Sprint …a cautionary tale. Beware the business-critical ramifications of badly managed sales compensation

Anyone happen to see the recent news item highlighting what can happen when companies engage in non-effective sales compensation management in December 2nd’s Information Week?

The article says “Sprint is facing a lawsuit from thousands of its store employees who say the wireless carrier has failed to pay them proper commissions.” It goes on to state that “19,000 former and current employees are potentially affected,” and that it was the integration of Sprint and Nextel’s back-end systems that led “to more than $5 million in lost commissions.” Ouch!

According to the article, court documents say that Sprint knew there was a computer problem, spent $10 million to fix it, and “did not acknowledge employees hadn’t been paid correct commission.” Double ouch.

From my perspective, regardless of whether the commissions were paid correctly or not, the damage is done. And it is considerable.

There’s nothing like having your employees this riled up – not to mention 19,000 of them. Hence the first question facing any company in this unfortunate position is how much trust – and indeed motivation – will their employees have going forward? There’s a lot of damage needing to be repaired – and that’s true whether you have 19,000 reps or 19. Then there’s the enormous financial impact around the settlement to deal with. And all the time and effort that will go into handling the case and its aftermath. And the potential for balance-sheet revisions and corporate financial restatements. And the erosion of shareholder and analyst confidence.

But the clincher is, this is the type of corporate mess that can so easily be avoided. Providing sales reps with real-time, web-based visibility into their commission plans can help nip a problem like this in the bud, long before it snowballs to class-action suit status. This visibility, combined with accurate, rules-based commissions calculation (emphasis on rules-based), is the foundation for effective sales compensation management.

And the bedrock on which this foundation rests is the effective integration of all the data used to determine compensation. Any competent compensation-management solution absolutely has to get this right. And, with the advent of Software-as-a-Service (SaaS) solutions, it doesn’t take a lot of costly on-premise software and expensive consultants to nail this particular kind of data integration either, at least not anymore.

Finally, complete compensation audit trails are mandatory, and entirely possible. The attorney representing Sprint’s store clerks alleged the company made the internal process for appealing shortages in commissions too “time-consuming and burdensome.”

Sprint is a reputable company, and it’s certainly not in its interest to purposefully, as the article has it, “shaft employees.” The company obviously needs to overhaul its current compensation-management process, and fast.

You don’t have to be the size of Sprint to take a lesson here. Sales compensation management is a business-critical function for any organization. It doesn’t pay to confuse, betray and anger the employees that feed you, no matter how inadvertently it may happen. And there’s certainly no excuse for it with state-of-the-art SaaS-based sales compensation management solutions that are available today.

Ride the Economic Wind…Don’t Get Blown Away in ‘09

It’s been a wild economic ride—slide, many would call it—this past year. And the only thing certain about the coming year is that it will be shaped, squeezed and knocked around by continued consumer uncertainty. Because buying cycles promise to be so unpredictable in 2009, companies need to equip their sales organizations to be able to move smoothly and productively with the dynamics of the business and with the gyrations of local and global markets.

This means acting right now to put in place highly adaptable sales compensation plans for 2009 that enable sales and finance to align with corporate objectives, both long and short term, and clear a path for meeting them. Today more than ever, to hesitate is to lose.

Nonetheless, despite the enormous stakes, experience tells us that only half of all 2009 sales plans will be ready for primetime come January. And if that isn’t dismal enough, regardless of whether they’re delivered late or on time, the vast majority of these plans will be dumbed-down or else overly complex and confusing. Either way, they’ll be ineffective at a pivotal time.

But experience also shows us a way out of this dilemma. Here, distilled into seven key practices, is what you need to do in order to arm sales to make the most of the coming uncertain year:

1. Automate. It worked for CRM. Now try it for sales compensation management. Companies still using spreadsheets to manage compensation are pouring scarce administrative dollars down the drain. Worse, they’ll never be able to achieve top sales performance because they lack the requisite visibility, flexibility, scalability and accuracy that come with automation. You should wish this problem on your competition, not yourself.

2. Model. Don’t rush blindly into implementing new plans or plan changes. This is no time to experiment. Model your plans and plan changes up front to gauge their impact. If you’ve automated, modeling shouldn’t be hard to do.

