The ROI on SPM. How Sales Organizations Are Realizing Value from Sales Performance Management Software. Research Brief.

Transcription

1 SalesManagement.org The ROI on SPM How Sales Organizations Are Realizing Value from Sales Performance Management Software Research Brief January 2010

2 Sales Compensation Plan Policies The ROI on SPM How Sales Organizations Are Realizing Value from Sales Performance Management Software An emerging software category called Sales Performance Management, or SPM, is providing a new level of sales management insight for firms who ve adopted SPM systems. Interest in these systems is surging, due in part to the value they provide sales organizations confronting reorganizations and deployment changes an increasingly common circumstance in the wake of the global economic crisis. With quick payback and strong ROI, SPM implementations are comparatively easier to justify for firms that would otherwise struggle to justify large-ticket sales organization investments. This Research Brief examines SPM in detail, including its effect on sales management practice, and identifies the key value and ROI drivers for firms considering implementing SPM systems. Firms adopt SPM for a variety of reasons: to sharpen management visibility of sales force performance; to enhance management effectiveness in complex sales environments; and to improve sales productivity by optimizing sales territory deployment and incentive compensation plan investments. Most firms making SPM investments share a common aspiration: the alignment of sales, sales support, and other customer-impacting functions around a core set of objectives and goals. SPM enables this by taming complexity inherent in complex sales organizations data streams, and presenting coherent, compelling analytics to management in a timely fashion. Page 2

3 Realizing Sales Compensation ROI from SPM Plan Policies Firms adopting SPM realize benefits in four broad areas: cost reduction, improved pay plan effectiveness, increased sales capacity, and enhanced management insight. Benefits in these four areas include quantifiable expense reduction, and less easily quantified but potentially more valuable opportunities for enhancing sales capacity and productivity. Cost reduction and avoidance SPM systems reduce costs by increasing accuracy, reducing administrative requirements, and enhancing audit trails. Sales compensation represents the bulk of most firms selling expense. These costs are predominately cash payroll, but also include the significant administrative costs associated with calculating payments, auditing payment accuracy, adjudicating appeals, and adapting to plan changes. An oft-overlooked cost of pay plan administration is the cost of overpayment. Virtually all firms who ve not adopted automated incentive compensation management tools incur costs associated with payment errors; reducing these errors represents SPM software s most easily quantified benefit and the most immediate return to firms adopting SPM. Conventional wisdom holds that payment errors in the employee s favor are rarely reported or recovered, unlike those errors in the company s favor. The resulting cost of overpayment is estimated at between four and six percent of total incentive compensation costs. KLA-Tencor, a global software and services firm serving the semiconductor manufacturing industry, reduced manual effort and compensation calculation time by 50 percent each month after adopting SPM. Waste Management estimates that its incentive compensation administration efforts have been reduced by 10,000 man-hours per month as a result of SPM adoption. SPM installations frequently reduce the number of personnel required to administer sales compensation programs. Based on our discussion with firms adopting SPM, it is not uncommon for the annualized savings realized from reduced plan administration headcount to offset the initial software licensing costs for an SPM installation. Reduced fees for outside auditors are an additional cost reduction benefit that accrues to firms with SPM. By providing enhanced accuracy and clear audit trails, SPM can help firms avoid costly audit-driven inquiries into sales compensation calculation and payment practices. Improved Pay Plan Effectiveness Effective sales compensation plans provide coherent, well-communicated, and timely links between pay and performance. Even well-designed pay plans become ineffective when these links are compromised; when, for example, earnings calculations take too long and follow too Page 3

