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Motivating Sales Team in the new SaaS world

The SaaS movement is all about how customers buy and pay for value delivered.  There is a dramatic shift with SaaS in how customers buy, and hence how we sell and thereby, incentivize sales teams. Before we can talk about how to adapt sales compensation plans to the new reality of SaaS, let’s understand how “we need to change our sales approach”.

Here are the key “sales approach” shifts happening with SaaS:

  • Focusing on our sales process → Helping customers make buying decisions
  • One big decision → Trying out things without exit barriers
  • Bulk Purchase → Incremental purchases and “pay-as-you-go” and “pay-as-you-consume”
  • Kill and move on → Land & Expand
  • Will they sign → Will they be a profitable account (strategic qualification)

Earlier sales teams were more like hunters. Now they need to be both hunters and farmers (customer success).  Even if customer success roles are separate in the organization, the way in which salespeople connect and sell sets up the foundation for customer success.  Salespeople need to think beyond meeting their quota or maximizing their commissions; they need to build customer success-driven growth momentum.

The SaaS shift is also having a significant impact on company cash flow.  Although there is a reduction in the “highs” of large deals, on the positive side, there is more steadiness in long-term cash flow in addition to the potential for reduction in overall sales cost. The SaaS movement has a huge impact on how we qualify and engage with customers, and how we incentivize our sales team.

Many software and technology companies that only sold “one-time” or “perpetual licenses” are now transitioning aggressively to selling “subscription licenses”. This is happening across the board for small and large value software licenses.

This shift has huge implications on how companies sell and how they design sales compensation plans for their salespeople. There is a higher risk of dissatisfaction amongst sales teams due to lower upfront commission earnings on new customers since the value realization is pushed out into the future.

On the other hand, the company has to be concerned about “retention” and “realization” from new customers and not pay commissions aggressively up front. This shift has huge implications on the sales force and sales plans.  How companies handle the sales force structure, role and sales plan will decide who the winners and losers are during this huge shift.


SaaS Plan Design considerations
Sales incentive plan design strives to optimize the interplay of three objectives:

  • Incenting the Right Behaviors
  • Protecting Earning Potential and Cashflow
  • Managing Incentive spend ROI


Incenting the Right Behaviors
With SaaS, salespeople are no longer just closers and hunters.  They need to be selective in which customers they acquire based on the long-term retention potential of the customer. Their focus has to be on transparency and value delivery to both the customer and the company.

The sales effort for a subscription fee model versus the upfront license model may not be that much less.  So while the revenues are realized over time, the sales effort is loaded up front. We need to recognize that and reward the salesperson with either a higher commission (on lower ACV of SaaS) or a sign-up bonus for new customer acquisitions.  

At the same time, salespeople need to be tied to the long-term success of the client and hence, need to have renewal, retention and upsell components that are more aligned to how customer value realization works for the organization.

Case-In-Point: A technology company wanted to grow rapidly and increase the number of customers they had.  They decided to give signup commissions to salespeople for any account they signed. At the same time, the company did not create specific qualification requirements in the sales or commission process.  They felt that they could have the same kind of success with more clients that they had with their past clients (who were very selectively picked). The end result – after two years – was poor revenue realization. Many of the customers they sold were not long-term buyers. Moreover, these were not ideal clients and consequently, whatever revenue they generated was not as profitable.

To incentivize long-term perspective in salespeople behavior, a company may combine both a carrot and a stick approach.  The company can give bonuses for retention rates, renewal rates, upsell and profitable product mix. On the stick side, the company can also claw back commissions on customers if the customer discontinues within a certain timeframe (say they cancel in the first 6 months).

Another way to ensure the quality of customers is by rewarding managers and leaders on customer success factors such as CSAT, NPS and renewal rates. In the SaaS era, it is important to tie the salesperson back to the long-term success of the customers.  They may themselves act as Customer Success Managers (CSM) or have a supporting CSM helping them. In either case, their commissions should be tied strongly to long-term revenue and profitability of customers.


Protecting Earning Potential and Cashflow
When the transition to SaaS licensing model is rapid for an organization, there is a reduction in first-year contract value (ACV) of new customers. To make up for this reduction in ACV and hence commissions, we need to reward the salesperson on subsequent year revenue through retention and renewals commissions.

By adding a retention and renewal component, we make the salesperson’s earning potential from a sale fair.  However, there is a delay in realization which means that their current year commission cash flow would be negatively affected at the cost of future commissions.

To make up for that negative impact, companies can do two things:

  • Increase the commission rate on first year ACV
  • Provide a reducing guarantee on commissions that runs anywhere between 6-12 months

The cash flow issue can also be mitigated by putting in an MBO or behavioral component for one or two years to help focus on the behavioral change needed, to how and what kind of customers should be acquired.  For example, they could get a multi-product bonus or a bonus for certain product line ACV above a certain amount.


