Building a Stronger Business with Sales Performance Management. How SPM can transform your sales processes for business success An Executive Summary

Transcription

1 Building a Stronger Business with Sales Performance Management How SPM can transform your sales processes for business success An Executive Summary

2 Table of Contents What is Sales Performance Management... 3 IBM Perspective on SPM... 5 Why CFOs Care about SPM... 6 Choosing the Right Vendor for SPM... 8 Implementing SPM... 9 Strategies for SPM Reporting and Analysis...11 Results from Implementing SPM Download the Full Report

3 WHAT IS Sales Performance Management Sales Performance Management aligns selling resources with business priorities. Encompassing incentive compensation, territory management, and quota planning, Sales Performance Management solutions automate the calculation, reporting and analysis of key sales operations processes. Many businesses lack the flexibility to modify their plans to capitalize on opportunities or address emerging threats. For countless businesses, calculating incentive compensation remains a manual process that takes too much time, produces too many errors, and lags selling activity by about three months. Sales Performance Management (SPM) systems automate the entire process, from retrieving sales data to designing accessible reports. Show me a company s various compensation plans, and I will show you how its employees behave. Jack WelcH Former Chairman & CEO of General Electric So wrote Jack Welch, former chairman and CEO of General Electric, suggesting that an effective incentive compensation plan will motivate salespeople to focus on bringing in profitable business. So why don t more companies use their variable compensation plans as management tools? What is Sales Performance Management 3

4 Given the turbulent business environment, there s hardly been a more propitious time for management to make sure that incentive pay is driving and will continue to drive sales behavior that translates into steady profits. For management, SPM systems supply insight into how an incentive plan is working or is likely to work if certain components are changed: n Will a specific shift in the incentive compensation plan trigger massive turnover? n Is it worth lowering quotas even though it will increase the cost of sales? n Who are the top (and bottom) 10 performers? n What factors (such as their territory) help keep them in that group? In addition to computing commissions, bonuses, and incentives SPM systems provide performance dashboards for both salespeople and sales managers so they can see for themselves how they are doing. SPM systems also provide an audit trail, making compliance much easier. The transparency relieves salespeople of the time-consuming task of maintaining their own scorecards, commonly known as shadow accounting. By clicking on their results, participants can view the supporting details. This is a great business process to automate, says one CFO. What is Sales Performance Management 4

5 IBM PERSPECTIVE on SPM To track the pulse of business leaders, we asked CFO Research to facilitate a series of conversations with executives who have first-hand experience with the power of SPM. What we wanted to know could be boiled down to a few simple, all-encompassing, questions: n What drove them to consider SPM? n What steps did they follow to purchase, design, test, and implement SPM systems? n And, so far all had begun using their systems within a few years what return have they seen on that investment? One CFO had an answer right away: $500,000, the money his company saved in expenses to maintain and provide support for its previous homegrown system. $500,000 ROI saved by implementing SPM and cutting a previous compensation system The following are the results of our findings. IBM Perspective on SPM 5

6 WHY CFOs CARE About SPM With finance executives focused on maintaining profitable growth, they must be able to make accurate assessments of the financial impact of their companies compensation plans. Taking advantage of SPM systems, CFOs can preview how changes in compensation plans will affect forecasts, which can ultimately help management balance the costs and risks of launching new initiatives. Looking at compensation as they would any other major expenditure, CFOs are eager to find out: Is the company making the best use of every dollar? Could we have spent less and received the same result? By allowing executives to accurately simulate incentive options, an SPM system mitigates risk. While admitting that this advantage is very difficult to quantify, one CFO says that SPM has been absolutely invaluable to me. Without such technology, the CFO says he was forced to make high-level assumptions, which could have a huge impact...on [our] expense forecast. If you re spending less time trying to figure out what your compensation is and why you should be able to spend more time selling. CFO, Mobile Messaging Services Provider Why CEOs Care About SPM 6

7 SPM s overriding value is the flexibility it allows. According to executives we interviewed, ROI considerations for adopting SPM include: n A decline in error rates. n Reductions in the total costs of supporting current and future spreadsheet-based systems, which don t scale cost-effectively as a company grows. Where we used to have six or seven sales channels, we now have 20 or more test channels out there, says one sales executive. n Improved sales and margins achieved through fortifying the link between certain incentives and sales behavior. n Improved efficiency of incentive budget spending. How much could you save by investing in SPM? Why CEOs Care About SPM 7

