The Moral to the ICM Saga

Read Part 1 and Part 2 of this story first.

The blame cannot be put on one person. ABC Corp, the ICM vendor and the consultant all own some of the responsibility for the issue.

The entire situation could have been avoided if the requirements had been better designed. Requirements could have been better designed if the compensation plans had been completed with enough details. The vendor would probably have done a better job at scoping out the work initially or in certain situations may even have not submitted a proposal.

What can we take away from this story?

• Requirements cannot be fully defined unless the compensation plans are finalized. Requirements may be inaccurate or incomplete unless compensation plans show sufficient details and examples.
• An ICM solution cannot be selected unless the requirements are fully defined.
• Not all ICM solutions can handle very complex compensation plans (no matter what the vendor’s rep says). Some solutions are better suited for certain situations.
• Good requirements are the foundation for any IT project, mess up the requirements and the entire project will be shaky.
• Using an experienced consultant to help out with the requirements design, RFP writing and solution selection could be a good idea to select the ideal solution.
• Consultants and vendors alike cannot “always” guess client’s intentions.
• Mentioning or emailing a requirement is not enough, this requirement must find its way to the requirement document to ensure it is met by the implementation and properly tested.

The ICM Saga Continues…

It’s Thursday; meeting time. The vendor explains the requirements from the RFP did not accurately reflect what needed to be performed by the ICM solution. “Because the scope of the project did not include all this additional work, it will cost more and take more time to complete”, says the vendor calmly. “But your sales rep said it would not be a problem!”, exclaims the comp director of ABC Corp. “We specifically asked about this during the presentation and your rep said it you could do it!”.

The vendor finally agrees that because the relationship between their companies is valuable and because of their strong work ethics, they will honor the agreed cost and do everything they can to meet the deadlines.

However, problems keep piling up. The ICM solution is not intended to perform what would be required for the compensation plans to work how they are supposed to work. Data integration, workarounds and clever tweaking pushes the ICM solution to its limit. The client is asked to only include what is absolutely necessary in this release and push out the rest. The deadline is missed. The solution is finally implemented, but User Acceptance Testing keeps revealing new issues. The second pay-roll date is approaching but there is still no solution in sight.

Does this sound like a familiar situation?

Who should be blamed?

The vendor’s implementation team for not working harder, their sales rep for having mis-represented their solution or not asked for more detailed requirements, or the ICM solution for not being powerful enough? ABC Corp’s team or their consultant for not having defined the requirements properly?

[Read Part 3: The Moral to the ICM Saga]

The Saga of Purchasing an ICM System

ABC Corp hired a consultant with extensive Incentive Compensation Management (ICM) experience to scope the requirements to be included in the Request for Proposal (RFP) for the purchase of a new ICM solution. The consultant diligently researched the latest industry trends, ICM best practices, client needs and leveraged his experience to create an outstanding requirement document. Weeks later the RFP is born, after having spent countless hours being sent back and forth between the sales, finance, contract and legal departments.

The RFP is finally posted and it takes a few more weeks before all the proposals are in. The consultant is called again to help out evaluating the best proposal. A few solutions are short-listed, and vendors are called in to demonstrate their product. The vendor’s sales reps all claim their solution is the only end-to-end ICM solution, that it is the “best-of-breed”, and that it has the best analytics and reporting capabilities.

After thoughtful consideration, a solution is chosen. It was a hard decision, but everyone at ABC Corp are happy that this long procurement process is finally over. ABC Corp’s management is particularly happy that according to the timelines illustrated in the selected proposal, the solution will be in place to process this quarter’s commissions and bonuses. After all, this was one of the major criteria in the evaluation process.

A kick-off meeting between the vendor’s implementation team and ABC Corp’s employees is scheduled. The vendor requests to see all the existing documentation about the plans to be implemented including the requirements document, to start working on the functional design documents and solution architecture. The next meeting is scheduled for Thursday.

[Read Part 2 – The ICM Saga Continues]

For Love or Money: Social vs Monetary Reward

Social Status and cash activate the same reward centre in the brain. That’s what two papers in the latest Neuron journal (Volume 58, Issue 2) are saying. I’m always very interested by cognitive research attempting to explain how certain activities can affect human behavior.

The article “Know Your Place: Neural Processing of Social Hierarchy in Humans” by Dr. Caroline Zink and colleagues explains how information about social status activated the same brain regions.

The second article “Processing of Social and Monetary Rewards in the Human Striatum” by Dr. Norihiro Sadato supports how reputation affects people in the same way as money does.

A subscription is required to read those articles, but they were summarized in ABC Science article “Praise or Cash? Your brain doesn’t care“.

Personal Story:

These studies support my own view on the topic. Last month I discussed the impact of the size of a money bonus on performance. It would be very interesting to see a similar experiment where some a group receive a lot of encouragement and the other group receives no praise at all, to compare their performance.

One of my previous employers, as many employers do, offered an annual performance bonus. This bonus was a percentage of the annual salary, but every employee received a very similar bonus. Employees developed a sense of entitlement to this bonus, and always thought they had met all their performance objectives and deserved the full amount. I’m just giving this context to illustrate how the cash incentive most likely did not have a positive impact on performance.

The employer, aware of this problem, introduced a “praise” program, consisting of recognizing employees who had made a significant contribution. Managers were encouraged to simply give a “Thank You” card to exceptional employees. I have no idea how this program affected performance… But it’s impact on motivation was priceless.

Employees receiving these “praises” would shine for weeks. Common sense tells me that motivation can easily be correlated to performance. I can safely say that the thank you notes I received from colleagues I had helped during evenings and weekends really motivated me to keep working hard – there is nothing like feeling appreciated!

