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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?



You Are 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. Though 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. If your organization’s comp plans are still going through significant changes because of evolving market landscapes, you will have a tough time keeping your SPM implementation on track.

If this is the case, 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 we 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 we 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 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 Cloud OK?

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 choices 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 roadmap 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 we have Resources to support the 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 in getting you prepared for an SPM project, please contact us at mktg@spectrumtek.com.



Right Organizational Structure For Sales Performance Management (SPM) Operations

Author:  George O’Connell

I have observed a wide range of organizational structures for Sales Performance Management (SPM) operations. Compared to any other organizational operation, SPM operations are somewhat an oddball because there is no single department in the organization that is a natural fit to take full ownership. Roles and responsibilities are often undefined and spread across multiple functional groups.  There isn’t a standard best demonstrated structure that fits all businesses. The SPM operational responsibilities are by and large split evenly between the HR, Finance, and Sales Operations teams.

To ensure the most effective practices, the organizational responsibilities should be assigned to the most qualified, and experienced resources available in the organization.  Anticipated business changes, in addition to the existing workload, should be a factor in deciding how to build SPM organization.

If, at any given time, a particular department needs to focus their attention on other critical business issues, they should be excused from SPM’s operational responsibilities. For example, HR may be dealing with high turnover, core HR system installations, or a lack of experienced resources needed to manage programming staff.  Likewise, Finance and Sales Management, and Sales Operations will have their own specific challenges.  In fact, Sales Operations may be viewed as too closely controlled by Sales Management to be appropriate gate keepers for commissions and bonus payments.  Nevertheless, each one of the organizational options can be designed with all the appropriate management controls.

The right resources in any one of the three departments can produce excellent SPM operations results. For most companies, an evaluation of current talent and performance is needed to select the team with the highest probability for success.  Once the dedicated SPM operations group has been selected, it can function successfully under the guidance of any one of the three departments.

The following three steps will help guide a company through the organizational set up:

SPM Advisory Board

The company should setup an SPM advisory board to oversee and approve changes to compensation plans and processes. The approval process will involve many aspects, such as legal issues, HR compensation policy, cost analytics, strategic financial decisions, sales management objectives, systems capacity, security, performance issues, etc.  The senior advisory board should be the governing body that makes the final decisions for all SPM related projects and investments.  A well functioning board will give the SPM operations team clear and timely direction so they can deliver effectively on companywide pay for performance objectives.

The senior leadership group should be comprised of representatives from HR, Finance, Legal, Sales Management, and Technology.  Once the most qualified department is selected for direct SPM responsibilities, the board should monitor the performance of the dedicated team responsible for all SPM operations.  The most senior SPM manager should have a seat at the advisory board meetings.

RACI Chart

Once the SPM organization is formed, the detailed responsibilities and scheduled interaction with the advisory board should be documented.  Every company should put together a RACI chart to outline various functions involved in SPM and clearly define responsibilities and ownerships around these. Sample RACI Chart can be downloaded here. The best SPM organizations have “end to end” process responsibilities–from data capture, vendor management, SPM system design, plan development, pay calculations, testing, and reporting, to on-going support.   Effective management of these end to end processes insures that the SPM team delivers accurate and timely results critical to maintaining excellence in sales performance.

Another important role of the SPM team is to keep the advisory board apprised of systems development, data or calculation issues, company sales payout trends, resource requirements, and all other operational factors impacting pay plans, projects, and cost.

Flexible Staffing Model

SPM operations usually require close interaction with the company’s IT organization, HR payroll staff, Financial Planning, Sales Management, New Product Marketing, and Legal departments.   Due to the quick turnaround requirements, and the impact of revised or new annual compensation plans, SPM is best managed with a flexible resource pool.

Incremental resources from other departments, vendors, or outside consulting firms are frequently required to meet project deadlines.   It is unlikely that a cost effective Sales Operations team can deliver a new compensation plan within 60 to 90 days using only in-house staff and management.  SPM organizational resource needs are fluid, project based, and sometimes seasonal.  The quality and timeliness of the incremental resources are often critical to the success of delivering pay for performance responsibilities.

