It is subtle, but in the spring conferences I see a pattern emerging around the importance of process. Admittedly my analysis in this case is a less than scientific and I have no statistics to support my idea but I my instinct says a trend toward process is beginning. Two conferences that support my contention include Xactly and Zuora both of which are happening this week in San Francisco.
Xactly focuses on the incentive compensation process and Zuora on the subscription billing and payments part of business. You could say they’re at opposite ends of the sales process too and I think that’s apt. For now let’s focus on Xactly’s CompCloud, which I attended first.
A few years ago these conferences might have been described as events to support software packages that did specific transactional things such as invoicing and collecting payments (Zuora) or organizing an incentive compensation plan to pay sales people (Xactly) and you’d have been right. A few years ago these were simple transactions. Take the incentive compensation idea as an example.
When Xactly got started, ten years ago, CEO Chris Cabrera told me, the business problem was all about trying to corral sales data at the end of a quarter to tally up sales, various incentives, bonuses and other quirky things that went into a commission check. It was a big deal too, requiring the CFO and his team at times to burn some midnight oil so that the compensation checks could be cut quickly for the reps—and accurately for the company. The old joke is that only half of the commission errors are ever caught by accounting and in this case, you can figure out which half.
So incentive compensation was a transaction that happened after the fact and whatever the incentives did was mostly in the mind of the rep because the business had only a tenuous hold on the incentives squirreled away in spreadsheets. That’s the case for the majority of businesses today too. Cabrera told his keynote audience that about 85 percent of businesses still rely on spreadsheets for compensation plans and are thus left in the transaction part of business rather than figuring out better ways to incentivize people to do great things.
But look at what the 15 percent that use technology can do. If you use a compensation system with a database behind it rather than a spreadsheet you can actually make a forward looking plan that you can revisit and play what-if scenarios with. Moreover, you can develop a more sophisticated plan that is not only designed to bring in a number but the plan can have multiple sub-numbers that can be tracked and incented differently. The parts provide greater flexibility to craft incentives that more clearly match the company’s objectives.
When you get to the point of having a plan and sub-numbers you are looking forward as well as backward though backward is all that the spreadsheets allow and that means process. A system enables you to model the future and influence how you and your people get there. And a process enables you to put some oomph behind the idea of incentivizing people to do their best work.
It must be working because on the morning of the keynote, Cabrera also briefly mentioned a news item that crossed the wires at about 5:30 AM PDT. After ten years of being a startup Xactly is filing for its IPO. At a stroke the IPO will give Cabrera the ammo he needs to grow the company even faster and bring his message to more people.
What’s most interesting about this is that Xactly’s sights are not only set on incentivizing the sales reps or helping companies bring in larger deals. The company believes that incentives can be an effective part of every employee’s compensation. Studies show that when as little as 3 percent of compensation is set as variable it can have a positive effect on performance throughout an organization. That’s not a big number but it is enough to help get people’s creativity going to empower them to do better. If that’s not a virtuous process to augment performance I don’t know what is.
Finally, the thing I really like about this company’s vision is its willingness to annonymize its data to look for macro trends in the industry. So far one of its great successes has been to discover that women really are paid less than men even though the statistics say they do better and stay longer. The Wall Street Journal ran an article on the study last year and it has caused several companies in the Bay Area to examine their own pay data to discover if they are paying people equitably.
That’s the way technology advances society. First something is not possible because we don’t have the data or the processing power to investigate a hypothesis, then we do. Then, and this is the point, everybody’s got to have the new thing. This is what sparks exponential growth and it’s why Xactly’s offering may be coming at a very good time. Of course, this is not to imply that I am offering financial advice. Just saying.
New compensation system for non sales types manages MBOs and can improve individual and company performance
NetSuite was not the only company having a party in greater San Francisco last week. DocuSign held an event as did Xactly and though I couldn’t get to DocuSign I did pay a visit to CompCloud, Xactly’s user event held at the Palace Hotel. Holding an event at the Palace is a right of passage for emerging companies in our market, I think, and Xactly has used the space in successive years to make important announcements to its users. This year was no exception.
