April 28, 2011

SPM Keys to Success - Ensure Plan Alignment

The SPM market is maturing.   We see more and more successful projects returning real value to organizations.   I have had the opportunity to meet with many of these organizations and have tried to find some commonality across successful projects.    Many of the things I hear are good basic project management advice that could help with any project, and some of the keys are very specific to Sales Performance Management

Based on the level of interest that I have received on this topic,  I have decided to spend a bit of time on this topic that I am calling 'SPM - Keys to Success'.   I blogged previously on reducing the number of reports produced, while overall improving the value of reporting overall.  this next 'Key to Success' is all about making sure that all of the interested parties are on the same page at the outset of the project.

When implementing a Sales Performance Management system, one of the things that can quickly take the project off track, is to assume that all of the interested parties directly involved with the project agree on the goals.  People come into Sales Performance Managment projects with different perspectives, different needs and different priorities.  Often these goals are not aligned and at times are diametrical opposed.   Often team members believe that it is quite obvious what the burning issues are and what needs to be focused on.  They assume the broader group agrees with their priorities.

For example, there may be one camp who believes that the focus of the project must be to help drive more volume through the sales channel.  This often makes sense for sales leaders who are driven by the need to increase revenue and market share in order to take or maintain leadership in a market.   There could be an opposing view that the goal of the Sales Performance Management system is to allow the organization to implement a new set of processes and plans that helps to drive a culture of rewarding sales of high margin business.  Their view is that not all revenue is created equal and rewards should be given for ‘good’ business.  If the organization continues to sell lower margin products, increasing revenue on those product lines may actually hurt the organization’s profitability.  Their focus is not on revenue growth, but rather driving improvements to the bottom-line.  This may result in selling lower volumes of high margin products.  Neither of these is wrong, but they may be at odds with each other and cause challenges in determining what needs to be accomplished and the priorities for the project.

Regardless of who in the organization is charged with implementing a new Sales Performance Management system, it involves many people from different parts of the organization.   Gaining consensus of the specific, measurable, time-based goals is one of these most important tasks that need to be completed at the outset of the project.    

Project managers are well advised to make sure that the goals of the project are clearly defined and then well communicated in the organization.   If this isn’t done then project teams introduce a high risk of missed deadlines, project overruns and potentially even project failure.

April 5, 2011

SPM Keys To Success - Global versus Local Sales Plans

In my SPM Keys to Success section of this blog I have been writing about the conflicts that can occur at the outset of the project.  Resolving these different priorities will go a long way to ensuring project success.

David Chichelli, who runs the Sales Effectiveness practice  at the Alexander Group recently wrote a great blog post about the conflict that  organizations  face when it comes to designing plans.   Read his post on the challenges and benefits of developing centralized/global plans versus local sales compensation plans.

April 3, 2011

SPM Keys to Success - Interactive versus Static Statements

Continuing from a previous post on Ensuring Goal Alignment,  project teams must agree on the type of commissions statements that will provided to payees.

Interactive versus Static Statements for Plan Participants
When organizations start to implement Sales Performance Management Software to manage the commissions process they are given the opportunity to change the way commission statements are delivered.  By leveraging the capabilities of modern SPM technology they are able to deliver interactive commission statements.   Arguments for delivering function-rich electronic statements are:
  • When viewing statements plan participants can access the underlying transactions that make up the statement. This provides the recipient all the details to see exactly how the commissions were calculated which in turns provides insight and instill confidence that the statement is correct.   The result is fewer calls into the Commissions Team trying to understand how the commissions were calculated.
  • Providing drill-down in statements can provide valuable analytics for plan participants.  Having a look at Sales by Product, by Customer Group,  by Category, by Channel, by Time can all provide insight and help them relate their activity with results and drive the right behaviou in the next few months.
  • Peer group comparisons and rankings are often a motivator for sales teams.   With most SPM technologies these can easily be added to existing statements.
These capabilities all appear to provide significant value, so why would anyone not want to deliver more capability to their plan participants?   The argument is that many organizations believe that one of the biggest frustrations sales organizations have is how little time sales people actually have to spend with their customers.   According to a recent CSO  Insights survey[1] sales teams spend only forty one percent of their time selling.   Most sales departments believe that increasing this percentage is a high priority in the upcoming year.  They are motivated to drive as much administration, and non-customer facing time out of the process as possible.

