Zuora, the company that made its bones in subscription billing and payments held its annual user meeting in San Francisco last week and staked out some new turf. It had always been back office focused but its latest messaging includes elements of the front office. Perhaps it’s no surprise given co-founder and CEO Tien Tzuo’s history of having been an early luminary at Salesforce rising to the CMO position before he left.
The new turf straddles the two worlds we’re most accustomed to dealing with, the front and back offices. This area, let’s call it the middle office, takes data from either side, changes it, and passes it onto processes that go in both directions. Among the applications that act this way are compensation management, subscription billing, customer success management, and possibly HR. But each application area does different things for different reasons.
Xactly may be the best example of a pure play comp system though certainly Callidus Cloud should be included. Sales incentive compensation used to be a pure back office thing because it tallied up sales and applied some algorithms then cut checks. But today, comp management is also about motivating people within an active quarter by identifying best opportunities and ensuring appropriate resources are applied. For this, the marketing and sales automation data is useful and derived information is fed back into SFA. That’s a long way from pure compensation.
Of course you need to make the subscription bills accurate and get them out efficiently, but these systems throw off huge amounts of customer data concerning uptake and use which are valuable in helping to sniff out early warning signs of disaffection, churn, and attrition—all things to avoid if you are a subscription company. It is in this area that Zuora is making a bigger footprint thanks to its acquisition of analytics company FrontLeaf last year. The subscription data run through analytics can easily kick off processes that use billing, sales, and service, another front to back situation.
Full blown customer success takes a page from subscriptions by capturing subscriber data and marrying it to other client data to produce compound metrics that can give managers a better understanding of how well a business is doing with the customer base. This area might see renewed competition with subscription billing vendors in the months ahead.
Long associated with payroll and mainframe back office systems, the HR or HCM systems today are lending their data and insights to front office processes like field service and professional services automation influencing deal structure, reporting, and more.
We could also easily add CPQ to the list too because back office catalogs, price lists, and pricing algorithms come to the service of SFA via CPQ to close better deals.
So all of these application areas are staking out positions that are neither fully back office and certainly not fully front office either. They are opening up new territory and that is potentially very exciting because the other territories are rather full of settlers and we need somewhere else to occupy.
I don’t know what to call it but that will come and I hope we avoid something as cliché as the middle office. This new area strikes me as another dimension. We’ve talked about systems of record for a long time and those systems belong to old school front and back office systems. But the new territory embodies more of what you’d expect from a system of engagement, a system that leverages all of the data businesses collect and actually turns it into unique and valuable IP.
That’s what struck me about Subscribed last week. In so many words Zuora said we’ve done a pretty good job since 2007 of building a solution to the subscription billing problem. But now there are other challenges.
Sales compensation added several important business processes once businesses were able to take their eyes off of the quarterly challenge of writing commission checks quickly and accurately. Incentive comp became all about doing the right business and boosting profits through being more intelligent actors in the market.
I think something similar will happen with subscriptions. Now that the billing and payments issues are resolving Zuora is training its guns on pricing and packaging. Think about it, when your products are more or less electrons, innovation can easily happen around how you package and price and it can happen at much faster rates than we see in traditional product development—if you have agile systems.
This is why the emerging middle ground is so important and why it’s one more thing to keep an eye on even if you’re not an analyst.
The continuing roll out of platform technology is bringing many applications together to support better, and in many cases new, business processes. Not long ago it was nearly impossible for back office people to know about what the front office was doing, in fact, it was hard for marketing and sales to know how they were affecting each other. But now with platform technology bringing attention to and fostering better interfaces between front and back offices and even between departments, it’s easy for different areas of the business to gain a better understanding of operations as a whole.
Improving the linkage between sales and marketing has been a long term quest that has not been fully met yet, but we can see the outlines of a future that’s more integrated and informed. More exotic combinations are also beginning to present themselves. For instance, compensation management is coming into focus as a system that can bring together and influence both front and back office business in ways that few people could have predicted. Compensation is becoming a crossroads of sorts between HR, accounting, sales, marketing, and even service areas.
This should be no surprise. Compensation management systems are the heart (and record keepers) of how we motivate and reward people. The number of potential interfaces between compensation and the rest of the business suite is big and includes much of the rest of the business.