Along with the expectable news about enhancements, revenues, and profits, all trending northward, Xactly introduced a new product that, I think, will have significant ramifications for many markets. You might know Xactly for its groundbreaking approach to sales compensation management. The company started out by rationalizing the hair-ball (a Zach Nelson term) of spreadsheets used to incentivize and accurately compensate commissioned sales people.
The solution proved to be a godsend to many large sales organizations eliminating over work and under (and over) payment of both the sales team and the finance people charged with getting commissions right. Today, CEO Chris Cabrera tells me that his company manages the payout of more than five billion dollars worth of commissions and the number is growing.
So all of this is to the good and Cabrera’s next objective is to enable companies that want to, to better manage MBOs and bonuses for non-sales employees. You might wonder if HR already handles this and the answer would be, it depends. Most senior executives on employment contracts have extensive MBOs written into their agreements and they are handled by HR and the CEO and even board of directors, in some cases.
However, employees at will, which is to say most of the people who have hands on oars and who row the boat, may not. For them and their managers tracking goals and objectives and compensating accordingly has been handled by that ancient and honorable analog device, a wet finger in the breeze, and that nearly analog device, the spreadsheet. This is highly unattractive in an age where we all have computers and can calculate the distance from earth to the moon to the inch on any given night.
What Cabrera says is needed is a compensation system for MBOs and in a few weeks, his team will deliver to market Xactly Objectives, a system built on the same cloud technology as Xactly’s flagship product, Incent. In making the announcement, Cabrera ticked off the many shortcomings of conventional spreadsheet driven MBO systems — they are unresponsive to change and easily forgotten. Too often their users fail to clearly communicate to employees what the objectives are and at the end of a reporting period people receive bonuses for seemingly inexplicable reasons. The problem with that is the bonus becomes a reward tied to nearly nothing rather than an incentive to do better. None of this helps drive correct behavior, which, after all, is one of the key reasons for having incentives in the first place.
Objectives will solve this problem and it comes at a time when corporations have increased interest in redesigning compensation to reward positive behavior that increases productivity and elevates customer experiences. In a bygone era, bonuses were supplied for such positive behaviors as punching the time clock, reducing the defect rate, and similar behaviors important to manufacturing. However, the manufacturing era is largely over.
Today, more people work remotely and with little supervision — Yahoo’s experience notwithstanding. At the same time there is more data than ever about employee behavior for managers to analyze so that they can better mentor people in their charge. A product like Objectives, used properly, can do a lot to give managers and employees ways to boost productivity and achieve organizational goals. It can give employees a better window into what they ought to do to be successful and it gives HR and others concerned with governance, concrete evidence to work with in managing the workforce.
With Objectives and Xactly’ sales performance management tool, the company should be viewed more as a budding platform vendor than as a point solution. Compensation is a big issue and it is only going to get bigger. It deserves management tools up to and including analytics that can help managers to better manage the business by managing the means of production, people. I see Xactly as one of the early players in the compensation management space with this emerging platform. It situates compensation as a specialty between executive management and the sales force, of course, but it also now mediates compensation for everyone else during the time between major HR interventions, typically the annual review.
Interestingly, another product, Salesforce’s Work.com, captures events during the work year for more accurate and faster annual reviews. But Work.com doesn’t do much for rewards other than provide gamified badges and the like. Inevitably, I think Objectives could be integrated with Work.com just as Xactly Incent is integrated with Salesforce SFA because it can handle the compensation part of a review process. Together they could provide a powerful behavior management solution beyond simply awarding badges. Xactly is a Salesforce partner and a significant contributor to the success of the AppExchange. Throw in some cloud HR solutions and you have the nexus of an important new HR function delivered by the cloud.
So, for many reasons I think Xactly Objectives is on track to help companies to meet the challenges of a more dispersed workplace that places great importance on some of the intangibles that drive customer experience and ultimately customer and company success.