Delivering concise, timely and accurate statements to sales teams, means that sellers will reduce the time the look at statements, reduce time working with operations on disputes and inquiries, and reduce the amount of time they spend updating their own shadow accounting systems.     Providing additional charts, graphs and slice-n-dice adds time to the project, adds distraction for the payees, and takes away from valuable selling time and might realize a drop in the already low forty-one percent.    A five-hundred person sales team spending two additional hours a month reviewing the additional functionality embedded in their statements results in twelve thousand hours a year of lost selling time.  This translates into the work of six full-time sales people.

Sales advocates would suggest that a better use of effort would be to have one business analyst hired to do the analysis and provide guidance on where sales teams should spend their time.   The theory is that the right person doing the job once and sharing the results with sales would be more effective than each of five hundred sales people replicating the same analysis over and over.  This is often at conflict with the operational goal of reducing administrative time and effort in managing commissions.

The challenge for project teams implementing Sales Performance Management software is to determine which, if any, of the advanced capabilities provided by SPM software are most appropriate for their plan participants.  Increased insight is a good thing as it helps align the sales force and drive the behavior that you are looking for.   Charts and graphs that look nice, but don’t help the recipient improve performance do not improve the overall commissions management process and should be left out.

[1] 2010 Sales Performance Optimization – Sales Management Analysis, CSO Insights 2010

Michael Dunne to Keynote INSIGHT11

I am very happy that we managed to get  Michael Dunne, Research Vice President for Gartner to join us at INSIGHT11 (Varicent’s Users Conference) this year.  He specializes in researching leading issues concerning sales performance management, sales operations, sales enablement, sales incentive compensation, sales analytics, price optimization and management, as well as sales and marketing alignment for Gartner.  As a 16 year veteran of Gartner he brings a lot of experience gained not only from his research but a significant amount of client interaction.
I was talking to Michael last week and he was mentioning that he is has a lot of new thoughts on what is happening in the Sales Performance Management space.  He shared a couple of his ideas and I can tell you that we are in for a treat.  It got me thinking and certainly put some things in perspective.  Michael will open up the second day of our conference.

SPM Keys to Success - Reduce and Improve Reporting

Whether you call it a Sales Performance Management, Incentive Compensation Management, Commissions Management or Enterprise Incentive Management there are some things that every project team should think through when taking on a new project.  This first in a series of blogs covers some ideas for reporting.

When designing reports for new incentive compensation systems, there are two questions project teams need to ask:
- Are all of the reports produced today still necessary?
- Can technology be used to improve existing reports?

Let’s look at these individually.
Reducing the number of reports
Is there really an opportunity to reduce the number of reports produced without sacrificing any business value?  While it might not be intuitively obvious, when it comes to reporting quite often – less is more.

The approach that many organizations use when it comes to specifying reports is to take the existing reports from their current systems and processes and look to deliver exactly the same reports via a web browser.   Teams often work under the assumption that the current systems and processes produce reports that are both necessary and sufficient.

The reality for many organizations is that a significant number of reports were designed to solve a problem at a specific point-in-time when they were needed for a specific plan or purpose, but have since out-lived their usefulness.   The reports getting produced are no longer are required or deliver the business value they once did.   Other reports that are required today, are only required because of some limitation in the current environment.  With a new SPM system, many manual processes should be eliminated and this may likely reduce the need to produce some of the reports for audit and control.  Compensation teams are well advised to take a hard look at reports and determine which are still required.