3. Keep it simple and consistent. If you have more than four key performance indicators, or 10 or more conditions to determine credit allocation and payment release, then your plan is too complex and risks confusing your reps. By the same token, as lead-to-sales times invariably lengthen in 2009, try to keep the long-term mainstays of your plan consistent, to keep reps focused on selling, not calculating.

4. Keep it visible. Give the troops in the sales trenches real-time visibility into plans and compensation processes so they can see how they’re doing towards plan, and how much more they stand to make if they do “x,” “y” or “z.” Once you’ve automated, this kind of visibility via the Web becomes easy.

5. Keep it flexible. Plans should ultimately drive long-term behavior, but you want the flexibility to drive short-term activity as well. Make sure you can react to sudden opportunities and challenges through SPIFs and contests without altering the long-term framework of your plan.

6. Analyze. Knowledge is power. Automating compensation provides a bonanza of useful data on who bought what from whom and for what price and conditions. Leverage this data through analytics for insights into selling patterns, commission spend, plan effectiveness and how to further drive sales performance.

7. Measure constantly. In turbulent times, it helps to use all your senses all the time. Don’t wait until the end of 2009 to measure your plan’s effectiveness. There are bound to be numerous bumps and sudden shifts along the way that will impact your business. You need to stay on top of them with mid-year, quarterly and even monthly sales performance reality checks accompanied as necessary by fine-tunings of quotas, commissions, territories, etc.

While 2009 isn’t likely to yield blow-away financial results for all that many companies, there are key steps that can be taken to keep a business from being blown away altogether - and even to help it prosper in a challenging environment. More closely managing sales performance is one of those steps. Late, confusing, hard-to-manage or overly simplistic compensation plans are roadblocks to optimal sales performance, in both good years and bad.
Why wait for a good year to find out how much of a roadblock your plans have been?

Business Intelligence Network (podcast) - Automate Sales Performance Management as Software as a Service

Karen Steele discusses Xactly's ability to automate sales performance management as software as a service.

Listen to the podcast here.

Behavioral Science

The Roman historian Pliny the Elder wrote, “In Rome... the soldier’s pay was originally salt”. In the days before refrigeration, salt was widely used as a preservative and it was also believed to have healing powers, thus it became a currency of the realm.

Etymologically then, the word ‘salary’ comes from the Latin word for salt (‘sal’). Eventually this word salarium came to signify anything given in a stipend form or wages in exchange for labor.

We’ve discussed the idea of ‘non-cash rewards’ in the blog before, but salt was not exactly what I had in mind!

These days, we see forward-thinking companies using compensation strategically; which is to say, companies recognize the need to pinpoint incentives in order to modify, enhance and refine the behavior of their sales team – or any group in the company for whom an incentive may modify behavior.

I like to think of the finance and sales executives who modify and tweak their teams’ compensation plans as “behavioral scientists”; like any good scientist, they experiment with various inducements in order to observe the resulting behavior and thus determine whether the desired effect has taken place.

While there is plenty of art to setting comp plans that achieve the desired effect, there remains a heaping helping of science to it as well – in the sense that one needs to fine-tune plans over a period of time to see what’s working and what’s not.

This harkens back to the crucial piece of why we pay variable compensation in the first place: we expect it WILL change behavior. With this in mind, why would you ever want to do this without giving everyone involved real-time, web-based visibility? Without this level of dynamic access to your data across your entire organization, how will you know in a timely fashion if success has been achieved?

Or when small tweaks do need to be made, how can one feel comfortable with the possible outcome without modeling the possible changes using some specific assumptions? Tinkering blindly with an Excel-based compensation structure is a recipe for disaster.

With an on-demand compensation system, a company achieves a real, tangible competitive advantage. Several models can be quickly tested and refined without affecting any of your field personnel. When a SPIF program or new comp plans are ready to be launched, your company has the ability to move in a swift, nimble fashion.

People like to throw around the idea of ‘strategic advantages’ that can help give a company a leg up on its competition, but few strategic advantages have this ability to streamline your entire organization.

