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.

The Rustling of Autumn Spreadsheets

Chill winds and the last rustling of leaves come even to Silicon Valley, eventually, along with the usual waves of nostalgia—for old friends, that first car, your first spreadsheet-managed compensation plan. No, I’m not losing it. The deal with nostalgia is that you can only get nostalgic over something once its time is past. And there’s nothing that fits that bill better than managing sales performance via spreadsheets. Like my first car, that particular paradigm is well past its prime and better remembered than relied on.

Today of course there’s another chill wind coursing around the globe: that of recession. And many companies of all sizes are finding themselves nostalgic for yesterday’s revenues, profits and forecasts. How long they’ll be forced to remain nostalgic depends on many factors, but one that stands out is sales performance. Happily, this is something companies can work on to improve, and an improvement here goes a long way.

It’s axiomatic that when performance measures align directly to business goals, sales reps on variable compensation are motivated not only to sell more, but also to sell more profitably. But companies are particularly challenged to achieve this alignment because of their traditional reliance on spreadsheets coupled with email and paper-based methods to manage sales compensation.

Companies that have moved off of manual methods will gleefully recite a whole litany of spreadsheet shortcomings, starting with how difficult, tedious and costly it is to create and administer effective comp plans in Excel. And they’ll tell you that these shortcomings extend to the error-prone nature of the beast; the lack of meaningful reporting, analysis and auditing capabilities; and how hard it is to collaborate and share with spreadsheets, yet how easy it is to confuse, confound and demoralize those you so desperately need to motivate.

The vast majority of companies that still use spreadsheets for compensation management know all or part of this in their hearts, but are likely asking themselves how they can justify the expense of an automated solution, especially given the uncertainty of the global economic climate.

My response is: how can you not? Especially now that inexpensive SaaS solutions for compensation management have taken the wind out of the sails of far more costly on-premise software solutions.

The net is, it’s time that companies tossed their sheaves of sales compensation spreadsheets to the winds. Be nostalgic about them if you want, but just get rid of them and automate. It will go a long way towards keeping you from having to be nostalgic about healthy top- and bottom-line growth.

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?

Cloud Computing - A Silver Lining

Is it true that every cloud has a silver lining? What about cloud computing? I was reminded of the silver-lining adage recently when I noticed that several online news outlets had picked up this story from silicon.com – the thrust of which is that many companies still are not even aware of SaaS.

Sometimes we may lapse into thinking that we’re a bigger deal than we really are; and this forces us SaaS vendors to work that much harder to earn validation in the marketplace.

This article quotes statistics taken from a study conducted by BT (British Telecom), “One of the problems that we've unearthed in a survey that we did recently was about 81 per cent of customers we spoke to didn't really know about software as a service…”

This quote was from Chris Lindsay from BT, who goes on to say, "It's quite eye-opening really in terms of the lack of awareness but [also] the benefits are very clearly spelt out by the customers who have adopted the services…"

So the bad news is that 81% of companies (in the UK anyway) aren’t familiar with SaaS as a delivery model, but the good news is that, if they were familiar with it, they’d like it.

Unfortunately, several other online media outlets picked up this story and trumpeted it from the rooftops, using the somewhat sensational (and misleading) headlines such as, “Business Not Taking to SaaS”, “Businesses Still Clueless Over SaaS”, and “Businesses Still in the Dark About SaaS”.

What this tells me is that we – as an industry – still have a lot of work to do in order to get the word out on the SaaS delivery model in general. I think, too often, perhaps we forget that Silicon Valley doesn’t extend worldwide yet – in different parts of the world, the market penetration and mindshare that SaaS has claimed varies wildly depending on the geography you’re talking about.

Remember that the study in question was conducted in the UK, and there was some great news out of that region earlier this week, when TechWorld (billed as “The UK’s infrastructure and networking knowledge centre”) published this article that found a majority of companies planned “to adopt SaaS within five years.”

Neil Barton, director at Hostway, said: “Companies are certain that SaaS will make their application usage more c006Fst-effective because of the reduction in software management costs, and the ability to eliminate buying too many or too few software licenses.”

I agree with Jeff Kaplan of THINKstrategies who said, "I think (SaaS) adoption is far more advanced than is being readily reported.”

What SMBs are most concerned about is the functionality, Kaplan said. What they're finding is it's not just simpler and less expensive, it also adds a whole layer of application opportunity they couldn't get from legacy apps.

"A lot are having a revelation."

So perhaps that’s the silver lining to this particular cloud?

If not that, then perhaps the news yesterday that Symantec had agreed to buy MessageLab’s SaaS business unit for $695 million. Clearly, Symantec’s CEO John W. Thompson expects to make a major push into the SaaS market immediately. Reaction from industry media members was positive, as TheStreet.com and Forbes both published articles lauding the acquisition – one titled “Symantec Adds to Web-Software Arsenal”, and the other cleverly titled “Symantec Has Its Head in the Cloud”.

