More Front Office Science from Xactly
Xactly continues its pioneering ways by analyzing anonymous data collected by its customers in compensation management. If you aren’t familiar with the company or its groundbreaking market analysis, you might be in for a treat. Their appr oach is relatively simple but extremely powerful. With the permission of the data owners, Xactly strips out identifying information and conducts sophisticated analysis of sales compensation practices looking for patterns. The result is revealing because it comes from a very large data sample and it is corrected for potential bias and error.
The company’s first effort revealed a small but real pay gap between sales reps based on gender with women earning less as is the case in much of the economy at large. Interestingly, women in sales stayed at their jobs longer than their male counterparts while out performing men by about 3 percentage points both as individual contributors and as leaders. Nonetheless, women were paid less in both base and variable compensation than men. Lastly, women appear to be better leaders than men and they build sales teams equally composed of men and women while male leaders’ teams were mostly male.
Ok, that’s the gender gap. Xactly’s next analysis compared sales rep compensation across regions of the US dividing the country by time zones — Eastern, Central, Mountain, and Pacific — they found that sales people in the Central time zone received the highest base pay/variable pay mix as a percentage but were only third out of four in ranking their total compensation, despite having the highest average quota attainment of all regions at 82 percent. In stark contrast, average quota attainment in the Pacific, Mountain, and Eastern zones was remarkably consistent at 66 percent, 69 percent, and 67 percent respectively.
For Xactly’s purposes this is very useful because it helps sales managers and others to compare how they compensate their reps vs. an industry average. But more broadly speaking, it would be nice to be able to drill into the numbers to a higher degree.
For example, what is it about the Central time zone that drives sales performance that is on average so much better than other zones? My hypothesis, which could probably be proved with greater access to data, is that larger territories and fewer reps could provide better hunting prospects in the central zone but that’s just speculation. We don’t know if territories are richer in the Central zone but if they were it would suggest the attainment vs. opportunity ratio might be more congruent. And to the point, if attainment vs. opportunity can be so much better in the central zone, does it mean that the other zones might be over populated with reps? Having this kind of information drives all sorts of hypotheses that could improve performance.
Luckily, Xactly has more data than it is publishing for free and it is providing deep dive analysis to subscribers of a new offering that’s designed to help managers at all levels to better manage their businesses. This is a great example of unforeseen opportunity inherent in Big Data. Prior to Big Data, one could speculate but never know these answers unless one wanted to conduct an expensive in-depth analysis of data collected especially for such an effort. But with all the data Xactly collects, suddenly this kind of analysis is virtually free and the insights are extremely valuable.
More importantly, this kind of activity is happening all over the front office as more vendors take to analyzing raw data. Generally speaking we can point to before conditions that lack data and analysis and that relied on hunches and heuristics and if that’s true then the after condition has to be labeled science and that’s a big deal.
We’re living in a new era in which front office business is transitioning before our eyes from art to science and it is driven by Big Data and analytics. We saw it happening in the back office decades ago as paradigms like ISO9000 and Six Sigma made precise, high-quality manufacturing a numerically based and repeatable thing. But manufacturing takes on more of the quality of physics while, in my mind, the front office is taking on the character of sociology — as it should.
People after all have free will and the essential question of sociology is how social groups are organized to enable decision-making whether by structure or by agency. Structure, as you might guess, says that people behave in predictable ways because a social group is organized to funnel people toward desired behaviors. On the other hand, agency suggests that people empower themselves to go out side of established structures to behave in different ways. Life is full of both.
Xactly’s efforts so far say that structure is fairly uniform throughout sales culture with minor exceptions. Somehow it is apparent that the compensation structure is consistent and skewed against women. Also, remarkably there are regional differences as well in the structure of compensation plans for all sales people. Equally significant it appears that women take agency in slightly different ways than men, for example, staying at their jobs almost a year longer. They may nurture their direct reports better possibly accounting for greater performance as managers and apparently they are doing something better as individual contributors too.
There are bound to be differences between groups when we do this kind of analysis and the purpose is not to expose anyone’s behavior as “wrong.” The purpose is to use data and science to identify opportunities to manage better and Xactly’s insights into base and variable compensation do exactly this.
Xactly Objectives
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.
