A new Key to Success for Sales Performance Management

I had the opportunity to present at a Sales Performance Management seminar in London, England a couple of weeks ago.   I was joined by Kevin Pilcher from Colt, who shared his thoughts and opinions on the topic of 'Keys to Success'.  I shared the list of Keys to Success that I have been gathering from SPM project sponsors over the past couple of years.  In general he agreed with their guidance and recommendations, but he also added one of his own.   (many of these are listed under the Keys to Success tab on this blog)

Kevin suggested that in order for an organization to really take ownership of an SPM implementation they need to get involved in the configuration and implementation of the project right from the outset.  He is a big advocate of training right at the outset of the project.   His view is that every organization has unique plans and processes and that their team should be intimately involved in all aspects of the implementation.  Kevin took his team and put them on training classes right at the outset of the project.  They knew the plans at a very detailed level and with the appropriate solution training they added a lot of value immediately. This combination of detailed plan knowledge married with product knowledge were a great asset during the system configuration portion of the implementation.   

There was an added benefit, in that after the configuration, the Colt team was able to be self-sufficient right from the outset, versus having to take on a big learning curve after the system was up and running.

In general  we see projects where the both the vendor and the customer are actively involved provides these benefits:

1.  shortens implementation/configuration times
2.  compensation teams are aware of advanced features and functions in the solution by working side-by-side with vendors experts
3. allows the organization adopting SPM to be much more self-sufficient and the application is much more likely to be business user owned.

Followup on Keys to Success Post

Ritu Thakur

I previously mentioned that I have been fortunate in that I have had the opportunity to work with a number of very knowledgeable people in the SPM space.  Ritu Thakur is one of those people.   (Follow this link to see her profile -  http://www.linkedin.com/in/rituathakur). She has worked on several SPM implementations in high-tech and large financial institutions.  We had an email exchange after my last Keys to Success post  (see the Keys to Success tab)

She agreed with the idea of ensuring the the incentive compensation team is trained and put on the project early, but she talked about another huge benefit that I wanted to pass on.

In addition to all the benefits that you have listed, I wanted to add one additional benefit of your new Key to Success. While the implementers have a lot of best practice experience, they are not as close to the intricacies of the client data and processes.  Despite the synergies across industries and function, there are always unique and specific requirements that can make or break a project.  Hence, having the client participate in the implementation brings those key details to the implementation effort.  It allows for an effective implementation, helps avoid gaps in design and reworking the project.

This makes a lot of sense, and just one more reason to ensure that your team has representation from the people who run the compensation process and know how it works at a very detailed basis.

Observations from CFO Enterprises CPM conference

I had the opportunity to present at CFO Enterprises annual Corporate Performance Management (CPM) conference in New York last week.  Robert Kaplan opened the conference with an update on The Balanced Scorecard and Activity Based Costing.  He used some great examples of companies like Volkswagen to illustrate how organizations are mobilizing the entire company towards executing a few key strategies utilizing the Balanced Scorecard.   David Axson, of Accenture (formerly a partner at the benchmark research firm – The Hackett Group),  opened the second day with a great session on our need to recognize that the speed and impact of world politics, business events and even weather have an increasingly stronger direct influence on this year’s financial plan.   Organizations must be more nimble in their planning, forecasting and budgeting processes in order to survive.

Most of the speakers talked to the finance audience about alignment, strategy and execution.  Each and every presentation I attended mentioned increasing revenue and increasing forecast accuracy – from both a revenue and cost perspective.  The challenge I observed however is that many of the follow-on conversations led back to the traditional topics of how to improve budgeting, consolidation and forecasting.   This has been the traditional view of CPM over the years.   I believe that while this is important and necessary, it’s missing a key element - sales force alignment.   It’s hard to find an organization that doesn’t have strategies that involve penetrating new markets, selling more to customers, launching new products, yet there was precious little conversation about how to align and motivate sales teams in order to execute these strategies.  