In summary, org structure for SPM operations is unique for every company. An SPM advisory board can provide guidance and decisiveness. A RACI chart helps clarifying who does what, and creating a flexible staffing model will ensure an effective SPM operation.

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 has 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.



IBM acquisition of Varicent – How does it impact the SPM landscape?

We were barely getting used to calling ‘Merced’ by its new name – ‘NICE’, when this news hit the wire – IBM buys Varicent!

This is the second major acquisition in the SPM arena in the last four months. M&A activities are a good indication of industry maturity. So is the SPM arena already maturing? And how does this acquisition impact Varicent’s customers and its competition? The news comes as a surprise, and the title of the press release is puzzling in itself. It reads “IBM buys Varicent to boost business analytics”. We think of Varicent as an SPM company, don’t we? And yet, IBM bought it for its Data Analytics, as though it discovered a hidden gem under the layers of SPM application that customers love! It is more likely that the author picked a name better understood by the masses(vs ‘SPM’), or maybe, it is indicative of the future roadmap – leveraging SPM data in an analytical fashion to improve overall sales performance.

The press release goes on to state ‘..the software will be folded into IBM’s Smarter Analytics line of software packages’. In the recent past, IBM has mostly acquired companies that offered IT Management or Infrastructure Technologies, whose products are were leveraged across a range of industries and functions. Click here, for a list of IBM acquisitions. I cannot think of any major application vendors acquired by IBM in the recent past. With the purchase of Varicent, Big Blue has stepped beyond its chosen path. If IBM plans to stick around and become a significant player in the SPM landscape, then it is a big reinforcement to the value proposition of SPM solutions. Quoting Chris Caberra, Xactly CEO, ‘We say welcome, IBM’.

All indicators point in the direction that Varicent would continue to operate as an independent entity, under the IBM brand, just like Netezza or Algorithmics. Both are thriving after getting acquired by IBM, and successfully serving small and large enterprise customers alike. I expect to see ‘Varicent, an IBM company’ in all their future messaging, and Varicent continuing to operate as an SPM player for years to come. With IBM getting into the SPM ring, we’ll have not one, but two niche SPM packages backed by the strength of publicly listed companies – Callidus and Varicent(not counting Oracle as a niche SPM player). Decision makers on the customers side, concerned about Varicent’s sustaining power, can now take comfort in dealing with IBM.

If IBM plays it cards as expected, folks at Callidus are likely to see serious challenges in more of their sales cycles. But in the short run, as it happens with every M&A, prospects and customers might get jittery, and competition(read Callidus and Xactly) will look to take advantage of the opportunity to lure away customers.

As for Varicent’s current users, it should be life as usual. I don’t envision IBM changing or discontinuing the SPM product line in the foreseeable future. The pricing may go up just to be in sync with IBM branding, but customers wouldn’t mind paying a premium for IBM’s brand value. In fact, IBM acquisition should help customers in three significant ways:

1. Global Reach – IBM with its global footprint is better equipped to serve Varicent’s global customer base.

2. Data Analytics – This is a no brainer. IBM will integrate its portfolio of big-data technologies to further enhance Varicent’s analytical capabilities.

3. Cloud Capabilities- IBM has acquired several cloud technology companies in the recent past – Cast Iron Systems, Green Hat and DemanTec etc. to name a few. With some innovative re-engineering, IBM has the opportunity to leverage these technologies, and significantly enhance the SaaS offering of Varicent. We can expect to see much more solid SaaS capabilities in future versions of Varicent.

Welcome, Varicent, an IBM company.

About the Author
Maneesh Gupta is the Managing Partner at Spectrum Technologies. Spectrum is a silicon valley firm providing niche services in the area of Sales Performance Management Systems since 2007.