Another Story on Social Status

A few weeks ago I read an article about how job titles could be used to motivate employees, even if no pay increase is associated with the new title. I have a friend who had his job title changed from “Business Dev Manager” to “Manager, Entrepreneurship and Innovation Development”. He’s been jumping up and down since he got this “promotion”. His reasons for being so happy: the title is unique, distinguishes him from his peers, and sounds better from his perspective.

7 Problems in Sales Compensation Management

On March 5th, Synygy hosted a live online expert panel discussion called “Ensuring Alignment of Strategy and Sales Compensation Plans: Assessing the Impact of Strategic Misalignment“. I promised I would discuss about what I learned in the Webcast, so here it is at last!

Synygy identified 7 areas affecting sales compensation management:

1. Strategic Misalignment
2. Limited Modeling
3. Misunderstood Plans
4. Errors in Results
5. Lack of Information
6. Inability to Adapt
7. Process Inconsistency

The focus of the Webcast was on the “Strategic Misalignment” aspect, with future Webcasts to cover the remaining six problem areas.

So what is the impact of Strategic Misalignment?

• Poor sales force effectiveness
• Inefficient resource use
• Confusion
• Low morale
• Sales force turnover
• Etc.

Some of the symptoms…

• Poor line-of-sight to corporate objectives
• Over-simplified plans
• Top sales people underpaid or leaving
• Increasing commission cost
• Undesirable behaviors
• Many contests / spiffs.

US Cellular:
US Cellular faced many of the problems above. They are the 6th largest US wireless provider with 6 million customers, 8100 associates, 32 billion dollars in annual revenues and an inventive budget of 200 million dollars.

Sales associates were dissatisfied for several reasons including targets that were too generalized, a lack of consideration to location potential, a soft sale environment, lack of accountability, inconsistent process, inconsistent quotas and inconsistent payouts.

By adopting an incentive compensation management solution, US Cellular was successful in aligning quotas with corporate goals.

The key challenges identified by US Cellular were to get a buy-in from executives, facing the ‘fear of the unknown’, and getting standardized data.

Some of the lessons learned include: understanding the objectives, understanding data, and getting support from executives from the very beginning.

Wyett:
Wyett (Pharmaceutical) has a sales force of 4000, with annual revenues of approximately 16 billion dollars.

Their old strategy involved having multiple specialists bothering the same physician. The strategy was driven from the HQ and the focus was on the market share.

The new strategy involved having an assigned specialist for a physician, and a focus on external competition instead of internal competition.

Their sales performance management solution was implemented in only 75 days and did a tremendous job at helping to better align the new strategy with objectives and improve sales force productivity and effectiveness.

Live Online Expert Panel Discussion Coming Up

Synygy is hosting a free Webcast “Ensuring Alignment of Strategy and Sales Compensation Plans: Assessing the Impact of Strategic Misalignment” on March 5th at 2:00pm EST. I will delay my lunch break by 2 hours to see what I can learn about Wyeth and U.S. Cellular’s experiences and report back.

During this live, interactive panel discussion you will gain insight into:

• how Wyeth and U.S. Cellular assessed the impact of strategic misalignment
• key symptoms indicating lack of alignment of sales compensation plans
• how to assess the impact of misalignment of sales compensation plans steps
  to ensure alignment of plans when rolling out new plans or plan changes
• best practices for ensuring alignment of sales compensation plans and
  strategy

Panelists:

Mark Bernstein, Senior Director-Sales Planning,Wyeth Pharmaceuticals

Lisa Ziembiec, Manager-Sales Incentive Compensation and Effectiveness, U.S. Cellular

Jeff Evernham, Vice President, Client Services, Synygy

By registering you will be able to download two pretty good papers: “5 Tips for Ensuring Strategic Alignment of Sales Compensation Plans”, and “Diagnosing Your Sales Compensation MAnagement Problems”.

I found the later article a particularly good read. Rather than focusing on strategic alignment and best practices, it takes the other angle of the problems in sales compensation management. The article goes on describing 7 categories of problems resulting in ineffective design, implementation and management of sales compensation plans and their root causes.

More on Incentive Unexpected Behaviors and Group Competition

Paul Hebert posted a great follow up post on his Incentive Intelligence blog regarding group competition. I contributed my own personal story:

Several years ago I was a programmer for a large telecom company. The project manager felt like the development team were not producing enough results and the project faced typical issues – deadlines were missed, the project was lagging, it was over budget… To fix the ‘problem’, a competition was organized. The ‘lines of code’, a typical software metric, were used to determine who was the ‘best’ programmer. This lead to big quality problems as employees were focusing on quantity instead of quality.

Realizing this, the manager decided to tweak the contest rules. The winner would have the best (lines of code) / defect ratio. This helped a bit with the quality, but employees were still focusing on writing code, disregarding some of their other tasks like documentation, mentoring junior employees, trying to fix existing defects, etc. Everyone was also trying to avoid any ‘difficult code’ to reduce the chances of creating defects.

The competition ended up being cancelled…

To this story, Paul answered with a very insightful comment:

… The solution for your project manager should have started with “root causes” not incentives. If he/she had gone through an analysis to find out “why” the problem existed the program could have been designed around that issue. Too often we measure results – not the steps to the results – which is where the issue lies.

Incentive System Implementation Success Story

I was trying to find out more quantifiable information regarding the Return on Investment achieved by Incentive Compensation Management systems and finally found an interesting story: Telus – How to achieve ROI.

The article is already a bit over a year old, but it describes how Telus, a major Canadian telecom company, achieved positive results with a new ICM solution. The benefits stated in the article include:

• reduced incentive overpayments by 60 percent;
• recovered 52,500 days of selling time;
• cut incentive management administration costs by $560,000 annually;
• reduced compensation error rates 53.6 percent; and
• cut average dispute resolution time from 40 to eight hours.