Based on the feedback that I received at my session and the follow-on conversations I had with attendees, it appears that I hit a nerve. When CFOs think about strategy and organizational alignment their perspective on what sales should be doing is quite often at odds with what the heads of Sales believe.  One example of this disconnect is that most sales organizations are striving to introduce incentive plan simplicity.  Many CSOs believe their sales compensation plans are too complex, too confusing, too rigid, and are looking for ways to simplifying them in order to drive the desired behavior from their sellers.  Many of the leading compensation plan consultants argue that a good sales incentive plan should have no more than three components.  

Yet when CFO Research Services surveyed CFOS about the same topic, CFOs responded the most important thing that Sales could do to ensure reaching its goals is to Encourage Sophisticated Sales Behavior.   They want to drive up-sell, multi-year deals and other high-margin offerings.  The goal is to drive bottom-line improvements and overall customer retention.   Increasing sophistication is at odds with increasing plan simplicity.

Both the Sales and Finance leadership are motivated to improve sales but their views of the solution lead to conflicting tactics.  This is just one area of the discord.   Sales Self-Service, the right role for business analysis,  how best to set sales targets,  technology to support sales management are just a few of the topics that Sales and Finance need to agree on in order to work together to drive organizational alignment and driving increased high-margin business.

When considering how to execute strategy and improve organizational alignments CFOs and CSOs need to make sure that they are aligned first.


If you would like copies of some of the research I reference here just let me know and I will forward it to you. 

Explaining Gartner MarketScopes

In Varicent's  recent press release we noted that we received a “Positive” rating in Gartner Inc.’s Insurance Incentive Compensation Management (ICM) MarketScope Report.  We are thrilled with the news, but in conversations found that many people we talked to were confused between a Gartner MarketScope and a Magic Quadrant.  

The team at Varicent went to work and wrote a blogpost explaining what's behind a Marketscope and how to use it.   They did a great job of providing some background for those of you unfamiliar with the topic.  Here's the link: http://bit.ly/yJFhSp 

Incentive Compensation: Balancing Risk and Reward at Huntington Bancshares

I wrote a while ago about the new imperative for incentive compensation systems in banking (follow this link for that article http://bit.ly/rFlffE.)   That was all about the Federal Reserve and their guidance on Sound Incentive Compensation Policies. 

    

I was happy to see the following video (follow this link for the video http://bit.ly/vfSMwS) on Bankdirector.com.  The video entitled Incentive Compensation Plans: Balancing Risk Vs. Reward features Kevin Blakely, SR VP and Chief Risk Officer of Huntington Bancshares. It runs about 3 1/2 minutes and in it he discusses managing the risk in incentive compensation plans, how to minimize risk taking and the role of the Chief Risk Officer in incentive compensation.  He provides some insights as to how Huntington Bancshares addressed these challenges and manages the risk in incentive compensation.

Great Executive Interview questions for Sales Performance Management

When we talk about the keys to success when implementing a new sales performance management system, the issue of executive sponsorship always comes up.  It is critical to ensure that organizations are aligned across business functions (covered in this blogpost - http://bit.ly/vHkO5P ) but also that organizations are aligned vertically throughout the organization.

This week  I was talking with Mark Coleman, Managing Partner of Compensation Analytics (www.compensationanalytics.com) about some of the great research they are doing and the topic of executive sponsorship for Sales Performance Management (SPM) projects came up. Our mutual experience has shown that spending time upfront to make sure executive sponsor's needs are well understood is critical.  These will be things like aligning sales performance management capabilities with business strategies and providing sales management with the information they need to be more effective.  Getting in to the weeds too quickly (on a topic as complex as sales compensation) can result in your sponsor missing the value of SPM – it’s best to save the discussions on error rates, dispute handling, and pipeline processing for the subject matter experts.

When talking with executives it is important to understand their priorities and perspectives.  The following is a sample set of questions that will help guide an executive meeting.  Some of these are higher level and more strategic, and some of these are more tactical, but all of them are geared towards gaining insight as to where improve sales performance is on the executive sponsor's list of priorities.  These are intended as a guideline and should be tailored to your specific organizational needs.

 

1.      What are your top priorities and what do you need your sales force to do differently in order to achieve these goals?

2.      From your perspective, what is broken with sales compensation?  Why? What do you think are the underlying root causes behind these issues?