8 CHOOSING THE RIGHT VENDOR for SPM Executives from companies we interviewed said that while they considered vendors whose expertise was not SPM mainly because their technology would easily integrate with the company s other systems they ultimately chose one that was focused solely on SPM. One company eliminated a vendor candidate because it was very new to sales performance management, says an executive. The concern is that we sign a contract for a number of years, and we make a big investment to configure it. offered, say, quota or commission management), concerned about taking on an additional level of risk. Some vendors simply weren t convincing about what they could deliver. We quickly realized that they [the vendor] could not handle the level of transaction data we were going to be providing, said, the director of human resources management systems and payroll operations at a large retail organization. So we walked away from that relationship. Work with IT to confirm that the SPM system can integrate with legacy systems. Ensure that your vendor can handle the amount of your company s transactional data. Buyers don t want to make such an investment in vendors that could possibly vaporize. Customers we spoke with also tended to avoid choosing vendors that relied on third parties (for separate modules that The task force also included, or solicited input from, functions such as IT and sales management. The participation of IT was key to determining whether the vendor s system could be easily integrated with legacy systems. Sales was crucial in helping design an accessible self-service reporting function for salespeople, who would be able to access a daily (or weekly) review of their activity and commissions-to-date. Sales executives use their reports to analyze performance by quota, product, or region, identifying areas ripe for growth and meriting more attention. Choosing the Right Vendor for SPM 8

9 IMPLEMENTING of SPM After the purchase decision is made, an implementation team is assembled. These smaller groups include outside advisers, such as specialized consultants (in areas like call-center compensation) or the vendor s own implementation specialists. The decision to implement an SPM system requires companies to analyze and often overhaul the existing structure of their variable compensation plans, as was the case at Hertz Corporation. Until about three years ago, a Hertz customer would deal with a different sales representative for every type of transaction, from booking cars for a tour group to using them in a corporate fleet. But to make it easier for customers, the company decided that each customer would be served by a single salesperson. We had to completely redesign our compensation plans, says Lynn Ferrara, the company s senior director of compensation and human resources information systems. We wanted something that was proven not something that needed to be built from the ground up. Compensation Manager, Health Insurance Provider SPM can uncover new incentive opportunities. Company managers may discover rewards that run counter to the company s larger goals sales managers, for instance, who receive bonuses based on their unit s revenue growth, as opposed to its profitability. At Shaw Industries, a maker of Implementing SPM 9

10 flooring products, management concluded that it shouldn t be compensating its salespeople based strictly on profit. We didn t want territory managers incentive to be impacted, positively or negatively, by such things as the cost of raw materials, which are outside their span of control, says Carla Clark, special projects manager for commissions. At mblox, a provider of messaging services, CFO Steve Love says that the payouts for bringing in new business a highly valued activity lagged behind the sales activity by as much as three months. We wanted to reward those business closers much closer to the time [of the sale], he says. Targeted bonuses can help boost sales or product or category. With SPM systems (which are available on-premise or as a cloud-based service) managers can quickly initiate targeted bonuses in an effort to boost sales of a specific product or category. SPM systems can also accelerate product introductions, as well as territory and channel realignments. Implementing SPM 10

11 STRATEGIES for SPM Reporting & Analysis The reporting function is an important part of any carefully designed and well-executed incentive compensation plan. SPM s reporting capabilities can funnel payment information into pie charts, gauges, and other simple means for reporting results. Enabling salespeople to see their results at a glance fuels a performance-driven environment that also supports behaviors that align with the organization s business strategy. One compensation analyst we spoke to told us that her interest in implementing SPM was driven not by its calculation capabilities she was confident that she could handle the math but by the prospect of being able to make incentive pay reports easier for users to grasp and digest. Incentive pay reports become much easier to read and digest. The overarching problem with reporting is that companies spend too much time trying to figure it out on their own, when they could be generating business. Depending on how thoroughly they understand their incentive plans, sales representatives can miscalculate their rewards leading to dissatisfaction when they receive the correct amount. At one company, we d send out the statements at the end of the quarter and there would be tons of questions about how this was calculated or how that was calculated, recalls a compensation executive. We started talking about having a system where the sales representatives could log on 24-7 and see their results on a daily basis. They would know immediately what they were achieving. With an intuitive and easy-to-use interface, tailored versions of SPM systems reports roll up to every management level, from sales representatives to sales managers to regional managers and upwards. Most of the executives we interviewed first tested their reporting capabilities on a discrete segment of management regional directors, say that had the most comprehensive information needs. At some companies, the first reports consisted of line-by-line details about every invoice, including the commission rate and the dollar amount. To analyze their performance, salespeople had to export the data to Excel. Strategies for SPM Reporting & Analysis 11