Managing Incentive spend ROI
The shift towards SaaS models brings about significant “revenue realization”, “cost of sales” and “cost of commission” changes for a company.  Suddenly, the company is paying out more in commissions for “future revenue”.

The interplay between cash flow shifts, salesperson earning potential, customer lifetime value and customer acquisition costs have to be modeled accurately in designing the sales commission plan.

The incentive plan has to shift from direct upfront commissions to a combination of upfront commissions, subsequent commissions and additional metrics of customer success over time.  The worst thing that a company can do is break the incentive bank on “bad sales” in terms of the lifetime value of a customer. Another thing to account for is not giving guarantees for too long such that they become handouts.


Conclusion
The movement to SaaS is a huge shift and it will impact organizations both negatively and positively.  Organizations that adapt and change to the new way of selling will thrive and grow, while the others will languish.

To thrive, organizations will have to rethink and re-articulate their sales process and focus on delighting customers and creating customer success.  Salespeople will need to be motivated to become value creators and to build long-term success (versus meet quarterly numbers).

The sales compensation plans will have to be more nuanced and modeled extremely carefully to ensure that motivation is not only sustained but also strategically aligned.  The compensation plans will have to ensure that salespeople aren’t negatively impacted by the shift and companies can avoid having to compensate for the loss of income.

Moving to a SaaS model, if handled well, is a great opportunity for companies to leapfrog ahead of the competition.

Even with the pains of change, every disruption is a foreteller of a great opportunity!



Spectrum Recognized as a Certified Partner of CallidusCloud!

I am super excited to share the news that Spectrum Technologies is now recognized as a Certified Partner of CallidusCloud (now SAP Sales Cloud). This makes us a member of an elite group of five consulting companies across the globe, of which two are Deloitte and Accenture.

Spectrum has been a trusted implementation partner of CallidusCloud since 2010. This recognition is a testimony to our maturity as a consulting firm, and our laser sharp focus on customer success.

The certification process was arduous, to say the least. The journey towards certification was initiated many years ago by Aaron Westhoff, our CallidusCloud Practice Lead. His team has delivered numerous Callidus projects across many industries, earning us the trust of the customer community. Congratulations, Aaron and team! Thank you for your commitment to deliver superior quality results and service!

After being acquired by SAP, CallidusCloud is poised for tremendous growth, and as a newly minted Certified Partner, Spectrum will play an even more important role in ensuring success for our joint customers.

In the last 10 years, as a company, Spectrum has achieved several milestones and won a few awards along the way. This milestone however, is particularly important to me personally! I started my SPM journey at Apple, as a customer of Callidus. The first few weeks on the project were nerve-wrecking because I had no idea what this tool did and why Apple couldn’t just use spreadsheets instead. I vividly remember attending introductory training classes at Callidus’ San Jose office. Seems like yesterday, but it was 2004! My SPM journey started with Callidus and it has come full circle – from being a skeptical customer to becoming a strong believer and Certified Partner! I am immensely proud of our achievement.

Congratulations, Team Spectrum!



Is your Sales Effectiveness Program Really Working?

The past few years have seen rapid growth of new job functions like Sales Enablement and Sales Effectiveness. Until 5 years ago, these functions were outsourced to external consultants, but now they are fast becoming an integral part of Sales Operations.

What is Sales Effectiveness?

Sales Effectiveness refers to how well a company’s salesforce performs at each stage of the customer’s buying process to ultimately earns business on the right terms and in the right time frame.  

Sales Enablement refers to the process of empowering sales personnel to sell more in an efficient and effective way.

How is Sales Effectiveness measured?

Here are some of the metrics commonly used to determine Sales Effectiveness:

  1. Pipeline Conversion Rate:  Converting Opportunities into Sales is key to any business. Year over year trend for the conversion rate can provide valuable insights into sales effectiveness.
  2. Average Deal Size:  You have a sales effectiveness problem if your average deal size is not growing. An effective sales rep is one who not only sells the core products, but also increases the deal size by up-selling, cross-selling, and/or selling auto-renewals and upgrades to the prospect.  This sort of Attach Rate for ancillary products is a good measurement of sales effectiveness.  
  3. Ramp-up period:  The time it takes for a new Sales Rep to reach his/her full productivity levels (ramp up period) is a good measure of Sales Effectiveness programs. If your ramp-up period is longer than industry peers, it may be a Sales Effectiveness problem.
  4. Quota Attainment for New Hires:  During the quota ramp up period, metrics like 30-day, 60-day, 90-day quota attainment are tracked by Sales Effectiveness teams. This can be an indicator for your Sales Effectiveness programs.

Once you have established measurable goals, the next step is to improve the Sales Effectiveness program.

How do you improve Sales Effectiveness?

