September 19, 2011

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, 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

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