ICM Evaluations

by Alan Marrott Alan Marrott No Comments

System Support Costs— YOU CAN CONTROL THEM!

 

Three considerations before you buy:

Your business plans to purchase a mission critical enterprise software solution, what should you know?  Will the software meet your objectives?  How long will it take to implement the new system?  What will it cost?  Let’s focus on the last question.  There are three costs tied to the purchase: the software application, system configuration and future support fees.  Typically, the primary focus of software contract negotiation centers around the application cost.  That is often thought to be the largest financial commitment.  Less apparent and perhaps more costly, however, are the unanticipated cost overruns tied to application implementations, and the inevitable support required to update and maintain the system.

Many financial executives will tell you that what frustrates them the most about software purchases is the budget-busting cost overruns to implement and support them.  Before you agree to pay anything for a software system, you should lock in all costs to purchase, implement and support that system.  Some  vendors will likely argue, however, that this is not possible.  They will cite the many nuances, unique needs and unknowns each business or customer brings to the project.  That argument should generate the question, “Is that the vendor’s, or the potential customer’s problem?”

Know what you are purchasing:

Would an informed purchaser by anything knowing that it wouldn’t work?  Would you buy a new computer if you knew that it would only work “most” of the time?  Would you buy a new phone if you had to pay additional monthly fees to update the software behind it?  Would you purchase a new-build home if, after agreeing to the price of the home, it took several months longer to build than promised?  Would you agree to pay a higher at the time of closing for unexpected work?  Would you move into that house knowing that some of the appliances didn’t work, the roof leaked, and the foundation was already beginning to crack?  If not, why purchase a software application you can’t install in the time allotted, for a set cost, and will perform all the functionality it was promised to support?  Unfortunately, that happens every day.

Properly informed purchasers understand the importance of locking down both the benefits expected and the costs to achieve those benefits.  So, how can you accomplish that when you negotiate the terms of a software application agreement?  The contract should ensure full satisfaction of system operations for the price negotiated.  Next, the implementation cost should be set as a fixed price, regardless of the unknowns encountered during the process.  You would expect a vendor knows its business well enough to anticipate those.  Any deviation from that price must require the purchaser’s pre-approval, and allow the purchaser to kill the project if no approval is secured.  Finally, ongoing support costs should be offered as a set price, not based on fluctuating hourly support fees.  Beware of vendors who offer support, and bill by the hour.  That scenario creates inevitable cost uncertainties.

Hourly support fees serve two purposes.  They generate ongoing revenues due to product imperfections and limitations, while creating the false sense of comfort that help is just a phone call away.  Secondly, it reveals a vendor’s lack of confidence in its own product.  After all, if a product can accomplish all that it professes to support, those costs should be predictable.

Take control:

The solution to control these variable costs is straightforward.  First, ensure sure that you purchase a product that provides the correct solution (proof of concept) https://glocent.com/2020/02/.  Second, insist that the vendor support the application’s performance with a full guarantee.  Third, settle for nothing less than a support plan similar to Business Process Management as a Service (BPMaaS).  This ensures complete support for a fixed price.  Learn more about this support model at https://glocent.com

 

Don’t fall into the intentional trap of buying something that may never work, will cost more to implement and maintain than the purchase price, and will leave you feeling frustrated as long as you are forced to use it.

by Alan Marrott Alan Marrott No Comments

Successful Compensation Management Requires Balance

 

Variable Compensation: A Hybrid of Art & Science

When experiencing the challenge of creating compensation plans that cost-effectively motivate your salesforce, or workforce in general, to follow corporate strategies or meet profit objectives, you soon learn that there are many moving parts involved in that process.  As markets, operations, products & services, and people change, incentive plans must adapt.  Seasoned executives and managers will often argue that developing effective compensation plans is more of an art than a science.  After consulting in the compensation management arena for twenty-five years, my opinion about this has evolved.

During my initial incentive management consulting work, I came to respect leaders who demonstrated an innate ability to read people and understand how to motivate them.  There was no obvious science that supported their level of success.  Without exception, however, successful sales leaders leveraged information, when possible, to augment their instincts.  I observed over time, however, that not only were the incentive metrics often subjective, but so too were the results.  As managers and executives began to appreciate the power of data, they realized that successful incentives must be based on both the art of managing people and the science of leveraging facts.

