Incentive, Compensation and Sales Performance Management

On March 5th, Synygy hosted a live online expert panel discussion called "Ensuring Alignment of Strategy and Sales Compensation Plans: Assessing the Impact of Strategic Misalignment". I promised I would discuss about what I learned in the Webcast, so here it is at last!

Synygy identified 7 areas affecting sales compensation management:

1. Strategic Misalignment
2. Limited Modeling
3. Misunderstood Plans
4. Errors in Results
5. Lack of Information
6. Inability to Adapt
7. Process Inconsistency

The focus of the Webcast was on the "Strategic Misalignment" aspect, with future Webcasts to cover the remaining six problem areas.

So what is the impact of Strategic Misalignment?

• Poor sales force effectiveness
• Inefficient resource use
• Confusion
• Low morale
• Sales force turnover
• Etc.

Some of the symptoms...

• Poor line-of-sight to corporate objectives
• Over-simplified plans
• Top sales people underpaid or leaving
• Increasing commission cost
• Undesirable behaviors
• Many contests / spiffs.

US Cellular:
US Cellular faced many of the problems above. They are the 6th largest US wireless provider with 6 million customers, 8100 associates, 32 billion dollars in annual revenues and an inventive budget of 200 million dollars.

Sales associates were dissatisfied for several reasons including targets that were too generalized, a lack of consideration to location potential, a soft sale environment, lack of accountability, inconsistent process, inconsistent quotas and inconsistent payouts.

By adopting an incentive compensation management solution, US Cellular was successful in aligning quotas with corporate goals.

The key challenges identified by US Cellular were to get a buy-in from executives, facing the 'fear of the unknown', and getting standardized data.

Some of the lessons learned include: understanding the objectives, understanding data, and getting support from executives from the very beginning.

Wyett:
Wyett (Pharmaceutical) has a sales force of 4000, with annual revenues of approximately 16 billion dollars.

Their old strategy involved having multiple specialists bothering the same physician. The strategy was driven from the HQ and the focus was on the market share.

The new strategy involved having an assigned specialist for a physician, and a focus on external competition instead of internal competition.

Their sales performance management solution was implemented in only 75 days and did a tremendous job at helping to better align the new strategy with objectives and improve sales force productivity and effectiveness.

Here is the second installment in David Cichelli's "Ask the Expert" series on this blog. The first post and David's background information are here.

Question: What are in your opinion the biggest challenges in sales compensation. Is there a key to success?

Answer: Well, I could write a book on this subject. Sales compensation is a very noisy device. It is hard to establish, keep current and administer effectively. We find that sales compensation programs tend to fail due to:

1) Obsolescence. Sales compensation plans must be continually updated to help maintain strategic alignment with the company's goals. Most sales compensation specialists consider an unchanging sales compensation plan as a failure of sales management.

2) Complexity. The sales compensation plans are an easy “mark” when sales management is looking to get the attention of the sales force. However, too many measures—more than 3—doom a sales compensation program as it becomes overly complex.

In this last part of my interview with Paul Turner and Jock Breitwieser from Callidus Software, we discussed about the suitability of Callidus as a solution for small to medium-sized enterprises.

Are Callidus Solutions / TrueComp only for Big Enterprises?
"Absolutely not!" exclaimed Paul. It's true that Callidus offerings were traditionally on-premise complex solutions for large clients, but with the On-Demand solutions this is not the case anymore. Several small companies have chosen Callidus as their Sales Performance Solution and are very satisfied.

Pauls also comments that the small to medium sized enterprises is still a very un-tapped market. "SMBs present great challenges, but also the greatest opportunities for Callidus Software".

Are On-Demand and On-Premise Solutions Identical?
On-demand and On-premise versions of TrueComp, the "core" compensation tool from Callidus are identical to each other. However there are add-ons and packaged elements which helps speed-up the On-demand deployment, such as packaged reporting elements and spreadsheets to facilite data integration.

So how Long does it Take to Deploy the Callidus On-Demand Solution?
It is hard to say as it depends on so many factors such as the complexity of the implementation, the number of plans, the number of rules, etc. However, Paul noted that a recent small client completed the entire implementation cycle - from design to integration - under only 90 days, others in as little as 60 days.

