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What You Don’t Know Can Hurt You

How would you feel if you had the opportunity, as a new company, to secure a client, which was one of the largest financial institutions in the world? Quite remarkably, that is what we did. In 2005, after being put through an exhaustive evaluation period, and facing questions about our size, years in business and responding to every other objection you could imagine, Lehman Brothers selected Glocent as its sales compensation management solution to replace an in-house system that had been built around PeopleSoftTM. After years of trying to use PeopleSoft and its custom solution, Lehman Brothers realized that it needed something much more robust to manage its mortgage business.

Do you see a red flag contained in that last statement? At the time, all of the major financial institutions were becoming heavily involved in sub-prime mortgages; and Glocent was being pulled into something about which we had very little knowledge.

During our initial analysis, however, we quickly discovered one glaring risk connected to Lehman’s approach to its mortgage operations: there was a very large amount of money being made; and almost no structure in place to accurately handle it. We found that the system we were replacing was little more than a spreadsheet solution that was managing tens of millions of dollars in monthly sales. There were no audit capabilities. Only one person seemed to understand the myriads of formulas that were being applied to the sales data to determine commissions. Yet, some agents were making hundreds of thousands of dollars a month selling sub-prime mortgages.

Once Glocent was in operation, we uncovered serious and possibly fraudulent mismanagement of the financial operations involving the commission payments resulting from the mortgage business. Checks were being paid with little understanding of why the commissions were justified.

Do we think that Lehman Brothers purposefully set out to create such a chaotic and unmanageable situation? Absolutely not! It was simply a by-product of a chaotic environment that was producing such astounding revenues that no one was very concerned about people taking advantage of the opportunity. Who cared if someone was paid $80,000 in commissions when they really deserved $45,000; especially if the company was making a million dollars on the transactions?

Well, along came this little-known company that had the mandate and unexpected capability to bring complete transparency to the situation. The impact was immediate. Those who had created the in-house solution were immediately let go. The cost savings Glocent produced just from correcting overpayments and reducing administrative overhead paid for the solution immediately.

While Lehman Brothers proved to have many more problems than what Glocent could solve for the mortgage operation we supported, it quickly learned that the investment it was making in its people, product, marketing, etc. was being wasted by its own behavior. The old adage that, “What you don’t know can’t hurt you;” certainly does not apply in business. In this case, it brought down an institution that had been in existence for over 138 years.

I will never forget the day we received notice from the New York bankruptcy court inviting our company to participate in the bankruptcy process for Lehman Brothers. My first thought was how crazy it was that such a prominent company would fall prey to the economic collapse and our little company hadn’t. I still have that letter.

Sales are the life blood of every company. Remarkably, the processes used to oversee them, pay the associated incentives, and align behavior to corporate strategies remain, in large part, dependent on manual controls and opaque processes. Virtually everything a company achieves and every investment it makes remains dependent upon the success of its sales department; but it often is left to the finance team to ensure that sales are effectively leveraged. Glocent would like to partner with you to make that happen.

Transparency at the speed you do business!