Archive for the ‘Pros and Cons’ Category

Offshoring Sales Performance Management Implementation Components

July 16, 2008

Based on my experience and on common sense, there are some project components which are easier to offshore than others.

Requirements and Functional Design
Early phases of a project are more challenging to offshore; these phases include the requirement gathering and the functional planning of the project. Offshoring these activities can be difficult because they require a lot of interaction with stakeholders, users and subject matter experts. This type of interaction usually works much better face-to-face than over the phone.

Technical Design, Implementation and Testing
Once the architecture of the project is established, components of the technical design, implementation and testing phases are good candidates to be offshored. Interaction with project stakeholders will obviously be necessary, but the “what” of what needs to be done should be obvious.

Sales Performance Management Implementation
There are many strategies to leverage an offshore team to implement a sales performance management application. Compensation plans can be divided between on-shore and offshore teams, or both teams can collaborate on all the plans. I prefer the collaboration approach; coordination will be a bit more complicated, but many of the risks will be mitigated. As a result, the onshore team will have a clear idea on the status of the offshore team at all time, and there will be less communication issues such as misunderstandings of the requirement and functional design documents.

Here is a list of several common SPM activities which in my experience are good candidates to be offshored. If the design documents are detailed enough, there is no reason why an offshore team could not work on everything. However, there is probably less risk in offshoring well defined activities.
  1. ETL: A large project will use an Extract, Transfer and Load (ETL) tool to move data where it can be used by the SPM solution. With proper access, an offshore team can make a significant contribution to this process.
  2. Configuration Management: An implementation is usually carried in different environments; development, various testing envionments, and production. Moving the latest files from one environment to the next can be very time consuming, and often can’t be performed while a team works in the environment.
  3. Reference Data: Loading all the reference data including participants, titles, positions, relationships, territories, etc are activities which will not impact the building of plans, until required for testing.
  4. Quotas, rate tables and lookup tables: Creating and updating these objects can be a very time consuming activity.
  5. Formulas and rules: Sometimes, several formulas and rules which are almost identical to each other are required. Not all SPM solutions have an easy “clone” feature, making this activity very tedious.
  6. Processing: Also called pipeline in Callidus TrueComp, with a large number of participants and of transaction (in late testing phases), processing can take up to several hours. It can be very nice for the onshore team to work on the implementation during the day and come back the next morning to find the results ready and analysis of issues that occured.
  7. Testing: Testing can be a tedious job. As I discussed before, test scripts should exist which will be executed again and again… and again. Some of the first testing phases such as unit testing and system testing can be almost entirely offshored, but later phases such as integration testing and user acceptance testing are often kept onshore to be able to better monitor quality.
Note: Offshoring all the boring and repetitive activities could have negative impacts on the moral and efficiency of the offshore team, just as it would on any team.

Does anyone have other examples of SPM components which can be offshored easily?

ICM Implementation Offshoring Pros and Cons

July 8, 2008

Projects can be partially or completely outsourced. The outsourcing can be done partially or entirely offshore. The most common scenario I usually encounter is when a company outsources a project to a consulting company. The consulting team usually works on-site, and often have several resources located offshore. There seems to be a trend for consultant who used to work on-site, to be allowed to work remotely.

As I pointed out, many EIM/SPM solution vendors and consulting companies will discuss the benefits which can be achieved by outsourcing parts of an Incentive Compensation Management implementation. I agree with these benefits, but there are also many challenges which must be carefully managed to be successful.

Working with an offshore team through a consulting company reduces a lot of the risk; you don’t have to worry about contracts, quality, infrastructure, intellectual properties, etc. Furthermore, consulting companies usually have a good relationship with their offshore arm.

Setting aside all ethical and macro-economics discussions about offshoring, here are some of the main pros and cons.

Main offshoring benefits:

Labor: Skilled labor can be very expensive, but it can especially be very difficult to find. Even a large consulting company may have problems finding an available consultant with the right skill set.

Cost: Offshore locations are usually developing countries where labor is significantly cheaper.

Speed: When a project is well managed, more people usually mean a more aggressive schedule.

Work 24/7: For North-American people, working with a country such as India makes it “easy” to work around the clock.

Some of the challenges to be managed

Communication and language barriers: Most of us have some experience working with team members who are located somewhere else, and have faced communication challenges related to this. Offshoring brings another layer to the communication challenges, a topic to which I will dedicate another article.

