Incentive, Compensation and Sales Performance Management

I talked about Makana Solutions' product - Motivator - before. Makana offers a solution to build really good compensation plans and help you out in the process every step of the way.

I will try to provide coverage on this blog for these 2 webinars taking place tomorrow. The webinar hosted by Callidus features an Accenture partner discussing the insurance industry, and the Xactly webinar features Jeff Kaplan discussing on-demand sales performance analytics. Follow the links to register.

Callidus 7/29 @ 9A CST - Best Practices from Accenture - Align producer and advisor behavior, maximize mindshare - and effectively manage compensation
https://callidussoftware.webex.com/callidussoftware/onstage/g.php?d=570992696&t=a

Learn about insurance industry best practices from Jon Walheim - Accenture Partner - North America Insurance Marketing, Sales, and Service Lead. You’ll learn about key trends in the insurance industry, challenges that organizations are facing, and what insurance leaders are doing to gain competitive advantage.


Xactly 7/29 @ noon CST - The Business Case for On-Demand Sales Performance Management Analytics
https://www1.gotomeeting.com/register/415893690

In this Webinar, Xactly’s Karen Steele and THINKStrategies’ Jeff Kaplan will discuss how post-sales analytics can provide new and strategic insight into an organization’s selling patterns, commission spend, product performance, sales rep and team performance, and sales plan effectiveness. They will examine how post-sales data – traditionally scattered across a variety of disparate systems including ERP, HR, and Payroll – can be now be integrated and analyzed with an eye towards enhancing business strategies, changing sales rep behaviors, and super-charging sales organizations.

Read Part 1 and Part 2 of this story first.

The blame cannot be put on one person. ABC Corp, the ICM vendor and the consultant all own some of the responsibility for the issue.

The entire situation could have been avoided if the requirements had been better designed. Requirements could have been better designed if the compensation plans had been completed with enough details. The vendor would probably have done a better job at scoping out the work initially or in certain situations may even have not submitted a proposal.

What can we take away from this story?

• Requirements cannot be fully defined unless the compensation plans are finalized. Requirements may be inaccurate or incomplete unless compensation plans show sufficient details and examples.


• An ICM solution cannot be selected unless the requirements are fully defined.


• Not all ICM solutions can handle very complex compensation plans (no matter what the vendor's rep says). Some solutions are better suited for certain situations.


• Good requirements are the foundation for any IT project, mess up the requirements and the entire project will be shaky.


• Using an experienced consultant to help out with the requirements design, RFP writing and solution selection could be a good idea to select the ideal solution.


• Consultants and vendors alike cannot "always" guess client's intentions.


• Mentioning or emailing a requirement is not enough, this requirement must find its way to the requirement document to ensure it is met by the implementation and properly tested.

It's Thursday; meeting time. The vendor explains the requirements from the RFP did not accurately reflect what needed to be performed by the ICM solution. "Because the scope of the project did not include all this additional work, it will cost more and take more time to complete", says the vendor calmly. "But your sales rep said it would not be a problem!", exclaims the comp director of ABC Corp. "We specifically asked about this during the presentation and your rep said it you could do it!".

ABC Corp hired a consultant with extensive Incentive Compensation Management (ICM) experience to scope the requirements to be included in the Request for Proposal (RFP) for the purchase of a new ICM solution. The consultant diligently researched the latest industry trends, ICM best practices, client needs and leveraged his experience to create an outstanding requirement document. Weeks later the RFP is born, after having spent countless hours being sent back and forth between the sales, finance, contract and legal departments.

In case you are not familiar with it, the Canadian Professional Sales Association (CPSA) has an excellent magazine called "Contact". The best part is that this magazine is entirely available online, for free, and without any registration. Today I wanted to bring your attention to an article by Jay Somerset called "The Compensation Challenge" which appeared in the Contact Spring 2008 edition.

"It may be time to change - or tweak - your sales compensation plan to better compete in today's employee-driven market, but if it is done incorrectly you could send your sales team packing. "

Indeed, tweaking a sales plan is tricky business. Stats mentioned in the article back this up: Less than 10% of North American sales organizations redesign their comp plans in a given year, while the other 90 percent only perform minor tweaks. I think ideally, closer to 100% organizations should only perform minor tweaks. Redesigning a plan could be a sign that it had not been planned out properly, and sometimes organizations are compulsive about trying new plans rather than improving their existing plans by tweaking them.

Diverging Opinions
Greg Blysniuk, president of TopLine Sales Compensation Solutions in Toronto advocates simplicity. He says that sales managers often believe their compensation plans must be sophisticated and complex to compete; Greg believes one or two quantitative measures is all what is required to incent people and to ensure the plans are easy to understand.

David Johnston, president of Sales Resource Group Inc in Oakville, Ontario believes compensation plans should factor in qualitative metrics. "Qualitative metrics can be measured according to milestones or key events".

ICM Applications:
Greg says the main barrier to adopt an ICM application is their cost. He is in favor of using Excel spreadsheets for compensation data collection and analysis. He says that "Spreadsheets are simple to use, inexpensive and they do the basic job".

David does not agree; he says that spreadsheets are "too basic and error-prone". He also says that "sales is much too complex for a spreadsheet". He concludes that there is a middle ground with smaller-scale on-demand ICM applications such as PlanIt (which I reviewed previously), that do not require a large upfront cost.