Since compensation is the natural reward for good business behavior it is also an accurate predictor of all kinds of activity within a business. For example, integrating CPQ (configuration, pricing, and quotation) with compensation provides the finance group a window into the pipeline that has not existed before. While the aggregate pipeline numbers can be developed from more traditional sales reports, linking CPQ with compensation provides an easy way to peer into the revenue mix in time to make any needed adjustments.
This approach could easily open a window to show product marketers if the sales department is penetrating the market with specific offerings such as a new product line that replaces an older one. This information would be useful to the supply chain as well as to the sales and finance teams. Of course deals in the pipeline cannot be counted as revenue, but taking a big data approach businesses can develop organizational metrics for things like close rates and make fairly accurate projections about revenue and future supply demands.
At the same time, data integration gives sales people and their managers better insights into their own forecasts. A pipeline deal without a proposal or one with a proposal that is aging without customer activity should provide more insight into forecast quality than a more generic pipeline report.
Compensation management will certainly help the finance department to close the books faster and to accurately pay the sales team. Both are valuable to any business, but considering compensation management this way only accounts for limiting a liability. This may include the cost of making a compensation error or the time required to tabulate all of the commissions, bonuses, spifs, and other incentives as well as wear and tear on the finance group that has the responsibility for running the numbers.
A more integrated approach to compensation and integration across departments suddenly gives business leaders greater insight so they can improve operations. That’s a significant development and one that will likely be emulated across many businesses in the year ahead as platform technology makes it easier to consider whole business processes that span departments and not just the transactions that those processes result in.
The story of front office automation is shifting from data to process, but the idea is so new that you’d be hard pressed to identify a movement by that name. However, I am happy to coin a term and if you consider the developments of the last decade a clear picture emerges.
CRM and other front office solutions emerged as systems to manage data capture and retrieval. SFA managed the data collected about prospects, contacts, and deals; marketing managed aspects of lead development and marketing spend; and service systems juggled data about customer service needs. In all cases CRM systems served up data for human decision-makers to use in performing largely manual activities.
Then the Big Data revolution happened and its first effect was to document a need to simply handle all of the new data being churned up by social and other customer facing systems. But once data was corralled, data scientists began using analytics against the data to discover new information about business. This created a positive feedback loop in which growing databases provided information back to business practices and in the process improved them. Process automation soon followed.
Today big data and analytics have spawned the move from data management to process management throughout the front office. In some cases this movement has created whole new automated business processes and incentive compensation is a great example.
As a process, incentive compensation is not new, but its automation and the extent of its influence is. It had always been a time consuming manual process with limited applicability — business leaders may have known what to do but lacked the tools. At its greatest extension, the manual incentive compensation process applied to executives with employment contracts and to sales people with quotas. Human Resource departments handled executive incentive compensation while the finance group manually reconciled sales and commissions — a long and labor intensive effort.
As Chris Cabrera documents in his excellent book, Game the Plan — Every Sales Rep’s Dream, Every CFO’s Nightmare, automating the compensation process has spawned not only an automated incentive process, it has also introduced a new best practice.
In sales compensation it was always assumed that savvy sales people could game the compensation plan to their advantage. A wise saying in compensation management is that you get the results you incentivize and the caveat is that we sometimes inadvertently incentivize the wrong thing.
Gaming the plan is the inevitable result — in other words, without any formal process orientation by most companies, their sales people invented their own processes. Typically this means sales people preferentially peddling the products that are easiest to sell or that have the highest commissions or generally doing whatever is the easiest path to quota attainment and maximizing their commission plans. Too often though, reps’ ambitions do not square well with management’s needs, for example, to sell the new product which might be the future of the business but would require more sales effort.
That was typical in an era when compensation management meant capturing sales data in spreadsheets and manually checking for business rules compliance — accelerators, spiffs, contests and the like — and calculating compensation. However with automation of the core compensation process, companies have discovered they can move the discussion upstream from compensation after the fact to incentives before the fact.
With incentive process management vendors are now able to develop plans that more accurately reflect the goal attainment they intend paying commissions for. None of this incentive management precludes a sales person from attempting to game the new plan but it does change the rep’s calculations. By managing incentives better sales managers can set specific goals by product, revenue, and even profitability so that the path a sales person takes to quota is more inline with the company’s objectives.
