Some solutions that are considered to be part of the SCM market are sold by vendors who recognize the potential of such applications but haven’t found a way to effectively realize it. They confuse sales force performance with compensation management. Some start out as Sales Force Automation (SFA) applications, designed to track a sales person’s contacts and opportunities; but then attempt to morph into a commission calculation application. These “solutions” can create more havoc than the processes they attempt to replace, because customers purchase them expecting them to solve a very specific need when most do not. The flip side of this scenario is the applications that start out as incentive management solutions, but because they have inherent intelligence gathering and calculation weaknesses, they ultimately morph into SFA tools. They all suffer from the same identity crisis.
The Sales force Performance Management (SPM) solutions professing to be able to double as SCM tools all share one common flaw. They attempt to merge two distinct business processes that must remain separate. An SFA tool’s purpose is to track a sales person’s activity and ultimately forecast the business that the activity will create. In order to provide this forecasting capability, a sales person (a subjective data source) enters pipeline and funnel information, along with estimates projecting the likelihood of sales being closed. As time progresses, the information is modified to reflect successes and failures. It is an ever-evolving process with no specific end point. Even when a sales person can determine that a sale has closed, there are still many influences that can impact the revenue that sale produces.
Key to the previous explanation is that the sales person is allowed to enter subjective data into a system that will ultimately generate monetary payments. Can you see an inherent problem in allowing any kind of subjective information to enter into incentive payments? It is never a good practice!
Since so much information can be contained about sales in an SPM tool, why not use that information to determine incentive compensation? Hopefully, the answer is very clear. There is no direct correlation to this information and a company’s actual revenues. Many companies make the mistake to commission sales forces based on booked sales as they are recorded in SPM tools. Quite expectedly, however, not all booked sales progress into actual revenues. In some cases, sales are never actually closed; in others they become disputed; and in some industries the complexities of product bundling, inventories and third-party services can influence a sale so much that the final billed sale does not mirror the initial booked sale.
This approach generates two problems for the business. First, SPM tools inevitably set false payment expectations for the sales force. This only encourages shadow accounting and lost productivity. Second, such applications generate inaccurate information, which is often used to develop new business strategies. As the first case study revealed, this can be costly on multiple fronts.