Let me illustrate what I mean with a real life example: Recently, a nationally-known auto parts retailer instituted these types of changes in their company. Faced with a struggling economy, a set of executives decided to look for innovative ways to boost their same-store sales. They settled on incenting their floor employees with variable compensation in order to sell more product; and they extended this also to their shop employees as a way to get them to open (and close) a higher number of service tickets per day. In addition, they gave their people web-based visibility into the compensation system so they could see, dynamically, what they were earning.

Prior to the launch of this new direction, several executives of the auto parts retailer expressed their concern that there was sure to be backlash from parts of the rank-and-file, because hourly wages for these in-store employees were cut nearly in half – though their potential for earnings became far higher than before. Management even expected a noticeable amount of attrition; surely hourly employees would quit in significant numbers if they were unwilling to be subjected to this new, unknown direction?

However, the result was a roaring success. Same-store sales jumped significantly and one region reported that their shop employees were getting through roughly four times the number of service tickets they had previously.

What originally had started as a pilot that might slowly be expanded around the country, immediately became fast-tracked for a wide-scale rollout.

This forward-thinking company is experiencing the benefits of conducting some behavioral science in the name of improving their business.

Throw on a white lab coat and join me as a part-time behavioral scientist – I think you’ll enjoy it.

“Science is a wonderful thing if one does not have to earn one's living at it.”
--Sir Humphry Davy (1778-1829)
Scientist, inventor, the pioneer of electrolysis, laid the groundwork for modern chemistry

What is Sales 2.0?

Karen Steele, Xactly's VP of Marketing, discusses how Sales 2.0 helps companies align people, process and technology to increase sales productivity.

Upcoming Webinar: The Business Case for On-Demand Sales Performance Management Analytics

The Business Case for On-Demand Sales Performance Management Analytics with Xactly and THINKStrategies

Tuesday, July 29, 2008 10:00 AM - 11:00 AM PDT

Register to learn more:
https://www1.gotomeeting.com/register/415893690

CRM applications have revolutionized the selling process, organizing pre-sales data that reps and management need to manage the sales pipeline. But what about “post-sales” data? There is a ton of information produced at the time of sale that is effectively orphaned—information on what a customer actually bought, the final price, the commission paid, the territory where it was sold, etc. This is data that, if collected and cleansed, can be used to increase sales performance and maximize profits going forward.

In this Webinar, Xactly’s Karen Steele and THINKStrategies’ Jeff Kaplan will discuss how post-sales analytics can provide new and strategic insight into an organization’s selling patterns, commission spend, product performance, sales rep and team performance, and sales plan effectiveness. They will examine how post-sales data—traditionally scattered across a variety of disparate systems including ERP, HR, and Payroll—can be now be integrated and analyzed with an eye towards enhancing business strategies, changing sales rep behaviors, and super-charging sales organizations.

Participants will take away:

• Best practices for integrating and analyzing post-sales data to optimize sales performance.
• An understanding of how post-sales data can be leveraged daily by reps within their CRM applications to maximize profits – for the company and for themselves.
• A view of the broad scope of business processes that benefit from post-sales analytics – from sales compensation management to territory and quota management to pricing management and sales forecasting/planning.

Speakers:

Karen Steele, Vice President of Marketing, Xactly Corporation
Karen Steele is responsible for managing all aspects of Xactly's worldwide marketing.

Jeff Kaplan, Managing Director, THINKstrategies
Jeff Kaplan is the founder and managing director of THINKstrategies (www.thinkstrategies.com), a strategic consulting firm that helps IT enterprise decision-makers with their sourcing strategies; solution providers with their marketing strategies; and venture firms with their investment strategies.

Register to learn more:
https://www1.gotomeeting.com/register/415893690

Sales Performance Management Benchmark Report by Ventana Research

This morning we announced the availability of new benchmark research from Ventana Research, underwritten in part by Xactly, that highlights the growing need for companies to improve their sales performance management processes in order to boost top- and bottom-line business results. Titled “Improving the Performance of Sales Organizations to Maximize Strategic Value,” the research also offers recommendations for companies looking to evaluate and enhance sales performance management processes and systems.

Says Ventana Research, “Improving sales performance is a primary motivating force for most businesses that rely on a sales force to generate revenue. Assessing and improving sales performance management processes is not just important, but imperative.”