12 To make the reports more useful, the SPM implementation teams got feedback from their test groups, using it to add or reorganize data. An improved version, for instance, might make the data sortable by invoice number, date, or customer. At Shaw Industries, the territory managers wanted to view sales and commissions organized by customer. They also requested a summary page that would show the commissions they received on each plan. They started seeing the potential and began asking for more, which is great, says Ms. Clark, who says the company is still working on rolling out new SPM features. During its trial of its SPM system, one company learned that not only did its sales representatives appreciate checking their current- versus-goal sales commissions on a regular basis, but they also modified their behavior as a result. The representatives would also catch mistakes in the calculations, such as a charge against their net sales or a transposed number that reduced their commission, before any checks were processed. Reports can be customized to reflect company priorities. Making an inquiry about a commission also got easier. Salespeople could send a screenshot or click a box to send their question through the system, bypassing the need for . The system tracks the query as it moves from, say, a sales manager to a compensation manager. Before, I had no clue how long it would take to resolve an issue, says one executive. Now everything can be tracked. And, actually, a lot gets resolved in a day sometimes immediately. Now everything can be tracked. And, actually, a lot gets resolved in a day sometimes immediately. Sales Executive, After implementing SPM Strategies for SPM Reporting & Analysis 12

13 RESULTS from Implementing SPM Nearly every executive we interviewed pointed to an obvious, if not quite immediate, result from implementing SPM: the reduction in queries from salespeople about whether their incentive compensation had been calculated correctly. None of our sources reported that employees needed extensive, or even significant, training to use the system, although some as always protested change of any kind. They anticipated that the SPM system would not only influence salespeople to sell with increased efficiency but also with greater sophistication, with more use of cross-selling, up-selling, and teamselling as well as a higher close rate overall. The SPM implementation process added value to specific factors that drive the sales plan and pipeline. Not all the signs of improvement are subtle. At one company, it used to take 14 hours for its aging software to calculate commissions. If anyone made a change in the data, it had to be recalculated all over again. The company, which implemented a newer version of an SPM system, can now carry through its calculations in a couple of hours, giving managers more time to be productive. With the competitive arena constantly changing, companies need to revise their compensation plans to reflect, for example, ever-changing product mixes. Otherwise, salespeople will very likely keep selling whichever product they know best which may not be the one that s critical to the company s strategic objectives. At mblox, the incentive compensation system is built around one number: regional gross profit. It has the impact of saying, We re all in this together, says Mr. Love. At one media company that adopted an SPM system, incentive compensation is now arranged around selling bundles of products; salespeople are rewarded for a client s total spending. A sales executive at the company estimates that about 60% of customers now buy such bundles. In the company s past, which stretches back about 100 years, salespeople collected commissions on a per-product basis. Results from Implementing SPM 13

14 SPM systems decrease the friction between sales management and sales representatives. Beyond facilitating any particular sales strategy or even reducing administrative expenses, SPM systems decrease the friction between sales management and sales representatives. By giving the sales force the ability to see and explore the data for themselves, they spend less time checking up on or being suspicious of management s intentions. Before, as one CFO says, employees didn t understand what their achievement was. As a result, we got a lot of push-back on everything about the plan. Now, equipped with a clear understanding of what s in it for them, salespeople can focus on more substantive strategic issues as can management, which spends less time reiterating how incentive compensation works. Just ask one compensation manager at a health insurance provider based in New York. Before the company implemented an SPM system, he spent three weeks out of each month manually processing incentive compensation. And now? The whole effort takes about a week. This has given me the opportunity to do everything else I should have been doing on the general compensation side, he says. It s more rewarding for me and for the company. That shift, he might have added, demonstrates the power of SPM systems. Results from Implementing SPM 14

15 Download the Full Report Conversations on SPM Download the full IBM CFO Research report: Or, learn more about the IBM perspective on SPM here: n ibm.com/business-analytics/spm n ibm.com/business-analytics/spmsolutions n IBM SPM demo YTE03004-USEN-00