  1. Goal Setting:  Goals for your sales reps, whether Quota or MBOs, should be SMARTSpecific, Measurable, Attainable, Result Oriented and Time bound.
  2. Coaching:  Sales coaching should be an ongoing process. When the product offerings and/or business strategies change, skills and priorities for sales reps should be realigned. There are several learning platforms like Litmos (CallidusCloud), Lynda (LinkedIn) that can facilitate the development and rollout of sales coaching programs.
  3. Visibility into Goal Attainment:  As the saying goes – If it can’t be measured, it can’t be improved. It is very important for sales reps and management to have timely visibility into goal attainment. Sales Performance Measurement tools like Xactly, CallidusCloud, IBM and Anaplan, can provide great visibility into sales activities, as well as analytics for proactive planning.
  4. Learn from Leaders:  Manage a leader board, identify your rock stars, and get them to share their insights with the rest of the salesforce.

Partnership with the Sales Leadership is key to ensuring success of any Sales Effectiveness program. By providing proper training, tools and visibility to the Salesforce, Sales Effectiveness programs can become vital components for long term success.



Looking For SPM Software? Why Engaging a Consultant Is a Good Idea

 Looking For SPM Software? Why Engaging a Consultant Is A Good Idea?The Sales Performance Management (SPM) market has grown a great deal over the last few years, with the appearance of many new vendors and the frequent introduction of new software features. All these choices can lead to confusion and frustration in the selection process of a new SPM tool. Some common dilemmas companies face include choosing:

  • Cloud vs. On-premise
  • Subscription vs. License based
  • Pure play SPM vs. extended capabilities
  • Ease of Integration with legacy systems
  • Security and regulatory conformance

So, while the current scenario has widened the options available, it has also made the task of selecting an SPM vendor that much more difficult. As a result, many organizations struggle in their selection process, often ending up with a system that is either too complex or wholly insufficient in meeting their needs.

The wrong choice can cost your organization dearly

A Sales Performance Management (SPM) system is the centrepiece of an organization’s business strategy. It serves to systematically drive desired behaviour in order to achieve set goals. Selecting the wrong system could result in one or more of the following situations:

  • Inability to provide timely and accurate payments to the sales teams
  • Inadequate reporting and analytics
  • Costly, time intensive implementation and maintenance
  • An Inflexible system that struggles to keep up with competitors and dynamic regulations

Clearly, it is critical to choose an SPM system that is best suited to your organization’s need. So how do you ensure that you are making the right choice?. Do you have a formal procedure in place for the selection process or are you merely relying on your instincts and a little bit of luck to find the right vendor? If you are relying on instinct and luck vs. a well-planned and informed choice, based on the benefit of experienced counsel, then you are setting your organization up for failure even before you start the implementation process. Without the right counsel, it is easy for an organization to become enthralled with the bells and whistles of the technology and not focus on the solution that best fits their business needs.

When in doubt, ask an expert

Many companies believe that going directly to an SPM software vendor is the best way to get exactly what they are looking for. Unfortunately, the reality is that no matter how good a vendor is, they don’t know your company’s needs or your business model. They are not familiar enough with your business to point out flaws in their software that could negatively impact your organization.

Rather than relying on the biased opinion of a vendor, consider utilizing the services of a third-party such as a software consulting firm. These consulting firms have the knowledge and experience to help sort through all the options and find the solution that is best suited to specific business needs. Here’s what an experienced consulting firm can help you with:

Speed – A seasoned consultant will quickly analyse the current pain points and long-term goals of an organization. Leveraging industry knowledge, he/she can quickly recommend the top 3 or 4 vendors worth including in the RFP process. This itself can speed up the project by many weeks.

Objectivity – Vendor selection by decision makers in the organization should not be based on instinct or emotion. Decisions should be backed by a scientifically built evaluation matrix. Because a consulting company knows the ins-and-outs of the industry, they are able to assess your needs and advise you on the best suited software solutions.

Holistic Evaluation Process – Instead of a single department/individual driving the decision, a consultant ensures that all stakeholders are heard and that there is cross-functional collaboration. They safeguard organizational needs ahead of individual preferences! They also provide you with an in-depth analysis of the pros and cons of each of your options, along with their prediction of which software platform will stay at the “top of the heap”, based on current software trends.

Savings and RoI – Although no third-party company can guarantee you the best rate, being industry insiders, the consultants have a fair idea of the best price each vendor can offer. They can also ensure a glitch free roll out and help you avoid serious issues that companies face when implementing a new software package.

Documentation – A consultant will document the current landscape, pain points and business requirements. This documentation serves as the foundation for the BRD when the implementation project starts. In addition to helping you identify the right software, a software consulting company can also help you obtain a fair contract. They have the necessary industry experience to know which contract terms to insist upon and which ones to avoid.