Where Science Supplants Art

I recall a client I assisted many years ago, who approached me with the objective to “increase sales”.  He operated a wholesale business that serviced retails stores located across the US.  His sales reps were assigned specific stores, through which his products would be sold.  Although he was operating a successful company, the owner was looking to incorporate more meaningful metrics for compensating his salesforce.  He realized that he needed to bring meaningful science into his management strategies.  After reviewing his company’s sales data, product catalog and commission plans, the existing transactional data revealed that key portions of the company’s commission structure had no influence on salesforce behavior, and actually undermined profitability.

Most glaring was the complete disconnect between a sales rep’s efforts and the periodic commissions earned (https://glocent.com/incentives-when-close-enough-is-not-good-enough/).  Under existing sales plans, a sales rep would receive a percentage of revenues generated from an assigned territory.  No other metrics were used to assess the sales rep’s contribution to generating those revenues.  Whether the rep visited each assigned store on a regular basis, or spent no time building a business relationship with the store, commissions were paid based upon a single metric across the entire salesforce.  No metrics were used to evaluate growth, profit margins or the impact of marketing practices.  Every sales rep was paid the same revenue percentage regardless of other considerations.

Another interesting revelation surfaced when we were able to document that the sales reps were actually being commissioned for loss-leader product sales at the same rate as high-margin products.  In some cases, that practice led to some transactions costing more to commission the sale than the transaction was worth to the business.  In some cases, the primary revenue being generated was from the loss-leader sales, which rarely led to subsequent purchases of more profitable products.

Fact-based Perception

After installing Glocent (Glocent.com), and it became possible to evaluate transactional data more accurately, the business owner quickly realized that treating every rep, territory, retail store and product the same was actually limiting his growth and stifling profitability.  He adopted performance metrics that had to be met in order for sales reps to qualify for commissions.  For example, each store must be visited within a specified interval.  Commissions were adjusted to reflect profitability and not just revenue.  If loss-leader products were offered to promote high-margin products, a certain amount of profit margin had to be achieved for those product combinations to qualify for commissions.

While the business owner knew his business, and became successful without the effective use of data and science, the transactional facts revealed significant deficiencies in the company’s incentives strategy.  Soon after implementing new metrics, incentive thresholds and ranges, and performance standards, the company experienced significant growth and profitability.  Within a short period of time, the company’s performance caught the attention of a large competitor, and the owner benefited from a very lucrative acquisition.

Understanding how variable compensation requires a balance of art and science and is critical to effectively influencing behavior.  A proper relationship and personal intuition are essential for effectively managing salesforces.  Personalities, corporate culture, market demographics, and a variety of other considerations should be part of every incentive strategy.  Where considerable benefits can be realized, however, is through augmenting a manager’s or executive’s experience and expertise with measurable data and meaningful analytics.  Where that becomes most apparent, is when predictive analytics derived from machine learning and artificial intelligence effectively influence incentives and performance.  https://glocent.com/products-and-services/predictive-strategies-using-artificial-intelligence-and-machine-learning/

by Alan Marrott Alan Marrott No Comments

Incentives–When Close Enough is not Good Enough

First question to ask regarding your sales incentives:

Whether a member of a sales organization, finance group or HR department, are you able to correctly quantify the value of variable pay for your employees? Strategic incentives should not be viewed like hand grenades, but based on a surgical focus. When evaluating incentive pay, close enough is not good enough.

Variable pay (commissions, bonuses, rewards, etc.) is commonly included in employee compensation packages.  Our experience, however, confirms that it remains an ongoing challenge for executive and managers to accurately quantify the value it produces. Have you ever questioned how something so essential to profitability is allowed to be managed more like an art than a science? When we conduct compensation plan analyses for clients, we regularly identify a common philosophy that close enough is good enough.  New clients are continually surprised by the misalignment our analysis uncovers between strategic objectives and the results they ultimately produce. Strategies are good to have, but in the end, results matter.

Actual Examples

One case in point: a new client (which is no longer in business) had never thought to validate the stock transaction information it was being provided by a large bank. The transaction data was used to calculate over five hundred international brokers’ incentives. What the brokerage firm could not determine, due to the convoluted and inaccurate data the bank provided, was that its incentives weren’t based on fact from the beginning of the process. Regardless of very aggressive incentive plans, they had no impact on the performance of the brokers.  Why?  Because incentives were based on erroneous information.  Strategies were deployed; but basing them on bad data produced devastating results.

After automating its incentive management processes, another client uncovered within the first pay cycle that its new, high-profile sales strategy was failing. It faced two immediate problems: 1) the strategy itself had been based on seriously flawed sales data; and 2) its commission plans were causing sales reps to act contrary to company interests. Until the client was able to approach incentives through leveraging meaningful analytics, the incentives were counter-productive.