Maneesh can be reached at mgupta@spectrumbiztech.com
To learn more about Spectrum please visit – www.spectrumbiztech.com



How To Measure The Success of Your SPM Implementation

During an RFP process, I was in a customer reference call and a question came up – Did you have a successful implementation? They gave their answer but it got me thinking – what exactly defines the success of an SPM implementation? Of course the straightforward answer is within-budget and on-time delivery. But what are some of the other metrics besides the obvious?

SPM projects are intended to deliver much more than just $ savings. Therefore the conventional ROI calculation doesn’t work here. Some of the non financial parameters to consider :

  • Time/Effort in Comp Administration- Has the system enabled you to normalize headcount or working hours?
  • Sales Incentive Plan Document distribution – Are those being routed on time?
  • Agility in making Comp Plan changes – Are you able to make quick changes to comp plans, or do you still have to push back?
  • Commission Forecasting Accuracy – Are the actual and forecasted numbers comparable?
  • Fiscal Year Beginning Draws – How long are the payees on draws before actual commission is paid?
  • Volume of Disputes – Is the team now able to catch issues before they become disputes. How quickly are discrepancies resolved?
  • Meeting Payroll deadlines – Is it a comfortable run to the finish line, or is it still a mad rush?
  • IT Support Head Count – Has it reduced? How much value is the support team adding?
  • Reporting – Do sales folks actually understand and use the reports? Do the reports provide necessary insight to higher Sales Management?

If your answers to all or any of the above is positive, then you have a winner!



Spectrum SaaS Webinar Recording

Thanks a lot everyone for attending Spectrum’s SaaS Webinar and making it a success. You can download the recording of the entire Webinar at the link below –

http://dl.dropbox.com/u/3272665/SaaS%20for%20ICM%20_Is%20It%20Right%20For%20You.wmv



Spectrum Webinar: SaaS for ICM – Is It Right For You?

Are you considering an ICM Package and evaluating vendor hosted SaaS options? Do you have an on-premise ICM package but are considering moving to SaaS?

Join Spectrum and Jeff Saling to learn if SaaS is right for you. In this FREE Webinar you will learn pros and cons of SaaS and specific points to consider in evaluating SaaS option for ICM.

You will learn:
* Differences between SaaS, Cloud and ASP
* Cost comparisons of SaaS and On-Premise
* Business case for SaaS forICM
* Contract Terms and SLAs for SaaS
* Data security in SaaS
* Common risks and cost overruns for SaaS -ICM projects

Who should attend:
* Executives in Sales, Sales Operations, Finance, IT and HR

Space is limited.
For more details and to reserve your Webinar seat now at:
https://www3.gotomeeting.com/register/473689486



QnA with Jeff Saling contd

This is Part II of my conversation about SaaS and ICM/SPM industry with Jeff last week. You can read Part I here.

AD – While selling a  SaaS solution, did you encounter situations where the security concerns outweighed all the other benefits and clients chose to go the other way?

JS – Yeah, especially where there is a high degree of regulation, involvement of the government or a specific security requirement, then SaaS is not an option. It is becoming less and less of an issue but when SaaS first got rolling, the IT department was concerned about the security of the data outside of their firewall. Today, with people’s identities being stolen,  the concentration is on making sure the SaaS app is secure and protects the data better than a similar on-premise app, even if there is a price difference. The liability is potentially huge if security isn’t properly taken care of.

AD – What about data ownership? Are clients concerned about that?

JS – Not so much, really. The basic assumption is that data is owned by the customer and the IP around the technology is owned by the vendor. It’s a pretty clear dividing line. Where it does get a little bit grey is where you as a SaaS vendor use the collective data of all your customers to draw conclusions. The owning of the conclusions and the follow on data from the original data can sometimes be a grey area, but most SaaS vendors define that as their own. If there is an argument with the customer, then they normally agree to share the results and conclusions with the customer at no additional cost.

AD – Does it really matter to the customer whether the SaaS vendor supports multi-tenancy or single-tenancy in their architecture?

