Enterprise incentive management is the new buzz phrase to keep
sales teams smiling: it calculates their commission from ERP
systems and transfers it to payroll. Marc Ambasna-Jones
reports
Employee relationship management may not trip off the tongue, but
businesses are losing vast amounts of money through poorly managed
sales commission systems - paying up to 5% over the odds. It
doesn't take a genius to work out that over-paying commission on
this scale could cost a company serious money over a period of
time.
The errors are being attributed to an array of labour-intensive,
costly to maintain bespoke or manual commission systems that,
according to US analyst the Aberdeen Group, cost companies about
$1,500 (£1,040) a year to track and report the compensation for a
single sales person. Multiply this by the number of staff in a
company and you start to get a picture of excessive administration
costs to add to the actual over-spending on commissions. In short
it sounds an expensive mess that companies have been prepared to
live with, as there has been no alternative.
Given this background, the arguments for software to manage
incentive commission schemes becomes compelling. The packages are
often referred to as Enterprise Incentive Management (EIM) and they
integrate with enterprise resource planning (ERP), human resource
and payroll systems and automate the commission management process.
The software takes sales transactional data from the ERP system and
calculates commission for each sale processed based on pre-defined
criteria regarding individual and group targets. This data is then
passed onto payroll.
While systems vary depending on the supplier - and there aren't
that many in Europe at the moment - most seem to offer Web-based
access to the system through company intranets. Most EIM systems
are multilingual and multicurrency and enable department managers
to set up commission plans and bonus schemes through templates.
Another key feature is modelling for predictive analysis and
forecasting as well as analysing current statistics.
In fact most analysts describe incentive compensation systems as
more than just a layer that sits on top of various databases and
sales systems calculating commissions. Analysts believe that by
automating this area of internal administration companies can
analyse sales and plan strategy more efficiently. "Incentive
compensation is the single most effective lever for aligning sales
performance with business goals," says Catherine Jones, analyst at
the Aberdeen Group.
Her view is well supported. Joe Galvin, analyst for the Gartner
Group, predicts that by 2004 "75% of sales organisations will
significantly change sales compensation strategies to align sales
behaviour and corporate objectives, improve retention of key sales
resources and achieve growth targets".
Richard Gerson, of US-based Gerson & Goodson, says, "While most
companies are urged to focus on customer relationship management,
few - if any - spend time, money and resources on an equally
important relationship: the one with their employees."
It's a point echoed by most analysts in this sector. US consulting
firm Culpepper is a keen advocate of incentive compensation
management and its role in the wider employee relationship
management market. "Any firm bent on growth has to make sure its
sales compensation plans are competitive as well as motivational,"
says Warren Culpepper. "The plans need to be understandable and
manageable. If the right balance is achieved, the result is higher
sales productivity as well as higher profits."
While this is undoubtedly an emerging area in the UK, commission
management software has already gained considerable momentum in the
US. Major software houses, such as Oracle, SAP and Siebel, include
EIM capabilities within existing ERP and database software,
although the specialists, such as Callidus Software and Incentive
Systems, provide off-the-shelf software with more features to
tackle the payment calculations issue.
Windsor-based Practique Associates stands almost alone in the UK
market, although Callidus is leading the field of US-owned
suppliers having set up office here.
Practique is winning plaudits for its Inca incentive management
system that was launched in March 2001 and ranks Tektronix and
enterprise integrator SeeBeyond among its client base. According to
CRM specialist the Hewson Consulting Group, the incentive
compensation market in Europe "will potentially be worth $1bn by
2004 and Practique's Inca may be the best-adopted product for the
complex European market".
But will companies really be interested in taking the plunge on
commission systems? "We are seeing an increasing number of
customers and potential customers who are looking to spend to save,
especially given that we can offer a rapid return on investment,"
says Practique managing director Joe Walker.
"Incentive compensation management systems offer companies accurate
statistics on compensation payments and plans, for the first time.
How can companies know they are paying over-budget if they have no
visibility of the compensation statistics?"
Walker adds that the software should be central to sales planning
since it can provide modelling and what-if predictive analysis of
sales strategies. She also points out that the accuracy of the data
removes the need for "shadow accounting" by staff, whereby a
previously inherent distrust of commission payment systems led to
sales people spending time calculating their commission when they
should have been working.
In the US, David Thomas, Tektronix's manager for sales IT, says
Practique's commissions system has replaced a custom-built
application based on a Vax computer. The old Vax system was clumsy,
he adds, and the sales staff never trusted it to calculate their
commissions accurately.
