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.