier to measure the impact and track the status of a specific initiative, which is very different than the almost generic reporting functions of the past.

Rather than waiting for an update every month, reps often want to get an update as to where they stand with their sales initiatives on a frequent basis.  The ability to have self service analytics exists today.  Anyone with an enterprise class SAP Business Objects solution should be striving for self-service analytics, yet in 95% of cases the sales operations management is barely using the BI solution.

What accounts for this?  Well, far too often, reporting and analytics is sold as an afterthought, and is an issue which is addressed after the initial comp design is completed.  I personally feel this is a terrible mistake–business intelligence is highly dependent on the quality, granularity, and completeness of the data that flows through the compensation solution.  BI architects should be working hand in hand with compensation rule writers during the discovery phase of the project.

Secondly, rather than looking for a business intelligence architect that can bring vision and shape to the data universe in which the compensation operations group can realize value and strategic insight in working with, management believes they know the set of information they are interested in and look for a “technical report writer”.  This “contractor” will take the short order cook approach to building reports and dashboards.  Too often, the end result is diner style fare.  With the high quality ingredients of rich corporate data in house, organizations would be wise to entrust a “chef” to prepare and exquisite meal………..the cost may be a bit more, but the value is also far greater.

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The Wild West is Alive and Well

Posted on June 29, 2011 by markcoleman

When I think about tasks that require a high standard of care, a few things come to mind -

  • Piloting an aircraft
  • Major surgery, and
  • Calculating and paying sales comp for the thousands of people who together are 100% responsible for your company’s revenue

Most of the time pilots (other than the profanity slewing pilot at O’Hare last week), surgeons and sales practitioners demonstrate a high degree of proficiency and care in their work.  However, every now and then I come across a group that runs by a different set of rules and ends up making life very difficult for themselves and their sales team.

This wild west behavior can show up in a few ways -

  • Constant knee jerk changes to compensation with little analysis of what’s working and what’s not.  Why put yourself through all that work and then been apathetic about the outcomes?
  • Code management and testing practices.  Let’s try something new, not test it and then put it straight into production.  This is a great way to create a really complex ball of yarn that needs to be untangled – yet it happens every day.  Discipline and skills need to be in place to protect everyone’s hard work and to ensure that only proven solutions are migrated to production.
  • Planning, estimating, resourcing and communication of deadlines.  A pilot would not tell you that your flight from New York to San Francisco will take 6 hours and then only take on 2 hours of fuel.  Sales comp practitioners need to be better equipped to have courageous and informed discussions with their stakeholders to avoid accepting mission impossible.

That’s my rant for today :)    Be careful out there!

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Progress ?

Posted on June 27, 2011 by markcoleman

Over the years we have come across some interesting “solutions” that were implemented under the banner of progress.  Unfortunately, a number of these implementations were quite expensive and the business results were not so impressive. Too often, there seems to be the belief that new technology will fix all that is ailing compensation processing.  Ah …. only if it were true.

When business process design is given the light treatment and the focus is on loading rate tables and developing ETL routines to existing data feeds,  then the program becomes a calculation migration project and a big opportunity was squandered. These programs typically yield solutions with the following qualities -

  • Additional complicated and unfamiliar manual processes vs simplification
  • New technology to support vs consolidation
  • Little to no improvement in reporting
  • Millions of missing dollars
  • Burned out operations and implementation teams

Too often solutions are hastily “designed” in the absence of an understanding of the underlying root causes behind current short comings.  Here are some of the most common issues we have come across when digging into compensation problems -

  • Missing or inadequate transaction data driving comp calcs
  • Poor sales hierarchy hygiene resulting in cascading calculation errors
  • Redundant processing (e.g., everyone creates the same report)
  • Lack of controls and high dependence on a few miracle workers
  • Constant plan changes coupled with immature development and testing capabilities
  • Under resourced commission and service teams  (i.e., capacity and skills)
  • Poorly integrated and supported calculation systems
  • Inadequate communication between sales operations (design team) and commissions resulting in churn

Technology can play a big role in solving some of these problems … however, when technology change is coupled with challenging outdated policies, redesigning core processes and addressing organizational issues … then, real progress can occur.

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As Smokey The Bear Says, “Only You Can Stop Forest Fires”

Posted on February 22, 2011 by markcoleman

From time to time, all Sales Operations’ departments find themselves in fire fighting mode.  It could happen annually as a last minute redo of targets after a senior leader has some second thoughts.

Or, it could happen quarterly, if there are problems with some data or the processes that produce reports that go to sales leadership.

It could even happen every pay cycle as people scurry to produce an error free compensation run – or, it could be the clean up in aisle 3 scenario after each payroll.

Some organizations have stable operations and have the breathing room to ensure that their operation continues to improve and meet the demands of the business.  By doing so, they prevent forest fires.

Others go from pay cycle to pay cycle with one nostril above the waterline and obviously this scenario does not improve with time.

If you are in constant fire fighting mode, you owe it to yourself, your team and your organization to find a way to start putting that fire out (or at least stop adding fuel).  Smokey the Bear was right when he said – “Only You Can Stop Forest Fires”.

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