SalesForce.com
Sales Managers and Account Executives can access reports directly through SalesForce.com. Sales person can access their up-to-date compensation statement and other reports directly as well, and drill-down on key elements when required. Below are a few screen captures illustrating some of the dashboards available for Callidus On-Demand through SalesForce.com.

Traditionally, On-Demand, or Software as a Service (SaaS), was geared towards smaller enterprises. Recently there has been a strong and growing interest in On-Demand solution as an enterprise solution for large businesses.

Major Concerns to adopting an On-Demand Solution
There are several concerns shared by clients when considering a SaaS solution. The two main concerns which I have heard repeated time and time again are scalability and security.

Scalability
A typical concern for large enterprises to adopting an on-demand solution is its scalability. How well can it really work with 5000+ sales people today, how well could it scale up to 20,000+ sales people tomorrow. When I asked this question to Paul Turner, Director Product Marketing, and Jock Breitwieser, Director Public and Analyst Relations at Callidus, the answer was that their on-demand solutions could be considered MORE scalable than their traditional on-premise solution.

How so? Callidus On-Demand solutions use Sun grid computing to extend the hardware as much as required by the clients. This means that an enterprise does not need to maintain their own grid computing facility, nor do they need to purchase expensive servers to anticipate future growth. The service is ‘on-demand’ and so is the hardware.

Security
Another major concern shared by large enterprises is security. Large enterprises rightfully do not want their sensitive data at risk of being exploited.

The Callidus On-Demand solution was architected with security in mind. From secure FTP data staging, to the use of state-of-the-art data centers to host the data, to individual database instances and dedicated hardware to meet specific security requirements, the Callidus On-Demand is a security fortress. Paul and Jock also noted that security has not been a deterrent for many large clients to adopt Callidus On-Demand offerings.

Other Benefits of On-Demand Applications

Lower Cost of Ownership
With an On-Demand solution, after the initial fee to configure the application, the cost is typically determined per payee; there is no need to purchase expensive hardware and software licenses. Not only is the cost lower upfront, but when considering the overall cost associated to an on-premise solution including upgrades, license renewal, maintenance, support, etc, an on-demand solution may be the most economical solution period.

Availability of Resources
With On-demand solutions, the Vendor is responsible for managing the software and the hardware and any related issues. Clients can focus in their business core focus rather than having to deploy and support the application and hardware.

Accessibility
On-demand applications can be accessed from anywhere in the world, at any time, from a web browser. This not only enables compensation consultants and executives to view sales performance data; it also enables individual sales people to login the application and monitor their own performance.

Paul concluded that with all the benefits of On-Demand solutions, it is easy to see why large customers are so interested by these offerings

[Part I of III of my Interview with Callidus]

[Part III of III of my Interview with Callidus]

I recently asked several sales performance related questions to David Cichelli, author of the popular book "Compensating the Sales Force", a national expert in sales compensation and the sales compensation practice manager at The Alexander Group. He was kind enough to share his expertise with me, and to allow me to share his insight on this blog. Thanks again David for your time.

Question: Several readers end up on my blog by trying to find an answer to the pros and cons of variable compensation. You begin your book with an affirmation that 'sales compensation works'. What are your thoughts on the pros and cons - the rewards and benefits versus the risks. If it is a fact that pay for performance works, why are not all companies adopting such a system.

Answer: Companies use a wide variety of incentive compensation programs for a diverse array of jobs. Incentive compensation continues to be a mainstay of contemporary management practices. Sales compensation holds an almost legendary status as an expected part of the employment equation. However, sales compensation is a management choice. It’s neither a birthright nor a requirement. In fact, in my view, sales compensation programs are cross elastic with supervisory practices. Frankly, a well-supervised work force does not need an incentive program to be effective, and that observation is true of sales compensation. But, its use is widespread and prevalent. Almost 85% of all companies with sales personnel provide a reward program tied to sales results. A famous—if somewhat inelegant—argument was made against incentives by the author Alfie Kohn in his book “Punishment By Rewards.” But, generally, most sales management teams believe that incentives help bring focus to the efforts of a dispersed workforce...the sellers of the company.