While selling is more of an art than a science; the cost-benefit equation used to determine the effectiveness of the art is pure science. If you are in a position where you bear some responsibility for your company’s profitability, consider transforming the “close enough is good enough” perspective to a “what we don’t know could be costing us” point of view. You may uncover some valuable information that could change the way you do business.

by Alan Marrott Alan Marrott 29 Comments

Five Justifications for Requesting a Proof of Concept

Incentive Compensation Management involves strategies and variables unique to every business.  Proofs of Concept ensure that these are effectively addressed when automating that process.

 

Unique business conditions, strategies and operations

    1. Packaged software solutions can be very useful, until they aren’t. When it comes to process automation, exceptions do become the rule. If your unique needs are not supported, how useful can the product possibly be?
    2. Expose empty sales pitches. Sales professionals typically follow a standard pitch. Don’t allow those pitches to distract you from your strategic objectives. After the pitches are made, confirm how your objectives will be met.
    3. WYSIWYG: What you see is what you get. If a vendor can’t show you what you need to see, don’t expect that it will magically provide what you want. If a vendor can’t demonstrate how its solution can meet your specific requirements it never will, or it will cost you a lot to make it possible.

Mitigate risk

    1. Successful change management requires effective Risk management. System users who experience failed or disappointing results soon realize that lost money may not represent the greatest risk. Lost time, damaged morale, and loss of trust usually prove far more consequential than wasted money.
    2. Leveraging a proof of concept should expose risks that can lead to unexpected consequences. If specific functionality can’t be demonstrated during the evaluation process, negotiate a specific cost for creating it. Decision makers should be able to enter into an agreement that prevents surprises. It’s your money. Protect it.
    3. Too often, packaged solution purchasers consider the size of a vendor when selecting a solution. Why? One reason used to justify this self-defeating approach is, if things don’t work out, you can sue a vendor with deep pockets. Rather than plan for the worst, effective decision makers should focus on purchasing the best. Entering into legal entanglements for months or years following a failed implementation just introduces new risks. A better strategy is to ensure that your selected system works before you buy it.

Effective collaboration

    1. Successful system implementations begin with purposeful collaboration. Often times, relationships between a vendor and potential customer change once an agreement is signed. Working through a preliminary implementation, by creating a proof of concept that demonstrates how a system supports your key functionality, can provide insights into what to expect in a long-term relationship.
    2. A proof of concept can benefit all parties. The vendor quickly discovers how actively a prospect will support the implementation process. The prospect gains insight into the capabilities of the packaged solution, and how willing and cost effectively the vendor addresses functionality gaps.

Successful Implementation

    1. When properly constructed, a proof of concept should guarantee a successful implementation. It should end with one clear conclusion. It works!
    2. A failed or delayed implementation creates a bad first impression that may not be easily overcome. Taking time to create a meaningful proof of concept minimizes destructive surprises following a product rollout. A system’s credibility can be lost during the initial days of your users’ experience.
    3. A properly designed proof of concept creates a useful roadmap for a successful implementation. Standard functionality is confirmed, missing functionality is identified, and the effort to fill the gap can be quantified.

Partnership founded on confidence and trust

    1. Glocent’s (http://glocent.com) objective and track record reflect a commitment to complete and enduring client satisfaction. We won’t implement Glocent unless we are confident that it fully supports your incentive management operations both in the present and the future.
    2. One of our international clients has used Glocent for over eleven years. Its satisfaction with the results led to a reference that generated another client, which has remained a happy customer for nine years, and just recently, another customer that began using Glocent last year.   Without genuine trust and confidence, such long-term relationships do not occur.
    3. Another Glocent client succumbed to pressure to adopt a sales performance management solution from one of the deep-pocket vendors after it skillfully tossed out a myriad of bells and whistles during the sales cycle. Eighteen months later, the former client called and asked for help. Glocent was back in full operation within weeks. The legal battle over the failed implementation took years to resolve.
No situation justifies acting blindly or making an uninformed decision. Time and effort spent before a decision is made are typically far less costly than the consequences that follow a bad one….
by Alan Marrott Alan Marrott 7 Comments

Beware of Shiny Objects

The following scenario has become all too familiar.  Businesses come to realize the inefficiencies, inaccuracies and audit failures tied to managing incentive compensation with spreadsheets.  In an effort to improve and bring meaningful transparency to the process, organizations decide to purchase an automated Sales Performance Management (SPM) solution to address these deficiencies.  Months of effort, cost overruns and increasing frustration eventually end with a solution being implemented.  Months, weeks, or even days later, however, the users determine that the solution doesn’t support their incentive models and sales operations.

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