3.      What strategic capabilities do you think you’ll need in a few years that you do not have today?

4.      On a scale of 1-10, how would you rate the performance culture of your sales organization (1- what is performance management?, 10 – high expectations, active performance management)

5.      If you had 3 wishes for capabilities that would improve your sales performance, what would they be?

6.      After being out of the office for a while, what is the first Sales report you look at upon your return?  Why?

7.      What’s the number one thing you would like to know about your current sales performance that you don’t know today?

8.      If you could enhance the information you now receive to improve its value to you – what would you change?

When should the executive meetings/interview happen?

Some people advocate that you get all of the research done, figure out potential solutions and answers to these questions before meeting with executives.  You will have to judge your own organizational dynamics and culture, but I believe that you should go in early with these questions.  It’s only once you have the executive perspective that you can really go out and research potential process, organizational and technological improvements.

 

New 2012 Sales Performance Management research report from Aberdeen

Peter Ostrow of AberdeenGroup does a nice job again this year with his annual SPM research. (click here to read the research -http://bit.ly/wb9VjH

The survey results show how the market is progressing and the report provides some good advice for guiding SPM initiatives.  I wanted to call out one thing in particular.  The survey shows that the goals, in priority order, that organizations have for their SPM implementations are:

1. Higher Sales Margins
2. Increase Management Visibility into sales force and channel performance
3. Better sales hiring process
4. Universal rep understanding of compensation or performance plans
5. Balance territories to maximize revenue
6. Reduce administrative time for sales compensation or territory management
7. Reduce sales turnover

Higher Sales Margins was viewed by practitioners as the most important. It is interesting to see the quantification of a trend that we have been noticing for some time now.  That is, it’s not just the desire to grow top-line revenue, but profitable revenue that drives a lot of sales performance and sales compensation initiatives.

Higher margin business often comprises of selling back to customers, bundling products, cross-selling, multi-year and multi-product sales and/or some combination of the above.  Motivating your sales force to sell high-margin business is a challenge for most organizations. There is the obvious first problem of trying to collect and process the data in order to calculate margin by customer, product and channel so there is visibility into what is high-margin business.

Secondly, if we assume that sales people are motivated by their commission plan, then the idea would be to introduce new components to their plan that rewards this type of selling.   According to Gartner, nearly 90% of organizations are using spreadsheets and home-grown solutions to manage the sales commissions processing.  Without some SPM technology in place Commissions teams today are already hard-pressed to meet demanding deadlines, reduce errors and try and find efficiencies with today’s plans.  Adding requirements to drive Margin-based plans, versus Revenue-based plans is a daunting task.   This should not be undertaken without a review of existing processes, data flows and technology.

Lastly, there is a concern is that adding new compensation plan components that reward these higher margin activities can result in making the plans too complex and disenfranchising the sales team.  Note that the fourth priority on the list was Universal Rep Understanding of Compensation or Performance Plans.

There is a lot of data out there that suggests that sales plans are already far too complex and many sales people do not understand their current plans.  Adding more complexity can exacerbate this problem.  If you are moving to margin based plans, it must be done by considering wholesale changes to the commission plans, and specifically considering what components could come out when these new ones are introduced.

For clarification, the survey was partially underwritten by Varicent, Xactly and Callidus, but the survey itself, and the interpretation of the results were all done by AberdeenGroup.

New Michael Dunne White Paper and Webinar now available

Many organizations are working hard to improve their sales effectiveness.  Increasingly many of these organizations are turning to information technology to help improve the efficiency and effectiveness of their incentive compensation and sales performance management processes.  Many of these organizations are now in varying stages of rolling out Sales Performance Management (SPM) solutions.

During these deployments, organizations go through a number of distinct phases as they mature.  The first phase is to ensure that the processes they have in place are efficient and produce accurate results.  As organizations look 'beyond the numbers' they go through increasingly complex phases ending with business agility and overall SPM optimization. 

I asked Michael Dunne, X-Gartner analyst, and long-time veteran  of sales effectiveness and sales performance management to write a report, outlining these stages of evolution, and to provide some guidance for organizations who find themselves in different levels of  SPM maturity.


The result is a new report which provides great insight as to the evolution of SPM systems within an organization.  This is a must-read for anyone trying to educate themselves on the Sales Performance Management landscape.   I have also asked Michael to discuss this paper and answer any of your questions in a webcast. This is now scheduled for December 6th.