I had a very insightful conversation yesterday with Paul Turner and Jock Breitwieser from Callidus Software. We talked about several topics and I will share their insight in my next few posts.

Paul Turner is Director of Product Marketing at Callidus Software. He has over 13 years experience in enterprise software focusing on sales and business performance management, business intelligence and incentive compensation. Prior to joining Callidus, Paul was Director of Product Marketing at Hyperion Solutions. Paul holds a BSc in Computer Science from Lancaster University, England.

Jock Breitwieser is the Director Public and Analyst Relations at Callidus Software. He has extensive experience in public relations with a strong international background and expertise. Before joining Callidus, Jock was an account manager at The Hoffman Agency.

I recently read several articles talking about the impact of a slow-down in economy on sales performance efforts, both from a SaaS and CRM/On-premise perspective. I used this occasion to bombard my two guests with questions on this topic and several good arguments came out of the conversation.

General Thoughts on the ICM Market:

• The selling point of ICM solutions is to achieve a good return on investment.
  
• Measuring the actual return on investment can be hard to do, but looking at the potential cost savings alone can justify a sales performance system.
  
• With a proven Return on Investment, ICM solutions can be justified regardless of market conditions.
  
• A slower market can actually contribute to an expansion of the Sales Performance Management market.

Market outlook for Callidus SaaS Offerings:

• While Forrester predicted a slow down in the SaaS market, Callidus has seen phenomenal growth in this area - In Q4 of 2007, Callidus On-Demand annual contract value (ACV) increased 150% to $.6 million.
  
• Callidus has also seen a much greater adoption of their on-demand solutions by enterprises of all sizes including Incentra and Lenovo.
  
• The integration of key Callidus components with SalesForce.com is also an aspect which encourages small to medium-sized businesses to adopt Callidus as their Sales Performance Management system.

Market Outlook for Callidus On-Premise Offerings

• Callidus continues signing on new clients and growing in this area.
  
• In 2007, overall revenues were up 35% vs. 2006 ($100 million versus $76 million).
  
• License revenues were also up by 3% to 28.6 million.
  With the acquisition of Compensation Technolgies, Callidus will generate additional consulting revenues from Callidus implementations and adds new offerings for strategic services.

Additional Thoughts

• Callidus recently announced more growth in the European market. They have increased their headcount to 50 employees in the Europe, Middle East and Africa (EMEA) region.
  
• Callidus has also opened a new EMEA headquarters in London.
  
• Getting more clients in Europe offsets the lower US dollar.
  
• One notable new client is npower, a leading UK energy company.

Overall, Paul and Jock were very upbeat about what is coming up in 2008, both from a Callidus perspective and for the Sales Performance industry in general.

[Part II of III of my Interview with Callidus]
[Part III of III of my Interview with Callidus]

We have seen extensive market convergence over the past 2 years... Oracle purchased Siebel, Hyperion and more recently BEA. IBM also purchased many companies including Cognos.

Less than 2 months ago, Callidus Software acquired Compensation Technologies, an incentive compensation consulting company.

Today it’s BSG Alliance who purchased Iconixx. Iconixx was a major competitor of Compensation Technologies and offered consulting services in the areas of sales compensation, variable compensation, and performance management.

BSG Alliance is an Austin Startup who have also purchased several other companies in 2007 and 2008 after securing $20 million in funding.
• Industrial Science, a business simulation frameworks and technology company
• The Concours Group, a strategic consulting company
• Kalivo, a collaboration software company
• New Paradigm (Don Tapscott’s Company), a business innovation group

Potty training and sales compensation is a blog post in which Matt Asay, father of 3, describes how he used chocolate as an incentive to convince Lily to visit the restroom.

In his post, Matt raises an interesting topic: When does compensating multiple people on the same deal make sense? According to him it makes sense especially early in a company's life when cooperation is more important that competition. He also mentions that rewarding team effort is more important than rewarding a short-term hit due to excess commission.

I posted articles on the topic of group competition and group rewards here and here. Like I said, it's a very interesting topic for which there is no clear-cut answer... it really depends on individual situations. It is true that it would seem logical to try to tie an incentive to the person 'most responsible' for the sale, but this usually does not reflect reality where multiple people, teams, channel sales people, direct sales people, etc, all collaborate [in harmony].