So, when considering a new SPM software implementation, you must ask yourself this: do you want a systems integrator who will merely implement a software tool, or would you rather engage an SMP consultant who can turn your implementation into a successful and positive experience for your salesforce? The choice is simple, isn’t it? You may have all the ingredients on hand to make a meal, but to make that ‘perfect dish’ you need the expertise of a chef to guide you through the process of cooking that flawless dish.

Spectrum Technologies has strategic partnerships with leading SPM vendors including IBM, Callidus and Xactly, and we have worked with dozens of clients to help choose and design the right solution. We can help you too. You just need to call us at +1.408.418.4996 or email us at info@spectrumtek.com to get started.



The Impact of ASC 606 and IFRS 15 on Sales Commissions Accounting

The Impact of ASC 606 and IFRS 15 on Sales Commissions AccountingFASB and IASB, the two key global financial regulators have recently updated their guidelines on revenue recognition in financial terms through ASC 606 in the US and IFRS 15 its international equivalent. This has the potential of disrupting the current accounting practices for most sales organizations. It will start with some publicly listed companies and by 2018 all companies will have to comply with it.

So, what’s changing and how does it impact you?

The good part is that the overall sales compensation plans or designs will not be affected by the new regulations. You can still execute your planned vision with regards to your sales compensation strategy, albeit the way your accounting team accrues commission expenses gets changed drastically. The basic premise on which both ASC 606 and IFRS 15 have been formulated is that an organization can recognize revenue and the corresponding expenses from a contract only when the customer is satisfied. What it means is revenue recognition is no longer dependent on the realization of internal events such as successful delivery made to the customer or the passage of a certain amount of time.

Obviously, it makes the simple process of expensing sales compensations a lot more complex, especially for companies that enter into intricate multi-year contracts with their customers. The finance teams of these companies will have amortize commission expense for their sales teams over the entire length of contract. For eg. if a sales person gets into a three-year contract with a customer and gets $ 100,000 as commission, then this amount cannot be expensed in the year the contract was signed. Rather, it will have to be amortized over the three-year term of the contract.

Now, it gets a lot more complicated in cases where the contracts have elements such as variable service deliverables, floating terms and conditions and dynamic pricing in them. Some companies may want to take the easy route and expense all sales commissions immediately for the sake of simplicity. But by doing so they will not be presenting an accurate financial picture of the company to its stakeholders. The larger enterprises and publicly listed companies cannot afford to do that. They will have to find ways to manage the change of accounting standards without burdening their already overworked staff with additional workload.

So, what can you do?

It’s going to get a lot more difficult to manage the sales commissions manually on an excel as it will not only put unnecessary pressure on the finance teams but also lead to several errors. Accountants will have to diligently track all those parameters that affect a sales person’s commission including the quality of work delivered and the nature of the contract. That’s next to impossible.

If configured correctly, your sales compensation software can overcome these challenges and simplify the process of tracking the amount of sales commission that has to be expensed in a year. Here’s how it can help you:

  1. Distinguish between contracts that are for a duration of one year or less and those greater than a year and maintain separate calculation methodologies for the two.
  2. Automatically capture all relevant characteristics of a transaction, calculate commission pay-outs and account expenses accordingly.
  3. Distinguish between direct sales commissions and incentive compensation that supervisors receive for the performance of their teams. While the latter must be expensed immediately, the former has to be amortized for a longer duration and realized as per the rules of the new accounting standards.
  4. Provide a holistic picture of the commissions expenses over several years to the sales head, so he can plan the sales strategy in a more decisive and accurate manner.
  5. Manage frequent changes in the contract and facilitate seamless accounting for them.

If you were already thinking of implementing a sales performance management system in your company, now is the right time. The new accounting regulations are just another reason why you should invest in an SPM system, but I think you can see the bigger picture as well. Don’t you?



Contemplating SPM Automation Tools? Is Your Organization Ready For The Road Ahead?

road2Sales Performance Management (SPM) involves multiple business processes, and hence, the procurement and implementation of an SPM Tool (such as Callidus, IBM, Xactly) requires a significant amount of planning and effort.

The planning must start long before you schedule vendors demos. There is no point in conducting vendor demos if your organization is not yet prepared to travel the road towards SPM automation. So how do you go about evaluating your preparedness?

To determine your organization’s readiness for an SPM tool, here are the top 10 questions you should answer:

1. What is the Business Justification?

The answer could be Cost Savings, Enhanced Reporting, Operational Efficiencies, Auditability, Calculating Payments or something related. Whatever it may be, if you can’t come up with a couple of strong business justifications, you will find it difficult to make a business case for the tool. Although it doesn’t all have to be about the financials, you have to be ready with a worksheet that shows the numbers. To learn how to build a business case, here is a link to a webinar that could be very helpful to you: http://bit.ly/2pvd1Ts.

2. Are the Executives on board?

Have you discussed your plans with your executives? Do they understand the high level budgetary needs for such a project? Do you have their verbal nod for a ballpark budget?