Click to download Michael Dunne whitepaper or to register for webinar Dec. 6th 

Six Trends document

On this blog, I have been writing about the 6 new trends in Sales Performance Management that I have observed over the past few months.  I have also had the opportunity to present these at  conferences and seminars.   Based on the feedback I have received, and some requests for a complete document,  I packaged up the list and put it in one document.    If you would like a copy it's posted at www.varicent.com  or leave me a comment here and I will forward it to you.

6 New SPM Trends - Trend 6 - Integration with More Applications

Traditionally a lot of Sales Performance Management Systems have been focused on the incentive compensation process.  While there can be many (occasionally hundreds) of input sources to an SPM solution, organizations generally consider outputs to be - commission statements, a payroll feed, and few summary reports.   

As SPM systems mature, it is more often the case that the SPM system houses the highest quality information in the organization about who is selling what to whom, at what price.  As commissions are paid of this data, it is normally the most scrutinized, up-to-date and accurate information in the company.  Organizations want to leverage this asset, typically by demanding new management reports.  This quickly moves to requests for more complex and broad-based reporting, often requiring new and different source data.  The natural evolution is then to make this information available to an even broader set of recipients.  This expansion generally requires feeding data to other systems.

 Some common examples are:

•          Feed information into a corporate data warehouse or business intelligence system
•          CRM integration between commissions and customer data
•          HR systems to integrate commission data with other payroll and compensation data
•          ERP system so that this information resides in the original system-of-record

Ensuring that your SPM system can pass data to other applications through standard interfaces like ODBC, web services and star schema generation allows compensation teams to provide compensation data in any format required by the receiving application.

Michael Dunne - 4 stages of Sales Performance Management

I just finished reading the draft of a whitepaper I commissioned with Michael Dunne.  Most people involved in Sales Performance Management know Michael from his years as an industry analyst with Gartner. He has a wealth of experience, and a unique perspective on this market.  

I asked Michael to write-up his thoughts on the evolution of Sales Performance Management.  He has segmented the adoption of SPM into four distinct phases and he provides guidance for organizations in each of these phases.  The full whitepaper and accompanying webinar will be announced shortly so keep an eye out for the announcement over the next few days. 

Follow @bhartlen or @varicent for regular updates and to get the details on the webinar and whitepaper when they are announced.

6 New SPM Trends: Trend 5 - Transition to the Cloud

Much has been written about the advantages of cloud based computing.  It’s not that cloud computing is new in 2011, but rather that many large organizations had thought that cloud based computing was only appropriate for small to medium sized businesses.  They were concerned that cloud solutions:

·     Would not scale to their volumes

· Would take away the ability to control upgrade timings

·   Would fail strict security and audit requirements

·  Could not offer the flexibility to meet specific and demanding requirements of large enterprises

There are compelling arguments for why cloud based solutions do provide significant benefit.  These include:

·      Reduced burden on existing, overburdened IT staff

·      Faster project start times (avoiding hardware procurement process)

·      Reduced initial investment and shared risk pricing model

·      Improved vendor support  - as they manage the entire hardware/software environment

The good news is that cloud computing has matured; the early adopters have paved the way, and software vendors have expanded their capabilities, offerings and platforms.  There are more options available to meet the specific needs of today’s complex organization.  For organizations that don’t want to co-mingle their data, there is a single-tenant cloud solution.  For those with security and firewall concerns, there is a new movement towards private cloud deployment. With this flexibility and configurability in deployment options, most organizations are now choosing cloud-based options for new Sales Performance Management implementations.

With the increasing array of options and flexibility in SPM offerings, it’s not simply an on-premise versus cloud decision facing organizations.  It’s much more complex.  Project teams are well advised to make sure that they consider both their requirements, and the specific options offered by their short-listed vendors.

 

 

2011 Sales Management Association Sales Productivity and Performance Management Conference

Bob Kelly and the team at the Sales Management Association put together a great event in Atlanta recently.  The agenda was filled with many experts including academics, practitioners and vendors.   Most of the attendees were from sales operations and the people I talked to were happy that there were many sessions targeted specifically for them.  Some of the topics covered included Inside the Sales2.0 Organization, Predictive Analytics for Sales leaders and Technology’s impact on Sales Management Practice.