Click Here to Download the Report
(no registration needed)

Click Here to Read the Press Release
(no registration needed)

Upcoming Webinar: SaaS + Sales Performance Management = Recession Resilience

This webinar provides deeper dive into a previous blog entry: SaaS + Sales Performance Management = Recession Resilience

With recession alarm bells going off all over the world, smart managers are looking for ways to make their businesses more recession resilient. Reducing your cost base, making sure you have operational flexibility, and boosting employee productivity are three well-proven tactics. In a recession, businesses need to invest in getting the most profit as possible out of their front-line employees.

In this educational Webinar, Xactly founder and CEO Christopher Cabrera will discuss how Sales Performance Management (SPM) solutions can boost performance and results and why companies should care in the best of times and during an economic slowdown.

Liz Herbert, Senior Analyst at Forrester will discuss how Software as a Service (SaaS), while not an option during the last recession, has established a track record over the past several years.

Key questions will be addressed:
- What are the key economic value drivers of the SaaS delivery model?
- How does Sales Performance Management impact employee and business productivity in a down economy?
- SaaS delivers lower costs and enhanced flexibility, but where does that leave employee and business productivity?
- How do SPM solutions provide value by helping to align sales behaviors to corporate objectives?
- Why is subscriber retention one of the key success metrics to determining success?

Registration Required: https://www1.gotomeeting.com/register/451142996

Business Finance - Aligning Sales with Finance

Sales and finance professionals don’t always find the common ground required to meet their mutual goals. Christopher Cabrera offers some insights on how to bridge the divide between sales and finance.

To view video Click Here

The Power of Linking Non-Cash Incentives to CRM

When it comes to incenting behaviors, non-cash rewards are typically under-utilized, yet they can be extremely effective in driving behavior in ways that cash compensation can’t. Cash is king, but cash is impersonal and predictable. Non-cash rewards, on the other hand, are extremely engaging when the prize is something that the targeted recipient truly wants and considers worth striving for. A vacation at the beach. An adventure package. Designer fashions. A day at the spa. That new set of golf clubs. The key is to let each individual decide what prizes motivate them the most – call it self-personalization – and then show them a way to attain them through their go-the-extra-mile actions. All-too-predictable fixed-prize contests don’t come close in their ability to engage desire and personalize motivation. And those gift cards? Twenty-seven percent of them are tossed away, estimates Consumer Reports.

So how do you leverage non-cash rewards effectively? There are several steps. The first is to automate their management. One reason today’s non-cash incentives are treated as one-offs and limited to fixed-prize giveaways is because they are tracked manually, typically in spreadsheets. Hence they have to be simplified. When you apply the same type of automation to tracking these contests as you do with tracking your sales leads and progress via your CRM application, you can start developing sophisticated, yet easily manageable, non-cash incentive programs precisely tailored for each specific audience or individual within the sales organization or across the entire company.

The next step is drive performance by delivering the widest possible selection of value-oriented tangible rewards. Give each person something personally meaningful to shoot for. Give them the ability them rack up points, with the points immediately redeemable for the prizes of their choice. This means leveraging the Internet for prize selection and points redemption, as well as for the power of instant gratification.

The final step is integrating your non-cash rewards program management with your CRM application. From a process standpoint, this provides the ability to tie actions to points automatically – for example, a lead becomes qualified, then points are automatically assigned and immediately viewable within the CRM application. From a visibility and instant-gratification standpoint, recipients and their management gain the ability to check earned and redeemed point balances at any time while logged into the CRM application, and instantly redeem their points online. And from an ongoing motivational standpoint, they can see how they earned their points, and how they can earn more.

We recently had a little fun in creating a video that promotes our Xactly Rewards product, which addresses the complexity of creating and managing an effective non-cash rewards program. Enjoy!

SaaS + Sales Performance Management = Recession Resilience

With recession alarm bells going off all over the world, smart managers are looking for ways to make their businesses more recession resilient. Reducing your cost base, making sure you have operational flexibility, and boosting employee productivity are three well-proven tactics. Software as a Service (SaaS) wasn’t an option during the last recession. But SaaS has established a track record over the past several years, decisively proving its value in supporting the first two tactics: cutting costs and increasingly flexibility. And what’s valuable in the best of times can prove priceless in the worst of times.