If your executives aren’t okay with the estimated budgets, maybe you have gotten ahead of yourself. Save yourself some time and initiate the vendor demos only after you see your executives warming up to the idea.

3. Are Compensation Plans Stable?

The most common reason for SPM implementation failure is that the compensation plans are in a state of flux, sometimes even changing while the implementation is in progress. Are your organization’s comp plans still going through significant changes because of evolving market landscapes?  If so, you will have a tough time keeping your SPM implementation on track.

Taking this into consideration, you are not ready for an SPM tool. And yes, when you are told that the tool can handle all future changes without any time or effort, take it with a grain of salt.

4. Do you have enough Time?

From vendor demos to go-live, SPM projects will take no less than 4-5 months. If you are too close to the beginning of the new Plan Year and the deadline for Pay file is already in sight, you have probably missed your window of opportunity. If you decide to move forward at this point, you will be scrambling to move fast, thereby compromising the quality of your decisions, and creating a huge risk to the project overall. You are better off planning a mid-year rollout, which will have its own challenges, but at least you have time to plan for it.

 5. Are Business Processes Mature?

When the organization is growing rapidly, HR and Finance are constantly tweaking the organizational framework. For this reason, or maybe due to a recent M&A, if the processes and policies in the organization have not yet been solidified, it is difficult for the implementation team to configure the new tool.  A lot of time and effort would go to waste in changing the tool configuration again and again.

For example, if the new hire draw policy is changing every few months, the SPM tool can’t really be successful.

6. Do you have IT Systems providing Reliable Data?

SPM tools can’t operate in a vacuum. If you don’t have HR systems providing reliable Payee data or ERP systems providing sales data, you will have huge challenges with the SPM tool. Garbage in, garbage out. For instance, if new hire notices are coming to the commission administrator on Post Its, you are not ready for an SPM tool. You must first invest in HR tools and processes.

7. Is IT Leadership ready for one more Tool?

SPM implementation projects require IT budget and resources. If the IT team has resource constraints, or there is another large IT initiative, such as an ERP upgrade planned for the year, then IT will not be very happy about supporting an SPM implementation. A quick synch up with your IT leadership would help ensure that no such major roadblocks exist.

8. Is the Cloud an option?

Almost all major SPM tools are now available only as SaaS solutions, where the software is hosted in the vendor’s Cloud. What that means is, if your organization has a strong preference for On-Premise solutions, your choice of vendors becomes very limited.

It’s better to clarify with your business leaders if Cloud solutions are an acceptable option. If not, knowing the road map for all software vendors, you may want to abort the idea of packaged solutions or wait for your organization’s mindset to change.

9. Do you have Resources to support this Project?

After the tool is implemented, you may be able to cut the headcount in commission operations. But initially, you will have to dedicate a great deal of time and energy in evaluating and implementing the tool. If you are unable to free up any of your current resources and can’t find the budget to hire external consultants, it will be extremely challenging for you to get this to the finish line.

10. Is there an M&A on the Horizon?

Last but not least, if there is an M&A on the horizon, it’s better to wait on an implementation project. The new company may already have an SPM tool, and it is almost guaranteed that your business team will want a single SPM tool catering to the joint salesforce.

If you need further assistance with getting you prepared for an SPM project, please contact us at mktg@spectrumtek.com.



Do Incentives Really Incentivize the Right Behaviors?

Corporate greed: is it driven by shareholder value, e.g. earnings per share, stock price, dividends in a public company, equity valuation in preparation for an IPO or selloff in a private company? Perhaps all of the above. Do senior executives, including sales leaders unknowingly contribute to this greed or is there a willful disregard of laws and regulations in pursuit of higher personal earnings & reward, i.e. incentives?

A case in point is Wells Fargo Bank and its Community Banking Division. Last week, the Consumer Financial Protection Bureau, working with the Office of the Comptroller of the Currency and the city of Los Angeles imposed a $185 million fine on Wells Fargo for defrauding customers in order to generate more revenue.

Much of that fraud took place in the retail banking and credit card units of the community banking division. According to Wells Fargo, over 5,300 employees were fired in the past 5 years for the unauthorized opening of accounts. These accounts were fraudulently opened in customer names in order to hit unrealistic sales goals. Astonishingly, it would appear that Wells Fargo was aware of this practice for five years, but did nothing to willfully stop it.

So what will be the fallout of this debacle? Loss of confidence in the consumer banking industry and likely, a new wave of regulations from DC. Whether or not future regulatory stipulations are enacted, SPM vendors should take note.

Would a Sales Performance Management tool have further enabled this activity or could SPM have prevented it? Regardless of the technology used or not used, it comes down to the people in charge who allowed this gaming of the system to occur.