Andris Zoltners,  the ‘Z’ in ZS associates opened Day 1 with a presentation on the importance and impact of Sales Management on sales productivity.   Day two saw Barry Trailer from CSO Insights and Mark Selcow President of Merced, present a keynote comparing improving sales force productivity to the new Brad Pitt movie Moneyball.  Joe Galvin, former Gartner and Sirius Decisions analyst seemed to be moderating, participating and generally adding value to most of the sessions that I attended.  With his history and rich background in sales effectiveness I always find that Joe provides some great insights.

I was fortunate to have the opportunity to present on the ROI of Sales Performance Management solutions with Justin Lane of OpenSymmetry and Rebecca Sandberg of Elavon.  Justin has such a broad base of experience implementing SPM solutions that he had a lot to contribute.  Rebecca shared her experiences at Elavon, a global credit card processing organization and gave advice on implementing an incentive compensation management solution in a global financial services organizations. 

While this was the inaugural Sales Productivity and Performance Management conference,   I certainly hope it was just the first in a long line of successful conferences hosted by the Sales Management Association.

6 new SPM Trends - Trend 4 - Increasing requirements for Audit, Compliance and Visibility

There is an increased need for oversight in the world of Sales Performance Management.   There is a growing desire to scrutinize the inner workings of the compensation system and the related processes.  There are two main drivers of this change.  First, some organizations are cracking down on the internal audit processes.  They are driven by concern of new industry regulations.  Many are making sure that they can comply with the changes to incentive compensation brought on by the Dodd Frank Act[1].   In particular, they must comply with section 956 of that Act which states that covered organizations must disclose to the regulators (and there may be more than one in some cases) the structures of all incentive-based compensation arrangements.  The intent is that organizations should have plans that appropriately balance risks and rewards, are compatible with effective controls and risk management and are backed up by strong corporate governance and oversight.

The second driver for increased audit and compliance comes from organizations who want to better understand how the sales operations, HR and Finance processes are working with respect to SPM.  They are trying to evaluate the effectiveness and service levels for their key operational processes.  How long does it take to process all commissions?  How many disputes are filed with every commission run?  How long does it take to resolve these disputes?  Are commissions tracking towards the agreed targets?  Which management reports are being viewed?   These are just a few of the questions that organizations are looking for better answers for.

While many organizations have solid incentive compensation plans, documented processes and workflow surrounding compensation they cannot efficiently and effectively respond these new demands for reporting and audit.  Data from emails, conversations and sales-driven exceptions often fail to make their way into the system of record.   Hiring more administrative staff, or taking a long time to respond to audit requests, is not acceptable so many organizations are implementing new incentive compensation management systems to help.  As the majority of organizations also use spreadsheets and homegrown systems to manage incentive compensation the ability to provide the necessary insight also diminishes.  These tools do not provide the robust audit trail, embedded security, role based access and other key features required to pass an audit.   With changing and more stringent requirements for increased visibility on the horizon it is critical to have flexible reporting capabilities in the hands of those who need to provide data to all the oversight groups.

Potential buyers of SPM technology should survey the finance and internal audit groups within their organization to survey their existing needs, and anticipate their needs going forward.  This establishes a foundational baseline of requirements when looking for a new system.

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[1] Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

6 New SPM Trends - Trend 3 - The Increasing Role of Finance

In a recent survey conducted by CFO Research[1],  CFO's were asked whether the finance function would play an increased role in sales incentive management (including plan design and administration).  While many finance departments are already heavily involved, 52% of the respondents said they will get even more involved over the the next two years.  It’s not surprising to see this interest from Finance.  In times of economic uncertainty, compounded by the concern about negligible revenue growth, many CFOs are seeking opportunities to improve margins.  They are no longer focusing just on cost reduction; rather they want to improve margins by driving sales of the most profitable products and services, not simply by selling more of the high volume offerings.