I think we’ve only seen the beginning of large companies looking to strategically make inroads into the SaaS/cloud-computing market. It makes too much sense to ignore, especially in these trying times.





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Da Vinci, Plate Tectonics and CapEx Budgets

Here in San Jose, where Xactly is headquartered, the Tech Museum of Innovation – located right down the street from us – recently unveiled the world premiere of an exhibit titled ‘Leonardo: 500 Years into the Future’, billed as “the largest, most comprehensive exhibit of the innovative art, science and engineering works of Leonardo da Vinci” and “a once-in-a-lifetime opportunity to see how this genius of the Renaissance has influenced and inspired much of the technology we use today.”

Now, I already knew some things about da Vinci and his life, but I learned that in addition to being one of the greatest painters and sculptors of all-time, his ideas about improving the world around him were simply astounding. In a time when no real technology existed, da Vinci “conceptualized a helicopter, a tank, concentrated solar power, a calculator, the double hull and outlined a rudimentary theory of plate tectonics. Relatively few of his designs were constructed or were even feasible during his lifetime, but some of his smaller inventions, such as an automated bobbin winder and a machine for testing the tensile strength of wire, entered the world of manufacturing unheralded. As a scientist, he greatly advanced the state of knowledge in the fields of anatomy, civil engineering, optics, and hydrodynamics.” [source]

He did all this five hundred years ago! I think it’s clear that the assertion made about da Vinci that he was perhaps ‘the most diversely talented person who ever lived’ is unequivocally correct.

Why am I telling you all of this (apart from the fact that it’s fascinating, and I seek to enlighten and instruct)?

Well, I was going to open this blog post by saying that we’re living in uncertain economic times.

But I stopped and realized that that’s an understatement on the same sort of level as saying “Leonardo da Vinci was slightly ahead of his time, don’t you think? If he was alive today, I’ll bet he'd be smart enough to have his own cable-access show, or maybe get a job selling Christmas trees at Home Depot. Possibly.”

It doesn’t quite capture it – and the economic crisis we’re facing can’t be understated. So it got me thinking about the need for companies to cut spending and save money on upfront costs; budgets are being slashed all over the place. But in most cases, companies don’t have the option to stop buying solutions altogether, they just must make smarter decisions about how they spend their money.

Opting for a SaaS solution in order to save their capital-expense budgets makes a lot of sense for these companies. As the always-eloquent and erudite Phil Wainewright points out in his blog, this financial crisis should be an opportunity for SaaS companies to continue to grow.

Phil says in his latest post, “If credit remains tight, then one of the first things businesses are going to cut is capital expenditure — either because they can’t stomach the risk, or because they can’t raise the finance. The upside for SaaS vendors is that those cash-strapped businesses will find the pay-as-you-go SaaS model highly appealing — especially if it helps deliver operational cost savings at the same time. So while the credit crunch seems certain to harm the front-loaded cost model of conventional software sales, SaaS should continue to grow by picking up some of those canceled projects.”

Sing it, Phil. We are in lock-step with you on this kind of thinking.

Additionally, when one considers that among the hardest-hit entities at the moment are the banks and financial institutions, I enjoyed this article (published by AmericanBanker.com) that touts the advantages of SaaS and BPO as an effective way to cut costs in the current economic climate.

To quote the article, opting for outsourcing some processes and choosing Software-as-a-Service solutions “not only reduces the bank's operating expenses and protects them from cost spikes… it can also help institutions reduce their risk through service level agreements. This allows executives to focus their attention and resources on critical areas like customer experience and new product strategy to stay competitive and grow their businesses.”

Banks, as we all know, are not early adopters when it comes to technology. They are forced to remain fairly conservative and are not prone to making broad sweeping changes in the way they run their business. I like the idea that we can help them navigate through this choppy water, and help them look ahead into the future.

Maybe not 500 years ahead like Leonardo… but we’re working on it.




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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.

Webinar Replay Now Available: SaaS + Sales Performance Management = Recession Resilience

We've just made the recording our recent webinar with Forrester available:
View: SaaS + Sales Performance Management = Recession Resilience

Note: Registration is Required

Overview:

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.

ForresterLiz 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?

View: SaaS + Sales Performance Management = Recession Resilience

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

Selling Power - Sales Performance Management Video Series

Christopher Cabrera recently completed a series of short videos with Gerhard Gschwandtner, Founder and Publisher of Selling Power. In this series they cover topics ranging from issues created by managing sales compensation with spreadsheets, key elements of sales compensation plans, and sales performance management.

Part I: Sales Performance Management and Compensation

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Part II: Successful Compensation Plans

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Part III: Sales Performance Management

(Runtime 5:28)