sales compensation

  • February 24, 2014
  • carrot-and-stickThe 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.

    Published: 10 years ago

    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.

    Published: 12 years ago