JS – That kind of goes back to the security question. As the security gets better and better the customers care lesser and lesser about the infrastructure and architecture that you use to serve them.  If you have a good story that’s packed with facts about how you are handling security, and you can prove that with your procedures and SaaS 70 audits, the customer is not going to be worried about it. The adoption has been much stronger in the US and it is now going into Western and Northern Europe and next into Southern and Eastern Europe and also into the Middle East, Africa, Asia, South America. Although the adoption of SaaS looks weaker now, I expect it to follow the same trend that we have seen here in the US.

AD – Nowadays we are seeing a lot of focus on intelligence, analytics in the SPM arena? Where do you see that going?

JS – You are probably going to see vendor like the BI folks, the Coaching folks, the more generic HR applications that are adjacent to Sales moving into the ICM space or vice versa. The days of getting the data in and just getting commissions out are gone. I mean, there is still a lot of work that goes into doing it right and on time every single time. You also need to get the reports out and make sure that you are using that information from the system to make strategic decisions. BI and DW will play a big role in this. Also, there is going to be a need for companies for a good dispute management process.  Also there are other parts of the business that are similar to the whole comp process. ICM primarily pays direct and indirect sales people. A lot of companies have a whole channel that is not paid by these systems, and may get paid in the form of a rebate.

AD – Do you see the fixed and the variable compensation systems coming together? I recently read about one such solution that does all of this and thought that was very interesting.

JS – It is interesting. The politics inside of many organizations would have to be switched a bit to see a big adoption of that. Typically Sales Ops folks are in charge of commissions and that’s a very different group than the people who are doing Salary and Benefits. Seeing these systems merged, I think, is a possibility. Whether or not, an ICM vendor has the appetite to go into those more traditional and less complex areas, I don’t know. Over time, maybe the ICM vendors might enter those verticals or those vendors may enter the ICM space. This seems more likely to happen through an acquisition or something like rather than creating a new solution altogether.

AD – We’ve seen the ICM paradigm shift to SPM. Sales Organizations and higher Sales Management is now the champion of these systems rather than Sales Ops or Finance. And how has SaaS been a key here?

JS- Oh yes, the industry has morphed from ICM to SPM, the agenda being that this is more than just paying commissions, it is all about managing your Sales Group’s Performance. This has set the target and I think the next target you’ll see is the whole life cycle of a Sales Person, getting the right people in the door, getting them on the right Comp Plan, paying them and coaching them so that they can perform better, using the data so the whole company can perform better and then feeding that data back into the system to create a broader circle.

SaaS is the method of delivery for the whole solution. And the narrower version of ICM or the broader version of SPM or the still broader version of a Sales Lifecycle will continue to be delivered via a SaaS model to the point where the on premise model will become an exception.

AD – Tell us about some of your experiences in your journey towards SaaS.

JS – In this whole journey towards SaaS that I went on with Callidus, the claims that the customers make during the whole negotiation process can be interesting. Anywhere from “we have no data center costs” to “all of our vendor’s sign 100% of uptime SLA”.

Certainly it has been gratifying to see that an idea that we had half a dozen years ago has come to be the main focus of not only the company that I worked with, and not only the ICM and SPM industry but also something where everybody is heading in general. And being a part of this process has been a lot of fun.

AD – I can go on and on and listen to you talk on this subject but I am running out of time. It has been great talking to you and hearing about your experiences. Thanks a lot for taking the time out and sharing your thoughts and views.



Merced ICM Calculator

The biggest competition for all the ICM packages available in the market is none other than Microsoft Excel. Excel is so ingrained in the commission world that often times, potential buyers tend to minutely compare the two and are not willing to giving the ease and simplicity of excel.

So instead of competing with Excel why not use it to your advantage. In my opinion, this is exactly what Merced has done with their calculator. That said, my post today aims to throw more light on the Merced ICM Calculator and how it works.

WHAT IS A CALCULATOR?

In simple words, a calculator is a reusable object that a user has defined for managing a calculation which is equivalent to writing a formula in Excel. The layout of the calculator UI is very similar to an Excel spreadsheet.

HOW DOES IT WORK?