According to the survey, 61% of the Finance team wants to see ‘more sophisticated selling’ by their sales teams. Sophistication, in the minds of Finance, means encouraging team selling, bundled offerings, multi-year deals, cross selling, and increased selling of high margin products.  They also want to see a tighter link between the setting of quotas and the specific revenue goals of the organization.  It’s frustrating to see the organization make a strategic decision to try and drive business growth in one area, only to find that the sales plans drive a very different behaviour.  Reconciling the plans to the strategies can often take over a year, which results in delayed execution of strategy and missed opportunities.

From a Sales Operations/Human Resources perspective, leading ‘experts’ on incentive compensation plan design are encouraging organizations to simplify plans and make sure that incentive plans have as few measures as possible (often stating that best practice plans have no more than three measures). 

Finance’s drive for more sophistication versus Sales Operations and Human Resources drive for focus and simplification of incentive plans appear to be at odds.   The best resolution is to get ahead of the curve.  This is a great opportunity for all business interests to converge and share their perspectives on the challenges and high priority items for moving forward. 

Successful organizations work with finance to not only agree on the sales plans and drivers but to agree on time-lines, decision making processes, constraints and any potentially conflicting viewpoints on plan design, implementation priorities and targets.  The combined group needs to come to consensus and then communicate their shared goals across the organization.  Failure to do this often leads to different priorities and misaligned goals.   In turn this leads to inconsistent and often conflicting communications being delivered to the sales organization.  A coordinated effort leads to common goals, sales alignment and increased performance.

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[1] Managing Sales Incentive Compensation Amid Uncertainty, CFO Publishing, March 2010

6 New SPM Trends - Trend 2 - Sales Adoption of Mobile Devices

Last week I blogged about the 6 new trends I see in Sales Performance Management. The first trend was about the need to handle increased business complexity.  This week's blog is about mobile devices for sales teams.

It’s no surprise that Ipads, smartphones and other mobile devices are being adopted by sales forces everywhere. Smart devices are now outselling laptops[1].   It seems almost every week there is a new entrant into the tablet wars.  The market is expected to grow from 26 million to over 80 million tablet users in the US^[2] alone. 

Many questions are now being considered by sales organizations everywhere. What is the appropriate mobile device for the sales team?  What is the right set of functionality that needs to be delivered to the mobile device?    There is no universal right answer, and the adoption of mobile technology for sales teams is a broader issue than SPM.  There are three key things that organizations have to look at when it comes to mobile adoption - Device Support, Functionality, and Culture.

Device Support – What platform do you need to support?  On the tablet side, Apple has gone out to an early lead with about 68%[3] market share of all tablets sold.  The market however is still young and there is lots of room for technology advances.  Organizations must consider whether they want to take a device specific approach, or an agnostic approach.  Looking for vendors who support standards like HTML5 and browser agnostic support gives an organization the most flexibility in tablet support.  Applications coded specifically for a platform may have tighter integration with that platform, but will be more limiting in terms of device support as the market matures and shifts.

Functionality -   Once the platform is decided, and then you must decide what functionality you want to deliver on the mobile device.  In most SPM scenarios simply replicating a full desktop or web experience on a smartphone doesn’t work.  Have a look at your current commission statement and imagine how much would be viewable on a Blackberry, Android or Iphone window.  Typically commission reports are multi-page statements with lots of columns and in order to comprehend the entire statement you would have to be able to look at more than one or two columns at a time.  Organizations are well advised to design reports and outputs specifically for the mobile device, and not settle for delivering full reporting onto mobile devices – just because you can.

Culture - this is often overlooked when considering mobile device support.  Some Sales Leaders want to ‘get everything on the smartphone and tablet’ to avoid all the wasted time lugging around laptops, trying to figure out VPN or other connecting activities.  The idea of ‘right here right now’ information delivery has a huge value over waiting for the sales reps to connect when they are back home, in a hotel or office.    There is another train-of-thought where sales leaders are concerned about everything that takes away from their sales teams ability to have customer facing time during the day.  The idea of delivering commissions, quota and territory update information constantly throughout the day is a distraction.  Their belief is that this kind of information should be delivered to the laptop/desktop when the reps are not out in the field.

The overriding trend we are seeing in mobile device support is that the adoption of mobile technology for sales is directly proportional to the frequency of data updates.  Organizations that report on sales and commissions daily are much more likely to want to drive this information out to mobile devices than organizations who update their data monthly or quarterly. 