The Bottom Line:

No matter which approach is used, I'm sure we can all agree that the goal is to make the compensation plans as straightforward as possible. If there is a valid reason for a plan to use some "complex" measurement, fine... as long as it's easy to understand and clearly communicated to the payees.

As for the need for an ICM application; if an organization is small enough with a low enough order volume and is happy with their current spreadsheet, and if they don't see any benefits in real-time analytics and dashboards, auditability, modeling, forecasting, and all the other benefits provided by an ICM solution, then there probably no incentive to replace the spreadsheet by such an application.

I agree with Greg that spreadsheets do the "basic job", but in my experience it does not take very long even for small organizations to realize that the "basic job" is not enough anymore to keep a competitive advantage.

Once in a while I review the statistics for this blog to find out which keywords people use to find me. Surprisingly, people often find this blog when looking for funny sales compensation jokes. Here is a good one for your enjoyment.

The Sales Manager and the Bear
A sales manager and an operation manager went bear hunting. While the operation manager stayed in the cabin, the sales manager went out looking for a bear. He soon found a huge bear, shot at it but only wounded it.

The enraged bear charged toward the sales manager, who started running for the cabin as fast as he could. He ran pretty fast but the bear was just a little faster and gained on him with every step. Just as he reached the open cabin door, he tripped and fell flat.

Too close behind to stop, the bear jumped over him and went rolling into the cabin. The sales manager jumped up, closed the cabin door and yelled to his friend inside, "You skin this one while I go and get another!"

Source: http://www.workjoke.com/projoke60.htm (Not all jokes here are politically correct)

Today I attended the "Common Pitfalls in Sales Compensation Design" webinar, hosted by Makana Solutions, featuring guest speaker Donya Rose, Founding Partner of the Cygnal Group, a sales compensation consulting company.

Google "Key Performance Indicator" and you will find enough KPI information to feel dizzy. It is important to know the difference between a performance indicator - some metric that we want to track - and the "key Performance Indicators" - or the most crucial performance indicators, those on which people are generally compensated on.

A recent article “Measuring Sales Force Performance” at gulfnews.com gives a few examples of performance indicators.

Customer and product related Measures:
- Number of new customers acquired
- Sales by product
- Sales by customer segment
- New product sales

Process Measures:
- Productivity
- Channel mix
- Turn-around time
- Number of calls made
- Number of prospects generated

Financial Measures:
- Sales value by geography
- Profitability
- Cost of acquisition
- Attrition
- Book growth
- Fee Income

Measuring metrics is one thing, but interpreting all the data collected is essential and usually the biggest challenge. There are a lot of industry benchmarks that can be used as indicators of how the company is performing compared to their competitors. Measures can also be compared against some framework, analyst point of view or analytics.

However I think the author of the article is entirely correct when he says that internal benchmarks are better because “they tell you what the best team can do in the same situation”. I think that performance indicator’s most valuable insight comes from comparing the metrics against historical data.

I'm trying out a new strategy; instead of cluttering this blog with industry news, I will try to post news, press releases, and upcoming events once a week. Let me know if I miss any important news, but please note that I'm intentionally excluding specific news about new clients, deployments and stock movements - there would just be too many to keep track!

In the News this Week:
Xactly Corporation Secures $30 Million to Cement Leadership Position in Sales Performance Management

Varicent Reduces Costs of Managing and Maintaining Sales Performance Management and Incentive Compensation Management With Latest Release of Varicent SPM

Upcoming Events:
Common Pitfalls in Sales Compensation Plan Design (by Makana Solutions)

Many readers and friends have been asking me about how to get a consulting job in the field of Incentive Compensation Management / Sales Performance Management. There are several ways to achieve this.

1. Get a job with a large Management/IT consulting company (such as IBM or Accenture) working in that area and have them train you. That's how I got there.
2. Get a job with a consulting company specializing in these areas (either a large firm like Towers Perrin or a smaller firm like nGenera). This may be harder to do if you have no experience.
3. Look at job boards for interesting jobs. There are often good opportunities posted on dice.com, and monster.com, etc. There are also specialized job boards such as the career opportunities page of World at Work and the Canadian Professional Sales Association's job board.
4. If you have business or technical skills, you could look for any job with an SPM Solution Vendor and move into a consulting job.
5. Get a related position in the industry; once you have a bit of experience, you can move on to a consulting company.
6. Get some experience! Most vendors offer free Webinars, giving a good overview of their products. There are also dozens of books on the topic! If you can afford it, World at Work offer many courses and certifications. SPM software vendors also usually offer training on their products.
7. If you are interested with the implementation aspect of ICM/SPM you could learn a Customer Relationship Management package such as SugarCRM. You may never use SugarCRM ever again, but at least it will be something to add on your resume (experience implementing an on-demand CRM software package).
8. Participate to my blog, ask questions, build your knowledge.
9. Click on my adds (just kidding)
10. The most important recommendation last: Network, make contacts. Join a local professional chapter of World at Work or the CPSA... Attend all the conferences you can afford and introduce yourself to everyone you meet and have plenty of business cards to hand out.
11. Contact me, I often hear about openings but I don't always have someone in mind to recommend. I may be able to help out and share your resume...

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.

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]

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].