Improving the incentive compensation process is also in line with other process advances now circulating. According to CSO Insights, and their twenty-year longitudinal study of the sales profession, the heart of sales attainment improvement is deploying better processes throughout the sales organization including in hiring, coaching, and managing sales teams. For instance, their studies have conclusively shown that businesses with formal sales processes, especially when backed up by automation (they call this dynamic sales processes) significantly outsell their competitors with random or informal sales processes.
In this light the incentive compensation management process is an important supporting business activity that feeds into overall sales improvement and there’s plenty of room for improvement. CSO Insights market study shows that only 57 percent of quota carrying sales people made or exceeded their targets last year. That means 43 percent failed to bring in the revenue that their companies were counting on.
It’s impossible to always get 100 percent of a goal but there’s plenty of room for improvement and incentive process management is a worthwhile investment for many companies trying to get to the next level of sales performance.
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.
Last week was like the fireworks on the Fourth of July. You know how at the end they fire off a huge flourish of explosives and if you live in Boston for some reason the Boston Pops plays the 1812 Overture? It was like that minus the Pops. Actually, the crescendo was not limited to last week but to a rolling thunder effect that happens because many software companies have decided Q2 is a good time for analysts to visit the Bay Area.
So SAP, NetSuite and Xactly, just to name a few, all had conferences. I heard from attendees that SAP had some interesting things to say though I am not sure where they go from here since I was not in attendance and I won’t comment further. I’ve already commented on NetSuite, which I think put on a good show of painting a picture of the future and showing how they were positioning themselves for it. A couple of weeks earlier SugarCRM did much the same thing.
The Xactly conference followed the broad outlines others had set. Attendance nearly doubled over last year and the company came into the event fully loaded with announcements and ideas. If you aren’t aware of Xactly you should be. The company specializes in sales compensation management. You might think sales comp is a backwater but not so fast — it is becoming an integral part of the sales management tool kit.
It’s about time too. I can’t tell you how many companies want to brief me on the latest ways to make sales people perform. Please. They’re already coin operated, you don’t need draconian measures to get them to perform, just a little reward system that makes sense. That’s where Xactly comes in.
Sales compensation systems used to be sold on the benefits of timely reward for jobs well done and accuracy in the accounting process. Indirectly, greater accuracy meant less labor for the CFO’s team trying to close out the quarter too. But another benefit, that Xactly CEO, Chris Cabrera likes to focus on, is the utility of a mountain of sales data and Xactly provides analytics for that.
Selling, in case you haven’t been paying attention, has become much more metrics driven. The amount of data sales teams collect is quite big and the vendor that can turn that data into usable information will be ahead of the pack. That’s what Xactly has tried to do and it seems to be working.
What also impressed me about the Xactly CompCloud 2012 is how well the company is managing to insert compensation management and tracking into the sales process. The company is sticking to its knitting and doing things relevant to performance management through compensation. The best example is the release of an iPhone app, which was announced at the show.
Large and small sales organizations are equipping their sales people with iPads these days. And just as graphics packages like PowerPoint became the killer application of the laptop and word processing and spreadsheets were the killer apps of desktops, the killer app for the tablet might be video. With video a sales person can deliver an error free message to customers and do all the other things a sales person needs to do without starting up the machine and waiting or running down the battery. Unlike PowerPoint, there’s less wondering if the presentation is up to date and all the rest.
So it’s highly likely that the tablet will in short order be the go-to device for sales people. It’s also less expensive than a laptop, which only adds fuel to the fire. So it makes good sense for Xactly to be on the tablet where sales people are certain to be in the future. In this context an iPad app makes perfect sense.
In its various product editions Xactly has increased the compensation footprint in useful and logical ways. For instance, Xactly Territories is an end-to-end solution for territory planning and management. What managers used to spend hours on with manual processes can now be done in a fraction of the time it once took while enabling them to play what-if scenarios.
Other extensions into the sales process include Xactly Analytics (already discussed), eDocs & Approvals, Modeling and Sandbox. All of these modules provide logical extensions of the sales compensation idea that will directly benefit sales people and managers.
So there’s a lot to like for this sales compensation management company. Given the environment and the customer response I saw last week, it would be easy to say that Xactly is on course and poised to make more of an impression as selling and the economy continue to improve.