Coordination: Because of all the communication challenges, complex coordination activities become even more complex.

Cultures: Each culture have their own principles and values. Not being mindful of cultural differences can lead to big problems.

Cost: Savings could be only marginal, especially with rising labor costs in some countries (especially in India)

Quality: This is a challenge for on-site and offshore team alike. Offshore teams are usually very good at achieving very high quality standards. However, quality is still perceived as a higher risk with offshore teams.

Security: Quality is another concern most companies have, especially when dealing with confidential employment information. There are very secure mechanisms to collaborate, even across continents, but security is a topic which requires particular attention.

Key to Success

In my opinion, the key to successfully leveraging an offshore team is in:

  • Having a good manager and team leads experienced with offshore projects
  • Having A good [formalized] communication strategy, “hand-off” mechanism between onshore and offshore teams and processes in place
  • Having a good understanding of which project components can be tackled “at night” by the offshore team and handed to the onshore team “in the morning”, and vice-versa.

Do Big Money Bonuses Really Increase Job Performance?

April 22, 2008

I came across an interesting study in the “PsyBlog” about the impact of large bonuses on job performance. In this experiment, professor Dan Ariely went to India and recruited [poor] local people to accomplish several tasks, offering a performance bonus equivalent to up to a month’s salary. In 8 of the 9 tasks, the promise of a large bonus significantly decreased people’s performance.

The summary of the paper on the PsyBlog seemed a bit counter-intuitive. Most companies around the world would most likely not have some flavor of a pay-for-performance program if a bonus was actually decreasing performance.

So what is happening? On one hand, I think that if the bonus is very high, participants could have been really stressed out about the task and not performing as well because of that pressure. It is also possible that performance decreased because participants did not actually believe they would receive the bonus for a variety of reasons – sometimes when only a certain number of people can receive the max bonus, participants feel they don’t have a chance to perform at the required level and behave accordingly. Even if there is no maximum number of participants who can receive the largest bonus, the performance required to get the bonus could be perceived as being unattainable or not worth it.

The relative value of bonuses versus the effort required to obtain them is another factor which could affect the participant’s behavior. If working exceedingly hard is required to get the max bonus but that only a moderate amount of work is required to get a bonus which is only slightly inferior, many participants could be settling for the smaller bonus.

I spent some time looking for other papers on this topic and found a few other possible explanations. The “crowding out” theory supports the hypothesis that incentive pay decreases employees’ motivation to perform up to abilities. The explanation generally given for this is that the introduction of an obligatory amount of output to produce is often considered by employees as a signal of distrust. The papers I found discussing the crowding theory are: Titmuss (1970), Rothe(1970), Gneezy and Rustichini (2000), and McNabb and Whitfield (2003). Papers by Kruse (1992), and Ichniowski and Shaw (2003) “prove” that incentive pay positively affects employees’ effort.

As for me, based on my own observations and “empirical evidence”, I will side with Kruse, Ichniowski and Shaw to say that incentive pay (if used properly) can positively affect employees’ performance.

Ask the Expert – Pros and Cons of Variable Compensation

March 14, 2008

I recently asked several sales performance related questions to David Cichelli, author of the popular book “Compensating the Sales Force“, a national expert in sales compensation and the sales compensation practice manager at The Alexander Group. He was kind enough to share his expertise with me, and to allow me to share his insight on this blog. Thanks again David for your time.

Question: Several readers end up on my blog by trying to find an answer to the pros and cons of variable compensation. You begin your book with an affirmation that ‘sales compensation works’. What are your thoughts on the pros and cons – the rewards and benefits versus the risks. If it is a fact that pay for performance works, why are not all companies adopting such a system.

Answer: Companies use a wide variety of incentive compensation programs for a diverse array of jobs. Incentive compensation continues to be a mainstay of contemporary management practices. Sales compensation holds an almost legendary status as an expected part of the employment equation. However, sales compensation is a management choice. It’s neither a birthright nor a requirement. In fact, in my view, sales compensation programs are cross elastic with supervisory practices. Frankly, a well-supervised work force does not need an incentive program to be effective, and that observation is true of sales compensation. But, its use is widespread and prevalent. Almost 85% of all companies with sales personnel provide a reward program tied to sales results. A famous—if somewhat inelegant—argument was made against incentives by the author Alfie Kohn in his book “Punishment By Rewards.” But, generally, most sales management teams believe that incentives help bring focus to the efforts of a dispersed workforce…the sellers of the company.