Report consolidation is another area that needs to be considered when implementing a new incentive compensation management solution.    In a rigid or antiquated system, it is often the case the only static reports can be produced.  For example, a departmental commissions summary, and a divisional commissions summary may well be two distinct reports in today’s environment.  With a new solution these separate reports can be merged into one simple report that includes an option to display departments or divisions.
Without considering whether all of the existing reports created are really needed, teams can waste valuable time and effort when implementing their new solution. Often there is an opportunity to significantly reduce the number of reports without sacrificing any business value whatsoever.
Active intelligence versus static reporting
Organizations that plan to simply deliver traditional static reports via the web miss a big opportunity.  Project teams can provide meaningful enhancements to reporting by elevating static reports to include interactive components that provide much more insight into the data.  Modern Incentive Compensation Management systems can take static reports, and when delivering them through a browser add interactive features that make the reports much more insightful for their readers.

Some of the common features that should be added to reports include:
Drill Down – When viewing reports there is often a question that arises that can only be answered by looking at the underlying data.  Static reports cannot provide insight into the underlying data leaving report viewers to launch queries if at all possible, or more likely email the report author looking for more information.   Modern Incentive Compensation Management systems should provide the ability to see the underlying data that created that report.  This ability provides great value to the reader, and can also significantly reduce the time and effort required by compensation administrators chasing down data and providing custom reports.

Self Calculators – When sales reps view their commission statements, quite often the first thing they do is to take the numbers and start calculating a number of things.  What do the numbers look like if Scenario A happens?   Scenario B?   What do I need to do to make the next tier of the plan?   Do I have the right mix to make the accelerators?   Project teams should take the time to consider augmenting the existing commission statements with self-calculators.  With this approach the result is that sales teams spend less time trying to calculate data, more time understanding it, and they certainly view the commissions systems in a much more favorable light.

Selection –  Adding selection boxes to web views of reports can add tremendous value for the person viewing the report.   The concept of a selection box is that the user of the report can pre-select from a long list, only those items that they want to see.  For example if there is a Region Selection Box and a Product Line Selection box, the user can simply select the EMEA region and product lines A, B and C and the report of that data is immediately displayed on their browser.  Without selection boxes, it would be virtually impossible to consider all the combinations of product, geography, versions ahead of time and generate reports for all the variations required.    Generating a custom view of data with just a few mouse clicks provides significant rewards for the organization.

Charts and Graphs  – with older technology, it was very difficult to produce chart and graphs and include them on existing reports.  Today’s technology makes it very easy to do, and as we all know – a picture is worth a thousand words.  Trend lines, pie charts and other graphic options are an easy, yet effective way to enhance existing reports.   With today’s modern solutions, the chart definition has to be created only once, and then it is dynamically updated as the data changes, saving the user from having to redefine and change the charts at the end of every commission period.

In summary, project teams looking to implement a new incentive compensation or sales performance management solution, should look hard at reporting, and look to see where they can be both more efficient – by reducing the number of reports and more effective – by adding value to those reports that have a lot of value.

Drive Competitive Advantage with Improved Sales Incentive Plans

I have had the good fortune over the past couple of years to work with a lot of bright people.  Bruce Jackson here at Varicent is one of them.  He has an incredible wealth of experience in incentive compensation management and I have come to rely on his knowledge, experience and perspective.

He and I spend a bit of time last week talking about how often well-intended changes in compensation - geared towards driving the right behavior, and retaining top talent often end up with the exact opposite affect.  I talked him into co-writing this blog post and wanted to thank him and acknowledge his contribution.
Organizations consistently focus on achieving competitive and sustainable advantage in their markets. Especially during turbulent economic conditions a motivated and effective sales force is a key component in achieving these advantages.  A necessary component to attracting, acquiring, and retaining top producers is the design and implementation of a good sales incentive compensation plan.
Properly designed incentive compensation programs drive the ‘right’ behaviors and reward successful performance.   All too often, as organizations tune their plans; as product offerings expand; as distribution channels overlap; as they respond to a constantly changing economy, organizations find that they end up with increasingly complex plans.  These complexities lead to dissatisfaction with both the people charged with implementation and managing the plans, and the sales organizations who are affected by it.
The key to creating a good plan is selecting a few measures that drive the behavior that an organization needs.  Too many measures do not motivate the sales team – rather it leaves them deciding what to do on their own, which may or may not be in the best interest of the organization.   Too many measures also increases the administrative cost, slows down the process, creates an environment where there are more disputes and inquiries, increases the chances of errors and overall does not drive the performance that everyone is looking for.
The key is not only having just a few measures but ensuring that they are the right ones.   The selection of performance measures, and their impact on incentive payouts, is a critical consideration during the plan design process.