You know the litany. In contrast to on-premise enterprise software, SaaS means no upfront hardware and software costs, no worrying about costly ongoing software maintenance, and no vendor lock in. Instead of being tied to an expensive software infrastructure, you’re free to quickly implement changes. And if a SaaS vendor doesn’t perform, you’re free to immediately choose one that will and be up and running in a matter of weeks. Believe me, savvy SaaS vendors know this. Subscriber retention is one of our key success metrics, along with speedy initial implementation and the ability to quickly deliver innovative new functionality.

So, while SaaS delivers lower costs and enhanced flexibility, where does that leave employee and business productivity? Obviously, not all software applications—SaaS or on-premise—deliver equal productivity boosts, at least not of the kind that directly impact the bottom line. Yet some categories excel in their ability to do so, including Sales Performance Management (SPM) applications. In a recession, businesses need to invest in getting the most profit possible out of their front-line employees. SPM applications provide this value by helping align sales behaviors to corporate objectives, focusing reps on the most strategic sales, maximizing agility in the face of market change, and providing visibility into sales success drivers through comprehensive analytics. And along the way, they help greatly reduce administrative time and costs, and support compliance efforts.

The last recession was a boom time for early-generation SPM applications—and that was even before the advent of SaaS. Today, thanks to the SaaS model, the SPM arena is expanding in scope like never before, and SPM functionality such as on-demand sales compensation management is finally affordable to companies of any size.

SaaS plus SPM delivers a genuine double whammy in the face of recession: SaaS economic value combined with SPM strategic business value. It just makes good business sense, whether you are managing in a recession or in a vibrant high-growth economy.

SaaS 2.0? Predictions for the year ahead.

2007 was a momentous year for Software as a Service (SaaS), as it emerged as a disruptive force in an increasingly complacent industry. And while it would be easy to say that growing customer interest will propel SaaS to new heights in 2008, I believe there’s something going on right now that is about more than mere market momentum. From my viewpoint, SaaS is becoming increasingly savvy, and it isn’t too far-fetched to think we’ll soon being talking in terms of SaaS 2.0.

Here’s what I mean. In 2007, we were still witnessing the first generation of many SaaS solutions. Their limited functionality led to criticism that they weren’t as robust as their enterprise software counterparts. In 2008, we will see more SaaS companies building out or partnering to provide more robust solutions and platforms, along the lines of salesforce.com’s Force.com platform.

This is already happening in the market in which Xactly competes, as Incentive Compensation Management (ICM) offerings are morphing into full-blown Sales Performance Management (SPM) solutions, with rich analytics and functionality such as territory and quota management.

Just as exciting to me, SaaS will breathe new life into struggling enterprise software sectors in 2008, and will create entirely new sectors by lowering the cost of entry vis a vis traditional software models. This is huge. And the fast-expanding SPM segment is proof that it is starting to happen.

At the same time, SaaS will create entirely new ecosystems. In 2007, we witnessed the delivery of mash-ups combining data and SaaS functionality via single sign-on. In 2008, we will see SaaS companies supporting end-to-end processes and seamless user experiences through deep integration, software suites, or partnerships.

And through it all, SaaS vendors will only get smarter about customer needs. The advantage of managing all customer deployments under a single umbrella, as SaaS vendors do, is that we are better able to find common threads across customer problems, needs and desires. And customers don’t have to wait for the next release cycle—which, in the enterprise software world can mean waiting a year or more—for a SaaS vendor to implement major fixes and changes across the board. In fact, SaaS vendors are free to be innovative and practically impelled to deliver ever more value, because we are developing a single line of code for one platform shared by all users.

Finally, in 2008, Wall Street will increasingly wake up to SaaS as we witness an up-tick in SaaS IPOs, despite the down market predicted for the first half of the year. The recent successful IPO of Xactly partner and customer, SuccessFactors, is likely a harbinger of things to come. Along these lines, Wall Street bankers, investors and enterprise customers will come to see the distinction between tactical SaaS applications that conveniently automate non-mission critical business functions like recruiting versus truly strategic SaaS applications like SPM, which are at the center of driving business growth and profits.