4 Sales Compensation Plan Policies far after sales success, or when the complexity of sales incentive calculations defy the average salesperson s ability to understand how incentives are earned. SPM shortens calculation cycle times, speeding the time between field sales success and payment. SPM also provides communication tools capable of unraveling plan complexity and explaining the basis of incentive compensation earnings for plan participants. These tools include earnings statements, individual earnings calculators, and plan documentation; these improve participants understanding of pay plan intent and provide confidence in calculation accuracy. Without such clarity, productivity suffers as many in the sales organization feel compelled to muster a shadow accounting effort, burning precious selling time in an effort to simply understand the pay plan and their earnings. SPM provides a level of transparency and communication that measurably improves employee trust and engagement within the sales force. SPM provides a strategic command of variable compensation management that can enable an adopting firm s interest in using incentive compensation outside the sales force. Waste Management used a successful SPM deployment to provide incentive compensation to its 40,000 hourly employees, including drivers. Integrating complex transactions and executing a large weekly payroll were only possible with the support of their SPM system. Waste Management s programs provides driver incentives for meeting weekly productivity and safety objectives, and is designed to enhance impact overall company profitability. Increased Sales Capacity Reduce the time salespeople spend making sense of their compensation program, or scrambling to assemble the data needed to understand their performance, and their available selling time will increase. Globalive reduced monthly sales downtime by five to six hours per individual. KLA-Tencor reports a similar per-individual improvement in monthly sales productivity. The gains came from improved sales reporting and analysis, and the improved sales capacity is cited by management as a key reason the firm is meeting sales force and corporate growth goals. There are other sources of increased sales capacity attributable to the use of SPM. Faced with the need to reset territories and customer assignments in response to business, market, or personnel changes, companies without SPM typically make such changes using stand-alone spreadsheets or other approaches similarly disconnected from their core performance data. It s an inefficient process that most firms do once per year. SPM enables more frequent changes in account assignments, quotas, or crediting in response to changing conditions, simplifying and speeding the process of adapting pay calculations and updating performance reporting. This capability greatly improves sales deployment effectiveness in dynamic market environments, while enhancing productivity and performance management for the affected personnel. As a result, sales organizations are able to optimize sales coverage Page 4

5 Sales Compensation Plan Policies and deployment on a real-time basis, using an integrated system, rather than relying on patchwork manual adjustments until the next annual planning cycle. SPM can profoundly impact organizational responsiveness in making large-scale changes as well. Changes to product or service offering, sales coverage footprint, or channel strategy can be implemented more quickly by leveraging SPM, with less administrative complexity and fewer required resources. Enhanced Management Insight SPM s most strategic benefit is enhancing management insight. By improving reporting, SPM sharpens management s visibility into sales force performance. Just as significantly, it allows management to anticipate future performance by modeling proposed deployment changes, compensation plan changes, or quota changes. This robust modeling capability provides valuable speed-to-market advantages to SPM users considering strategic changes in deployment. These benefits, while difficult to quantify, should not be under-estimated. Many of the SPM-adopting firms we spoke with cite the enormous value of more precise reporting and modeling capabilities. Such insight s value increases exponentially in uncertain and volatile markets. American Century Investments, a broad-based investment services firm with $100 billion under management, found SPM critical in adapting its sales force strategy during the recent financial markets chaos. Using SPM, American Century could adapt sales force goals, the emphasis assigned specific performance measures, and sales territories based on shifting demand and changes in product mix. SPM provides a portfolio of benefits that help companies remove cost, increase sales productivity, align sales performance with company objectives, and improve management effectiveness. This combination is especially valuable in the current economic climate, given many firms emphasis on productivity improvement without headcount growth. As such, SPM represents an important tool for sales leadership, and a promising source of performance improvement for adopting firms. Page 5

6 Note Sales to Compensation Members Plan Policies This document has been prepared by The Sales Management Association for the exclusive use of its members. It contains valuable proprietary information belonging to The Sales Management Association, and each member should not disclose it to third parties. In the event that you are unwilling to assume this confidentiality obligation, please return this document and all copies in your possession promptly to The Sales Management Association. The Sales Management Association has worked to ensure the accuracy of the information it provides to its members. This report relies upon data obtained from many sources, however, and The Sales Management Association is not engaged in rendering legal, accounting, or other professional services. Its reports should not be construed as professional advice on any particular set of facts or circumstances. Members requiring such services are advised to consult an appropriate professional. Neither The Sales Management Association nor its programs are responsible for any claims or losses that may arise from a) any errors or omissions in their reports, whether caused by The Sales Management Association or its sources, or b) reliance upon any recommendation made by The Sales Management Association. Descriptions or viewpoints contained herein regarding organizations profiled in this material do not necessarily reflect the policies or viewpoints of those organizations. About The Sales Management Association The Sales Management Association is a global professional association focused on sales management s unique business and career issues. The Sales Management Association fosters a community of interest among sales force effectiveness thought leaders, consultants, academics, and sales management practitioners across many industries. Through training workshops, online resources, and research materials, The Sales Management Association addresses the management issues of greatest concern to practicing sales managers. The Sales Management Association s focus areas include management leadership, sales force performance coaching, sales planning, sales process management, enabling technologies, incentive compensation, and sales force support. The Sales Management Association Page 6