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Tag Archive for 'Pros and Cons'

Adoption of Software-as-a-Service in the Sales Performance Management (SPM) Industry

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A question many of my clients wonder about is “should we get an on-demand Software-as-a-Service (SaaS) SPM solution, or an on-premise solution.” The popularity of SaaS solutions and of traditionally on-premise solution being offered on-demand surged last year. I will discuss the pros and cons of each model in more details in a separate post; for now I will focus on one of the biggest concern to adopt SaaS.

Availability and Control. Let’s define availability as the “up time” of the SPM application. In other words, high availability means that an application will be continuously operational for a long period of time. If the application is not available, no one can access it. What is the impact of such “down time”? If the outage is “only” affecting the sales reps that can no longer access their performance for a few hours, availability may not be such an issue. If you are in the implementation process, it is clear that an outage would paralyze the implementation efforts for that time (let’s hope that it’s not during deployment!). In the worst case, the outage could happen around the time the incentive compensation needs to be processed and submitted to payroll (ouch!).

Technology is not perfect, and we can expect it to fail once in a while. But what makes many companies think twice about adopting a mission critical SaaS solution is that they lose control any potential issues and over how quickly they can get resolved.

Let’s look at a recent example outside of Incentive Compensation. Last Tuesday, the web was buzzing with news about Salesforce.com being down. A network device failed, and the redundant systems did not kick in for some reason. This stopped all data from being processed in Japan, Europe, and North America. Why is this a big deal? Because SalesForce.com is considered to be the leader of the pack in the SaaS market. If SalesForce.com can be down, availability issues can (and will) happen to any SaaS vendor, no matter how much they brag about redundant systems, fail safes, power generators and secured data centers… But going back to the SalesForce.com example, “service disruption affected all areas from 20.39 to 21.17 GMT on 6 January… or only 38 minutes without service.

Some people have questioned whether such incidents could harm the adoption of SaaS. I think, maybe… but not for Sales Performance Management. I think that SaaS applications and their availability will only keep improving. And I think that as the SPM SaaS applications mature, it will become more and more difficult for even the most technologically capable companies to have the availability of their on-premise application competing with the availability of the on-demand applications.

So do I think SaaS applications is a good solution for everybody? Probably not. Is it an option worth at least considering?  I think so!

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Offshoring Sales Performance Management Implementation Components

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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?

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ICM Implementation Offshoring Pros and Cons

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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.

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Group Competition Incentive Pros and Cons

Do Big Money Bonuses Really Increase Job Performance?

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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.

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Ask the Expert - Pros and Cons of Variable Compensation

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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.

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Group Competition Incentive Pros and Cons

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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.

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