A Plan is a rule or a container that holds the criteria to filter transactions based on different matching criteria defined by the user. A Calculator contains the logic to process the transactions. A user can quickly write formulas/logic using the excel like spreadsheets and test it out to make sure it produces the correct result. Calculators can also feed into other calculators. This allows users to break down complex calculation logic into smaller chunks that are easy to understand and maintain and can be reused by other entities.

WHAT ARE THE DIFFERENT TYPES OF CALCULATORS?

The different calculator types are Summary, Event, Function and Table Calculator. Each of these calculators is suitable for different types of calculations.

Summary calculators operate over a group of transactions and produce an overall result. For e.g, it can be used to aggregate transactions before computing the overall commission and achievement.

Event calculators operate on a per transaction/event basis and it is recommended that they be kept to a minimum.

Function calculators as the name suggests can be used to create functions(similar to excel) that can be referenced by other calculators.

Table calculators are typically used to define Rate Tables and such.

(Click to Enlarge)

(Click to Enlarge)

HOW IT ALL COMES TOGETHER?

Here is an example of how all the entities come together. The example shows how a single calculator can accept inputs from multiple plans to produce desired results.

(Click to Enlarge)

WHAT ARE SOME OF THE CALCULATOR DOs AND DONTs?

Calculators are very powerful and can be used innovatively to achieve the desired results. But they can easily become unmanageable and complicated if not thought out properly.

They should always be made generic by utilizing lookup tables. This makes them reusable and minimizes the number of calculators needed.

Use Summary level calculators very possible and limit the use of Event calculators as they can prove to be very expensive.

Cell references must always be in caps, for e.g A1 and not a1.

Cells with calculations/formulas should start with “=” otherwise the contents will be read as plain text.

Customers love Merced ICM calculators because they are so excel-like, easy-to-use, flexible and extensible. Most people configuring calculators have usually built out similar requirements using Excel at some point.

If I were asked to choose one single calculator feature that truly takes the cake, it would have to be the Calculator Test Mode. One can build a calculator, provide test input data and instantaneously see the calculated output including results in intermediate cells as well. And from my personal experience, all this can be done in a flash.

Merced mostly definitely has a WINNER on their hands!



Territory Assignment and SPM systems – Neighbors Or Strangers?

After struggling for months you finally have an SPM package deployed in your organization.  All of your commission related business processes are finally automated…or may be not!

One area of commission processing that SPM packages fail to fully automate is – Territory Assignment (TA). The process of assigning the sales order to an appropriate territory or sales rep(s) often ends up being done outside of SPM packages.  The scope of manual work varies across companies and industries.

WHO needs Territory Assignment?

Companies which have one or more of the following characteristics

  • A large Field Sales Operations
  • Network of channel partners, VARs, Distis, Resellers, Retailers etc.
  • Heavy Order Volume
  • Complex Territories based upon Named Accounts, Products, Zipcodes, Partner Name etc.

Hi Tech and Pharmaceutical industries are some of the very common industries that fit the above profile.

WHY Don’t SPM vendors have a solution for TA?

Most SPM packages offer a vanilla version of Territory Assignment but not a full blown solution. A lot of customers, especially in the Hi-Tech worls, are still using spreadsheets. Some of the reasons that come to mind as to why SPM vendors do not offer an integrated Territory Solution :

  • Their main focus in the commissions engine and they do not want to get into the nitty-gritties of Territory Management and Assignment.
  • They should ideally be receiving data from a TA system and want to keep it that way.
  • TA is a back office operations problem, that is solved (to some extent) by xcel spreadsheets and human bodies.
  • Just a few industries (hi-tech, pharma etc) probably have the need for a dedicated and robust TA engine. For SPM vendors, the ROI may not be tangible.
  • A smart TA engine has to deal with data cleansing and de-duplication for Account Names, Addresses and other such data. It is best solved by leveraging the services of specialized third party vendors (like D&B and Infonow) and adds to the overall complexity of the solution.

Where does Territory Assignment fit in the BIG PICTURE?

So, what do you think? Does it make sense to integrate Territory Assignment within an SPM system or is it better left stand alone?