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[1]  IDC Worldwide Quarterly Phone Tracker, January, 2011

[2]  Forrester Research eReader Forecast 2010 – 2015 (US)

[3] IDC Worldwide Quarterly Media Tablet and eReader Tracker, September 2011

Six Trends in Sales Performance Management

Sales Performance Management (SPM) solutions are proving to be incredibly valuable for organizations that adopt them.  According to research firm Gartner, organizations that implement compensation management solutions can expect to reduce errors by more than 90%, reduce processing times by more than 40% and reduce IT/Admin staffing by more than 50%.^[1] 

SPM solutions are becoming attractive not only because early adopters are achieving success but also because there is increasing pressure on compensation teams to deliver more.  Organizations are demanding more than just accurate commission statements that are delivered on time.   They need visibility, analysis and oversight into the entire variable compensation process as they want to understand better what is working and what isn’t.   

While the majority of organizations still manage incentive compensation with home-grown solutions, or lots of Excel spreadsheets, more organizations are retiring these solutions in favor of a more complete packaged incentive compensation and sales performance management system. With this rapid SPM adoption new trends are starting to emerge.  This paper discusses the top six trends that are influencing organizations who are considering implementing new software solutions to help them improve sales performance and incentive compensation practices.

Over the next few weeks I will discuss each of the 6 trends.     

The first...

Trend 1:  Increasing Business Complexity 

In a recent study conducted by the Economist^[2] an overwhelming majority of survey respondents (86%) think that business has become more complex in the past three years, many describing their businesses as chaotic.  This increasing complexity is often driven by the reality that organizations produce more products, sell in more markets, through more channels with more complex workflow processes.  These organizations also have an increased need for speed when it comes to getting results.  Adding to this challenge is that many organizations are struggling just to keep up with an ever-increasing volume of data.  Over the past couple of years organizations increased the amount of data stored by a staggering 62%[3].  With this hectic pace of change it is easy to see why existing technologies, plans and processes in sales compensation cannot keep up with new requirements.

Most organizations do not expect the rate of change nor the ability to capture data to decrease in the coming years.   Most home-grown and spreadsheet based systems were implemented years ago and were never designed to handle the volume of data, rate of change, expanding product lines and desire for increased analytics, modeling and reporting.  It is not uncommon to see that today’s compensation systems need to be able to efficiently handle millions of transactions a day in order to manage sales reporting and incentive compensation calculations.  

When considering SPM technology, evaluation teams must consider their requirements to quickly load data, calculate commissions and produce the necessary outputs.  They should also estimate, to the best of their ability, data volumes and complexity for the next few years to ensure that the application is capable of handling those volumes.  Organizations looking to implement new systems are well advised to try and determine their performance requirements and conduct a scalability and performance test when looking at acquiring new software.

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[1] Gartner Marketscope for Sales Incentive Compensation Management Software, Michael Dunne, March 2010

[2] The Complexity Challenge, How businesses are bearing Up,  Economist Intelligence Unit, 2011

[3] EMC annual shareholders meeting presentation.

My perspective on CSO INSIGHTS 2011 Sales Compensation and Performance Management – Key Trends Survey

 

Jim Dickie and Barry Trailer of CSO INSIGHTS do a great job every year of taking the pulse of sales leaders and sharing their survey results and opinions.  The 2011 Sales Compensation and Performance Management – Key Trends survey is another good read from Jim and Barry, and as we have come to expect, their insights and observations add a lot of value to the raw results.  

A copy of the survey results is available at   http://bit.ly/pbvNHG

As I was preparing for a conference presentation next month, I was re-reading the results and I was struck by one chart in particular.  When the question was asked – What aspects of your comp plan would you change, and in what order?   