"The sales team spent hours checking their payslips to make sure
they had been paid the right amount of commission at the end of
every month," Thomas says. "With the current commissions system
from Practique there is full trust. No one spends time checking
that they've been paid the right amount any more because they now
have faith in the system. That means they can spend more time
selling and less time checking payslips."
In the UK Tektronix has also seen huge benefits from installing an
incentive compensation management system. The impact has been
company-wide and not just concentrated on getting the sums right.
"Whether the numbers were reliable or not, couldn't be checked,"
says Russ Cockburn, Tektronix's European IS applications manager
referring to the company's previous bespoke commission management
system.
"The [bespoke] spreadsheet was created by a business unit manager
and he was the only one with the knowledge to support it. There was
no documentation, the IT department couldn't support it and any
changes that had to be made could only be done when he was around.
With the new software we are now in a position whereby we can
validate the numbers. We can automatically match order numbers with
sales people and the system works out the compensation for payroll.
We can now track our top sales people while all the staff have
compensation statements and forecasts which they access via the
intranet."
There is also flexibility within commission management systems that
enables managers to create incentive schemes to suit different
objectives - some companies offer points for prizes or Air Miles -
within a company or even with sales partners such as distributors
and dealers.
David Blume, UK country manager for Callidus Software, says this is
proof that incentive compensation management is more than just
sound accounting. He equates it to being the automated glue that so
many companies have had to live without even through recent efforts
to develop e-business strategies. How can any company attempt to
transact through e-business media when their own house is not in
order?
"The impact on business is real," says Blume. "Inaccurate figures
are bad for business and when this is extended to third party
partners, it can be extremely damaging. We have more than anecdotal
evidence of a mobile phone dealer that is threatening to sue a
mobile operator because it didn't receive the correct amount of
sales commission. The mobile operator initially contested the claim
but ended up paying because its records were inaccurate."
Callidus pushes its Truecomp product into businesses selling on the
third-party sales channel angle as much as on the internal
management one. It's had great success and the company includes
Nike, Sun Microsystems, Veritas and Credit Suisse on its list of
clients.
This, says Blume, is indicative of the types of companies that are
initially interested in incentive compensation management -
typically large organisations in financial services, telecoms,
retail and distribution, and IT.
For IT departments the impact is apparently minimal and removes
much of the support burden for bespoke systems. Walker says all you
need is a dedicated server, 40 deployment days and one person to
administer the system. The software is based on an open
architecture owing to the need to cross over with ERP, HR, payroll
and potentially customer relationship management systems. This is
key to avoiding the duplication of data within a company.
"Incentive compensation management is a business problem first but
it does have a big impact on IT," adds Blume. "Many corporations do
not have the IT resource to implement and maintain such a system
but as EIM is a minimal support burden, IT managers need not worry
about finding extra support staff or soaking up large chunks of IT
budget. It is also based on recognised application technologies and
can sit with Oracle, SAP, even a bespoke in-house billing
system."
The bottom line on commission management systems is that it should
not be ignored. Here is a software application that offers rapid
return on investment, promises to cut out expensive over-payment
errors and reduce administration overheads. It also provides
business managers with the ability to plan ahead and align sales
objectives with business goals. With sales the lifeblood of so many
companies, surely selling should be a more accurately accountable
process? And surely this process should form the basis of a
company's overall objectives?
Calculating the return on investment of EIM
systems
Commission management systems can save companies
considerable amounts of money. When compared with home-grown
spreadsheet or bespoke solutions, Inca from Practique Associates,
according to the Hewson Group, shows a rapid return on investment
(ROI), particularly given Practique's policy of rapid
deployment.
If you take a 200-user system, involving an initial investment of
about £150,000 in Inca, a first-year saving could be as much as
£200,000 over a home-grown system. Subsequent year savings would be
much higher, at up to £300,000.
"This implies a rapid ROI, well within the first year and with
considerable project lifetime cost savings," says Hewson's report.
"These figures are sustainable, in fact they are rather
conservative."
Savings are made by reducing readily accessible cost items. These
include software maintenance and enhancement, overheads in
supporting complex home-grown or bespoke systems, and shadow
accounting whereby employees spend time checking their entitlement,
which according to Hewson can be as much as 5% of sales time.
Summary
- Enterprise incentive management will save money on over-payment
of incentive compensation management software as it integrates
seamlessly with existing enterprise resource planning, human
resources and payroll systems
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- It will reduce administration and IT support costs associated
with bespoke systems
- It enables managers to report accurately on sales statistics
either by department or individual and offers predictive analysis
to help formulate sales strategies
- Accuracy of compensation payments breeds staff trust. According
to Gartner this has helped in staff retention.