Many questions still remain:

  • Where were the checks and balances in terms of variable pay to assignment allocations for the sellers and their managers?
  • How were the performance bonuses for sales management measured and who oversaw this?
  • Why weren’t alarm bells going off and red flags raised over the fact that 5,300 people were terminated over a 5-year period? No one thought to ask why?
  • How was the leadership team able to game the system?

Can SPM tools, with all their analytic capabilities, advanced workflow and communication features, be a solution to help prevent this from happening again? Or, is it just a sad reality that no matter what technology exists, simple human greed and despicable executive behavior will always triumph over the best of code and firewalls.



The Economic Truth About SPM

Recently, I posted a blog looking back at the evolution of SPM, from the automation of sales commission calculations through today’s sophisticated sales performance management solutions. The evolution began with a tactical efficiency improvement tool and advanced to a strategic planning and sales force efficacy platform with applications that can enable, manage, analyze and plan in support of forecasting to corporate objectives.

So what does all this amount to? For one, spending 6 figures or more to implement a SPM solution is not a trivial matter. There is relative parity among the software vendors when it comes to software licensing fees in competitive evaluations, assuming of course that it’s an “oranges to oranges” comparison. Which is another reason why it’s critical to understand your requirements and align them to must-have functional attributes. On the other hand, the cost of implementing the software, along with associated support services is another story, and can vary greatly.

Over the last 15 years I have seen implementation estimates for the same project vary by 6 figures between vendors and sometimes between the vendor and its partners. One example is a project where the services estimate exceeded $450,000 across 2-3 vendor solutions for less than 500 payees. With a cost and variance like this, if I were responsible for the budget, I would kill it, and that is precisely what happened. Uncertainty amplifies risk and risk without mitigating factors, become nullified decisions.

Assuming the software will be delivered as a service via the Cloud in a subscription model, most organizations will itemize the software as an operational expense or OPEX, as most in this business are aware. Implementation services are typically capitalized, meaning a capital expense or Capex. Capex budgets are a battle for line item allocation and this is where a lot of SPM projects can be delayed or canceled. Renting software is one thing; implementing SPM software with 6 figure price tags, or more, plus paying for ongoing support, can require political stewardship and EMOTIONAL buy-in, high up.

Where’s The Beef?

When the evaluation of SPM software fails to deliver a predetermined value quotient, e.g., emotional buy-in, the project is prone to losing funding or getting bumped in favor of another project. One of the larger detractors with SPM is the lack of perceived value, which is overshadowed by the risk assumed by senior leadership. Financial models, hurdle rates, total economic impact, ROI and so on, become less of a factor if the software cannot provide ample evidence that it can help executive leadership capitalize and execute on corporate strategy. SPM is not viewed as a critical path at the ‘C’ suite level because the trajectory of the strategic outcome can be perceived as falling short of the goal line.

SPM software demonstrations, proof of concepts or workshops are not delivered with this these things in mind. Most vendors focus on either the tactical gains or just the performance improvements for sales operations and compensation teams. They fall short on demonstrating the overall impact to sustainability, growth and the financial benefits to the company as a whole. RFP’s can also do an organization more harm than good because many times they fail to synthesize the collective business benefits and outcomes of implementing a SPM solution. Rather, RFP’s can focus too heavily on the technical and functional attributes that are aligned with efficiency gains and short range performance improvements.

At a recent SPM conference, it was mentioned by a top tier analyst firm, that out of an estimated 250 SPM related vendor evaluations in 2015, 75% ended in a no-decision. That equates to a mere 63 projects out of 250 that made it to the vendor selection stage. The point being, a no-decision is usually linked directly to risk and the lack of value perceived by senior decision makers, the economic buyer being a key member of that team, among others. In addition, of these 250 evaluations, over 100 were RFP driven.

One Possible Financial Option to Help Mitigate Risk

A unique concept being offered by at least one SPM vendor is bundling the software licensing fees in a standard subscription model (SaaS) and the implementation services as a single monthly payment. For the first 12 months, customers can pay off or pay down implementation costs together with their software subscription fees. After 12 months, the customer will have either paid off the services or would carry a balance to be paid under extended terms.

An approach like this does a couple of things. First, it commits the vendor to perform against all SLA’s and manage the implementation to as close to perfection as possible since their implementation fees are at risk over an extended period of time. Second, it mitigates risk for the customer, allowing a predetermined expense to be amortized, thus having predictable costs associated with each phase of the project against a capital budget.

I think this is a model that has the potential of catching on. Perhaps the reseller channel should take note, provided they are financially sound, since most are private companies and not pressured by Wall Street and the SEC. It would also allow the partner to deepen their relationship with customers, leveraging experience working with customer data, opening future opportunities to provide ongoing support, managed services and more.