The top three results were

• Management’s ability to judge plan effectiveness
• Management's visibility into sales performance
• Ability to model plan revisions

The bottom three, in terms of priorities were

• Managing credits, exceptions and adjustments
• Minimize inquiries and disputes
• Support compliance requirements

The complete list is good, and I am sure that anybody reviewing it could not disagree with it as a whole.  This list however, represents the perspective of sales leaders as it relates to compensation.  I wonder, if we asked CFOs, Compensation Teams, and HR leaders how they feel, would we get the same list and the same priorities.  My hunch is that while other groups wouldn’t disagree with any of the requested changes, they believe that the fast and accurate payment of commissions, and minimizing inquiries and disputes will increase sales job satisfaction and give the sales team more time to sell by reducing their administrative effort and shadow accounting efforts.  This could be argued as one of the biggest benefits of automating the commissions management process and therefore made the top priority for the compensation team.

I have often talked about the need for cross-functional organization alignment, around goals and priorities when implementing a Sales Performance Management System.  If the cross-functional team isn’t aligned as to what the short and long term goals and objectives are, then the projects are in risk of cost and time overruns and missing expectations of some group when it is delivered.   What this chart got me thinking is that it’s not enough to make sure that the list of goals is correct, but also that they are prioritized and agreed upon by the whole team.   Getting alignment from the start will save everyone a lot of time and effort in the long run.

Isn’t Sales Performance Management software just part of CRM, HR or ERP systems?

I am often asked why Sales Performance Management isn’t just a part of some other enterprise application.  Based on the background of the individual asking, ‘some other application’ is generally the organization’s CRM, ERP or HR system.    

The truth is that while SPM touches all of these areas it is not well served by any of them.  The design point of each of these applications is not Sales Incentives. Adding a few columns and a few reports doesn’t solve the problem of accurate, timely and efficient payment of variable compensation.  Nor does it start to solve the challenges around modeling, reporting and analysis of sales performance.

Let’s look at each of them.  Some would say that Salesforce.com, Microsoft Dynamics CRM or other CRM solutions are the obvious choice of where sales commissions should be handled.  For many organizations the CRM is the place to capture customer centric information and related activities.  It stores what the customers purchase, it may capture what they order, but very rarely does it capture who gets credit for the sales of those items, how commissions were handled, hire and termination dates of potential recipients of commissions, and what attainment towards Quota the credited sales rep was at in order to determine accelerators.   This is just a short list of the things that are needed in a modern sales compensation system.  Without that relevant data it is impossible to calculate commissions simply by looking at the CRM.  Loading all of the data and building the calculation logic that is required is also not possible or not in scope for most CRM solutions.

Many say Success Factors, PeopleFluent, Taleo, Workday or some other HR or Talent Management solution is the place for compensation and benefits information and therefore the place to capture information about variable pay.  The challenge is that HR systems do not track detail about what customers purchase what products.  This is critical to a sales compensation system.  HR systems do not capture the components of the plan in order to run complex calculations needed to determine specific payouts.  In fact, most HR systems are generally good at data collection and reporting, but do not have the concept of a calculator or modeling engine as part of their solution set and therefore should not be used for sales compensation.

Let’s have a look at ERP solutions.  ERPs are assumed to be the place that houses all the transaction data needed for calculating commissions.  While the transactions are a key ingredient to a compensation system, ERPs were not designed to manage commission exceptions, overrides, splits and plan adjustments that are the course of business in incentive compensation.  The concept of prior period adjustments, claw backs, holds, spifs and draws are not common to the process efficiency mindset of ERP solutions.

None of these systems were designed for sales commission’s calculations purposes, and while they all have some of the data needed, none have all the data nor  the dispute resolution, plan modeling and other necessary functionality.  These systems are not well suited for your sales performance and commission management needs. 

So how are organizations managing this critical process? According to Gartner, nearly 90% of organizations with over 100 sales people are still managing commissions with home-grown solutions, Access databases, Excel and manual effort.   Outside of North America there is even less automation.   A number of organizations have come to realize than in order to deliver timely, accurate commissions, and in order to design and implement plans that drive the sales behavior they want, they must look to specialized software for this task. Software that can accept data from a myriad  of data sources,  determine the proper crediting for all the incoming transactions,  calculate commissions, and then produce commission statements, reports and analysis.   Modern SPM systems also allow compensation teams to model different scenarios, analyze plan effectiveness, manage the territory and quota processes as well as calculating commissions.    

Organizations that implement SPM systems are more likely to drive down administrative costs significantly reduce errors and put more selling time back into the hands of the sales team