Okay, I admit to a bias. But, as the SaaS industry matures, I firmly believe it will continue to burn a hole right through traditional software models throughout the rest of this decade and beyond. Whether we call it SaaS 2.0 or not, the SaaS we’ll come to know in 2008 will be light-years ahead of the SaaS we knew in 2007— in terms of functionality, robustness and appeal and, most importantly, in its ability to game-change a customer’s competitiveness and profit picture.

Connect the Dots between Pre- and Post-Sales Processes

I’ve written before in this space about the natural synergies that exist between CRM and sales compensation management applications. Pre- and post-sales visibility/automation are truly just different sides of the same sales performance management coin. In an article recently written for CustomerThink.com, I discuss these synergies in depth, and show how one company has been able to extend its CRM investment in a powerful way.

Specifically, the company has linked its sales compensation management solution directly to its Salesforce implementation so that reps now run “what if” scenarios based on Salesforce CRM “live” opportunity data coupled with accurate compensation plan data from their Xactly Incent implementation. Notably, they are able to do it all within Salesforce CRM.

The big benefit is that the people in the field can now easily see where to direct their sales efforts for maximum commission payouts. As these payouts are a reflection of where the company wants them to put their best efforts, the whole business gains. That’s powerful stuff. And it’s something that any company with a Salesforce, RightNow, or Oracle Siebel CRM On Demand implementation is in a position to take advantage of. For the details, please read the full story at: www.customerthink.com/article/connect_dots_crm_sales_compensation

SaaS IPO Tipping Point?

Could the NetSuite IPO be the beacon for a sea of change between Software as a Service companies and Wall Street? Are the days of trepidation for the SaaS business model, security and viability waning?

As I watch the revenue and sheer number of customers for on-demand companies like Salary.com, DemandTec and NetSuite amass—I say yes. All three companies are demonstrating to the market the benefits of this efficient and cost-effective model and calling Wall Street to attention.

Sure, a lot of companies are founded on a pure SaaS model, but relatively few have reached the public markets successfully. Why is this? It’s because many people are still struggling to understand the SaaS model and failing to truly grasp the fundamental differences between SaaS-based and on-premise software offerings. Investors can't look at SaaS companies through the same lenses they have used for years with traditional enterprise software companies. When I talk to investors, I tell them to focus on two main differences: customer renewal and the revenue dynamic.

First, recognize that SaaS companies are built from the ground up around customer satisfaction and customer renewal. To survive, they must earn the customer’s complete satisfaction every year, and often, every month. This focus is very different from traditional software companies whose first priority is to get to the next million dollar license deal in order to keep Wall Street happy, and whose second priority is to have these customers pay expensive ongoing maintenance and upgrade fees.

The second major difference: because there is no million dollar license fee, the revenue trails traditional software companies. This is actually great for investors because revenue SaaS companies earn is not an artifact from a relatively few very large deals, it comes from hundreds and hundreds of happy customers. This revenue dynamic is also the reason SaaS companies are so attractive and so much more predictable to Wall Street.

Because of the business model differences, it takes a little longer for SaaS vendors to ramp to the revenues that will justify an IPO, but—have no doubt—they are getting there fast. Salary.com, DemandTec and Netsuite are proving that it can be done and are helping to move the SaaS IPO market forward.

From a customer perspective, why SaaS and why now? SaaS offers customers an undisputable value and time to market advantage over traditional enterprise models, including no hardware, no maintenance fees, minimal implementation fees and, most importantly, no software upgrades. This means new features are available to customers instantaneously, as soon as they are live, saving customers from expensive upgrade costs while ensuring they’ll never trail behind on older releases of software.

SaaS is also breathing new life into technologies that were too expensive for the masses in a traditional enterprise model. The fast growing Sales Performance Management market is living proof. Founded on a pure on-demand or SaaS model, Xactly Corporation has quickly amassed more than 70 customers including Salesforce.com, CNet and Polycom—all of whom are now utilizing an on-demand Sales Performance Management platform to create a strategic competitive advantage within their businesses.

For companies like Xactly and investors in the market, the SaaS IPO tipping point may very well be here, and I think it’s about time.