The cost of implementations is not going down. While some vendors tout rapid implementation times and a faster time to value, the reality is, more time will be required to achieve a full, go-live production environment.  This includes administrative and end-user training, parallel testing and fixing initial bugs uncovered as a result of early software testing, both in the software itself and in workflow and design. In fact, like many other software implementations at the enterprise level and even some smaller, SPM implementations never really end, it’s just the beginning.

About the Author: For more than 15 years, Tom Troiano has been a successful senior sales executive with the leading Sales Performance Management vendors including IBM / Varicent, Synygy (Now Optymyze), Callidus Cloud and Oracle. Throughout these years he has helped 100’s of companies across many industries evolve from spreadsheets and homegrown tools to today’s data driven SPM solutions supported by a strong business case. Tom has been in sales and sales management his entire career. Starting in 1980, where he led a sales team at a small startup that grew into a big sales team while designing his first sales compensation tools.



The Evolution of Sales Performance Management

TTBlog_pic 2aSales Performance Management, A Look Back

Back when I started my professional selling career over 35 years ago, the term sales performance management meant sitting though weekly sales meetings and performance reviews every 3 months. Sales performance management in those days had little to do with analyzing productivity, team performance, sales enablement or incentive compensation, except, if you weren’t performing, i.e. hitting your numbers, sales management took the keys to the company car in return for your last check.

24 Carat Gold Calculators

From the early to mid-90’s, sales compensation management software started to hit the market. There wasn’t much science or empirical data to drive business outcomes based on historical or regression analysis, just a more streamlined and efficient calculator of sales commissions. This software was sometimes referred to as a ‘24 carat calculator’ because of its overall cost relative to its utility. A lot of IT organizations began building rudimentary commission calculators and reporting tools more cheaply. In fact, my team worked with our IT folks at Textron Systems to build such a proprietary system in 1990 using Lotus Symphony (before IBM) on Unix / Sun Solaris.

From SCM to EIM to ICM and Now SPM…

Over the next decade or so, sales compensation management (SCM) as it became known, morphed into EIM or enterprise incentive management as finance looked to increase its focus, and control, over incentive spend relative to performance. Then, by the early to mid-2000’s, incentive compensation management (ICM) became a more common definition as incentive compensation management moved across lines of business to now include other forms of incentives, both cash and non-cash for sales and non-sales staff with varying degrees of reporting and workflow.

As the new millennium was nearing the end of its first decade, sales performance management (SPM) became the defining terminology. With advanced reporting and analytics, territory and quota planning, improved workflow and flexible user interfaces, SPM software was now the quintessential tool designed to align sales performance with company goals. Sales operations suddenly had a new face, with new responsibilities and for some, a seat at the table.

From a technology perspective, the adoption of the Cloud (SaaS) and advanced integration technologies made the economics more attractive. The newer generations of SPM software became technically superior over just a couple of years prior. For better or worse, functionality also became quite similar across vendor offerings making vendor selection even more challenging, at least visually.

SPM Software, The Devil’s in The Details and The Requirements

Today, there are nearly 30 software vendors, including the leading ERP vendors, that perform many of the common SPM functional attributes. Out of these 30 software vendors, fewer than 10 are considered to be best of breed SPM software vendors. Of these best of breed vendors, most can satisfy at least 70% to 80% of the typical functional requirements found in technically challenging RFP’s. However, any one vendor can fall short on reporting, analytics, workflow, territory & quota planning, data volumes, managing overly complex compensation plans – the list goes on.

This is why it is imperative for stakeholders to take ownership of defining, gathering and documenting requirements for their particular line of business. The most successful implementations of a SPM solution occur when line of business owners are directly involved from the onset, executive sponsorship is established and realistic project goals are set. SPM projects are like ERP projects in some ways; there are a lot of fingerprints touching various segments effecting a lot of people, the way they work and the financial impact to the company. SPM is not a compartmentalized nor a departmentalized tool.

Human Capital Management Software

Human Capital Management (HCM), Human Resource Information Systems (HRIS) and Human Resource Management Systems (HRMS) also have variable compensation management capabilities. A few have rudimentary sales incentive compensation management functionality but none can manage the volumes of transactional sales data, perform complex sales crediting, perform simulated scenario modeling of plans, territories and quotas then analyze this data for outcomes against a prescribed forecast. That is a fundamental difference between HR tools and SPM, currently.

Many SPM tools can also calculate bonuses, assign and measure MBO’s while enabling scorecard functionality, a core function for HR tools. But, they cannot perform many of the core workforce management functions such as salary administration, equity or stock distribution, deferred compensation and merit pay, together known as total compensation or total rewards. In addition, HCM tools provide a unified view across all employees that can analyze role-based performance, measure skill levels and prescribe best-fit candidates for a particular job and provide a holistic view of the total workforce.

If a top tier HCM or HRMS vendor were to acquire a top tier SPM vendor, or, the other way, around, then integrating the two successfully, while offering either as a stand-alone solution or together as one, that would be a market moving game changer. I’m surprised that hasn’t happened up to this point given the speculation and rumors that have circulated throughout the industry for years. I think further consolidation of the SPM market is inevitable, which can be a good thing.