For instance, incentive compensation plans that reward the sales team based upon company growth during a recessive economy leave the sales team feeling disconnected and unmotivated, often resulting in high turnover and the loss of key employees to competitors.   Incentive compensation plans that reward performance based upon metrics that an employee cannot influence leaves the sales team frustrated and demotivated, leading to overall decreased performance.   A common reaction to disruption and the loss of key talent is to implement multiple measures within the incentive compensation plans with the goal of protecting key performers from the impact of a single measure.   As we discussed earlier, this approach is not recommended and often leads to confusion, increased administration costs, and overall dissatisfaction associated with managing the plans.
Identifying and implementing changes to incentive compensation strategies in anticipation of changing economic conditions is a significant challenge facing organizations today.  Many organizations use spreadsheets, antiquated reporting tools and legacy systems to try and analyze the impact of new plans and components.  Relegated to using inappropriate tools combined with an increased need for speed, compensation teams are often unable to provide the type of simulations and informational analytics required to support an agile decision making process.  Trying to just keep up with the most basic changes required herculean efforts on the part of Sales Operations, Human Resources, Information Technology, and Finance departments - who spend countless hours extracting a subset of the required data from source systems (if available), aggregating the data into multiple spreadsheets or ad-hoc databases, and developing complex incentive rules within formulas and macros that are prone to human error.   As a result of this labor-intensive process, it is not uncommon for companies to voice concern that the quality of the results may not be worth the cost of the effort.
Organizations that excel during turbulent times leverage rules-based, real time incentive compensation modeling and scenario simulations using predicted and historical data to anticipate changing conditions and pro-actively introduce industry leading incentive compensation plans.  These next generation sales performance management applications significantly reduce the overall effort required to predict sales force expenditures and provide accurate, auditable results that can be relied upon by key stakeholders involved in the process.  By seeing a clear picture of the results for each performance measure, key stakeholders can select those performance measures that provide the most effective means to motivate the sales force and drive sustainable competitive advantage.

Banks and the new incentive compensation imperative

The Federal Reserve recently released their Guidance on Sound Incentive Compensation Policies which was designed to ensure that incentive compensation at banking organizations do not encourage imprudent risk-taking. The three principles are:
  • Incentive compensation should balance risk and reward and not encourage imprudent risk taking
  • Risk management processes and internal controls should reinforce the support, development and maintenance of balanced incentive compensation arrangements
  • Incentive compensation programs should be supported by strong corporate governance
The result is that incentive compensation policies and practices are going through a sea-change for banks. Boards of directors will now have to routinely review compensation plans and performance of those plans for all covered employees.  By the end of 2010, governing agencies are going to actively monitor the progress of banks, and identify leading practices in incentive compensation. Banks will be encouraged to adopt these leading practices in an ‘expeditious manner’.
Risk Management groups will play an increasing role in the design and evaluation of new incentive compensation plans. New regulations are on the horizon that will continue to put pressure on banks to respond quickly to new imperatives.  Finance, Human Resource, Information Technology and Control functions will all have to come together to manage incentive compensation much more quickly, with more agility and richer and deeper analysis than ever before.
Today, many banks use a collection of spreadsheets, legacy software, home grown and manual solutions to manage incentive compensation.  They were not designed to support the scrutiny and demands of this new world of incentive compensation.
Today’s complete incentive compensation solutions provide financial institutions solutions to help them manage through this change.
With a packaged incentive compensation system banks can:
  • Build, Report, model and analyze incentive compensation with accurate and timely compensation data
  • Effectively communicate incentive plans and incentive plan changes across the organization
  • Monitor and assess plan effectiveness
  • Quickly and efficiently make changes to incentive compensation plans and procedures
  • Audit and track each and every change to plans, data, metrics and disputes