Group Competition Incentive Pros and Cons

February 7, 2008

A recent post here highlighted some of the pros and cons of a group competition incentive program. The article pointed to an interesting study which tries to demonstrate how relative rewards play a role in economic motivation.

I responded to the post explaining my reasons for disliking internal competition as a mean to incent employees, including some of the major pitfalls to workforce segmentation for incentive purposes. I also included a reference to a good organizational behavior article from Stanford University, also describing some the risks associated to internal competition.

The pros and cons to internal competition listed by Paul Hebert in his blog were the following:

Pros

  • Fixed (closed budget) – can’t go over budget – the awards are fixed
  • Depending on industry and company culture highlighting standings reports on who’s in which place in each group can create a real up-tick in performance

Cons

  • Depending on performance distribution it could be difficult or impossible to create fair competitive groups
  • There will be losers – people could double their performance but not earn an award since the outcome is a stack ranking of each person’s performance.

To me, the biggest “Con” is that such contests go against the concept of developing the employee’s ability to work cooperatively to reach corporate goals. As a matter of fact, it encourages a culture where employees try to outwit each other and loose sight of who the competition really is.

If the goal is to offer an incentive program on a fixed budget, I suggested some alternatives including:

1) Reward all (or a large group) of employees equally, and/or

2) Use the money to purchase some desirable widgets for everyone, great door prizes for quarterly meetings, and to sponsor milestone team events.

Paul replied to my comment saying that there was still a place for internal competition as a short-term adjunct to an entire reward and recognition strategy. I somewhat agree with that statement, but I think that the potential negative outweighs the positive in most situations.

Choosing an Implementation Partner

January 8, 2008

If it was determined that the in-house implementation of your incentive management system was not ideal, the choice of your implementation partner will make the difference between success and failure. A solid team will insure a successful delivery of the system on time and on budget; a poor team will cause the project to run beyond schedule and over-budget. An experienced implementation partner will also be able to assist in making the optimal solution decision.

There are 3 different situations that can be considered:

  • Hiring a large IT/Management consulting company such as Accenture or IBM.
  • Hiring a smaller/boutique consulting firm specializing in Sales Performance Management and Incentive Compensation Management
  • Hiring individual contractors

Each of these approaches also offers several advantages and disadvantages.

Large Consulting Company Pros:
Large consulting companies…

  • are likely to have implemented the chosen solution several times
  • will be able to leverage deliverables from several past clients
  • will have learned considerably from past successes (and failures)
  • will usually be able to leverage an established and proven method,ology
  • will be able to pull in the appropriate resources at the different stages in the project, and increase or decrease the head count as required

Large Consulting Company Cons:
Large consulting companies…

  • have many consultants with limited experience; with a typical fast career track, consultants are promoted into management roles without having mastered a technology.
  • The ‘doers’ on the team are often fresh out of college and may have no previous compensation management experience (or even IT experience)!
  • have bigger overheads; as such, the contracting fees are also typically higher.
  • may not undertake a project if it does not generate at least a million dollars in revenues.
  • are large because it operate in several IT sectors, across several industries, in several countries. The actual compensation management practice may not have a greater headcount than a specialized company.

Boutique Consulting Firm Pros:
Boutique consulting firms…

  • usually focus on a niche market – several companies focus on sales performance system integration. Some companies even focus on the integration of a specific solution
  • really care about their client’s satisfaction – their reputation is everything to them
  • will also be able to leverage deliverables from past clients
    are also likely to have implemented the chosen solution several times
  • will usually have more seasoned technical experts

Boutique Consulting Firm Cons:
Boutique consulting firms…

  • may be less “stable” than larger well established company
  • don’t have a brand name to sell to management
  • may have issues to replace their consultants if team members become sick or leave
  • may not follow a methodology

Individual Contractors:

Contracting individuals is a great way to supplement a team with experts. These individuals will be able to bring a different perspective to the table to assist the in-house team or integration partner in the system design and integration.

The choice of a small or a large implementation partner really depends on the specific situation. Having worked for both a large consulting company and a small consulting company, I would say that the value for the money of hiring a smaller company is better. However a small consulting company should be selected with great care!

The bottom line:
Whether you choose a large consulting company or a small boutique firm, ask for references, make sure they have plenty of relevant experience, find out if they have relevant certifications, and ask yourself if you can trust them.

If you have had good or bad experiences with different types of consulting partners, please share your thoughts!