About the Author: For more than 15 years, Tom Troiano has been a successful senior sales executive with the leading Sales Performance Management vendors including IBM / Varicent, Synygy (Now Optymyze), Callidus Cloud and Oracle. Throughout these years he has helped 100’s of companies across many industries evolve from spreadsheets and homegrown tools to today’s data driven SPM solutions supported by a strong business case. Tom has been in sales and sales management his entire career. Starting in 1980, where he led a sales team at a small startup that grew into a big sales team while designing his first sales compensation tools.



Data Quality for SPM Operations

SPM operation, especially the Incentive Compensation part of it, is all about handling data. Poor data quality can significantly
drive up the operational costs and cause the sales team to lose faith in the calculations. Good data is essential to producing correct pay calculations and reports, allowing sales team to focus on delivering sales, rather than dealing with discrepancies.

But, having good clean data is not enough. SPM operations are time sensitive, and the data across various underlying systems is every changing. Hence proper data synchronization (across business and IT systems) is important as well.  Different Reporting Cycles, Payroll Cutoffs, and Period specific Adjustments can’t be handled accurately, until data is clean, and well synchronized.

The following check list will help guide the decisions to deliver consistent and accurate data to the SPM system:

1. Choose the data source carefully

Companies that have a single source for revenue and customer sales data are more likely to have good data quality, thus generating the most accurate reports. Data quality suffers when companies have multiple production systems and data repositories that are managed by multiple teams.  If these systems and repositories are not in sync because of different adjustment and reconciliation processes, the data quality will be poor.  To insure integrity of the SMP reports, these companies must design requirements that sync up the various data sources and utilize the same data that is used for all other company reports.

2. Consider full data loads vs. incremental transactions

Based on the cost and time it takes to process sales transactions, the most common transaction loads are incremental. Because companies make periodic payments to Sales, the SPM data must be date-stamped and stored. This insures that future transactions do not alter or compromise the historical values previously used for pay calculations. Many core business systems provide the infrastructure to load incremental data without compromising the historical data.  Companies with known data issues however, may resort to full YTD data loads prior to the close of each pay period.  Still others still, design compensation calculations that factor the YTD data changes into the current pay period.

Companies should decide on the type of data load best suited for them, based on factors impacting their sales crediting policies such as, type of business, number of transactions, and volume of revenue adjustments.

3.Determine the impact of adjustment transaction

Adjusting sales results involves different types of transactions, including contract revisions, cancellations, discounts, claims, and pricing revisions.  Three important principles should be followed to ensure good SPM data quality:

  • SPM data should be loaded in sync with adjustments posted in the core systems and those posted to management reporting systems
  • Do not attempt duplicate postings of core data adjustments directly into the SPM data loads. This could be a costly move.
  • Create a separate category for “SPM Only” Pay For Performance adjustments (small volume critical pay adjustments) that can be posted within a specific pay period for correcting payouts. By year end all final adjustments will be posted to the core systems and these SPM adjustments will show a net of zero.

 

4. Reconcile with core systems before running compensation calculations

Even the best designed data acquisition and validation processes need to be reconciled with the core system before pay calculations are executed. This is easily done by reconciling the SPM data loads with core system results during the period-ending data load process.  Make sure that the revenue and other key metric values are reconciled to the same reporting periods, so that SPM calculations are in sync with other business systems.

5. Provide an easy way to create reports and data files for sales and support teams

Add customized reports and data extracting options, specifically designed as inquiry tools, to the SPM system.  This will enable Sales Support and others to easily create reports whenever needed.

6. Retain “locked” multiyear data available for SPM analytics

The ‘locking’ functionality in many SPM systems allows access to detailed, multiyear performance data and provides a major advantage when producing sales team compensation analytics, internal pay plan performance trends, and business performance metrics.

In summary, the first priority in the development of a SPM Pay and Performance reporting process is to design requirements that will produce superior data quality. This includes dictating that the SPM data is in sync with your company’s sales results reporting and business metrics.  Poor data quality will lead to a lack of confidence in the SPM system and Operations team, creating unease and discontent among your Sales team.

Managing sales compensation programs takes planning; focus and a daily drive towards the organizations sales performance management objectives.  To discuss this further feel free to email us at info@spectrumbiztech.com.

About the Author:  George O’Connell has on premise and SaaS expertise in the area of Sales Performance Management (SPM) and Incentive Compensation Management (ICM). His experience includes design, development, operations, governance, and analytics for a company with $2.5 billion in sales to over 500,000 customers.   He’s managed SPM operations for a wide range of sales channels including telephone sales, sales executive channels, union contracts, new business start-ups, call centers, third party vendors, sales management plans, and director / sales VP compensation.