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Sales Compensation Solution Acquisition:
Getting to Automation & ROI
© 2014 Demand Metric Research Corporation. All Rights Reserved.
Best Practices Report
By Jerry Rackley, Chief Analyst
February 2014
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Introduction
Motivation for Change
Solution Acquisition Process
Effective ICM Solution Acquisition
Recommended ICM Acquisition Process
Model ICM Acquisition Process
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Our Best Practices Report Methodology
About Xactly Corporation
About Demand Metric
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Analyst Bottom Line
About the Research Analyst
TABLE OF CONTENTS
INTRODUCTION
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Sales Compensation Solution Acquisition Best Practices Report
© 2014 Demand Metric Research Corporation. All Rights Reserved.
Consider this tale of two companies.
One has a respected, 100 year-old brand that employs several hundred sales people who are paid through a manual process for administering
commissions. While the need for relief from its manual process was acute, there was anxiety about introducing change – even beneficial change
– to the sales compensation process.
To acquire a solution, the first company produced a traditional RFP because it was a familiar way to acquire an unfamiliar solution.
The second company was newer with a sales force numbering between 400 and 500 representatives. It hired a new Vice President of Sales that
came from an organization that used an Integrated Compensation Management (ICM) solution.
The new VP made acquiring this same ICM solution a condition of employment with the new employer; no RFP was issued, just an order to the
ICM vendor.
Which company fared better in its acquisition?
39%
1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Features & functions Benchmark data & Best Practices
Traditional ICM RFP Focus: Missed Opportunity
Xactly Corporation RFP Research Project, February 2014, n=2,961
4© 2014 Demand Metric Research Corporation. All Rights Reserved.
Less than 1% of questions in ICM RFPs analyzed
while researching this guide were related to
benchmarks or best practices.
Both acquired the same solution that capably addressed their needs.
But the focus of each acquisition was very different.
For the first company, the emphasis was on the bells and whistles
of the solution. The fact that this acquisition process produced a
good outcome was almost accidental.
For the second company, the focus was on known performance,
and the success of the acquisition surprised no one, because it had a
benchmark. Yet less than 1% of questions in ICM RFPs analyzed,
while researching this guide were related to benchmarks or best
practices.
Note: For all graphs within this report, “n” equals the number
of RFP questions analyzed for this guide.
Figure 1: Traditional ICM RFP Focus: Missed Opportunity
Sales Compensation Solution Acquisition Best Practices Report
5
This guide suggests a better process for acquiring an ICM
solution. For many companies, sales compensation is the largest
component of Sales, General and Administrative (SG&A) costs.
The monthly calculation and payment of variable sales
compensation is often an arduous, manual process that must
accommodate a number of exceptions and changes: rarely does a
sales compensation plan start and end a fiscal year intact.
The plan must survive the attrition and addition of sales
representatives. It must accurately calculate and pay commissions
on time, as there are risks and trust issues involved when it doesn’t.
While the sales compensation plan is, theoretically, an enabler of
revenue growth, these characteristics prevent it from scaling as the
business grows.
Given these challenges to managing and administering a sales
compensation process, the motivation to automate, streamline
and even reengineer it are high. However, the perceived risks of
introducing change to this often brittle or fragile process are high as
well. A number of vendors offer ICM solutions that are enjoying
increasing acceptance and adoption. Their potential value is
immense, if they are implemented using a consultative approach
where the vendor and customer partner to integrate best practices.
If, on the other hand, ICM solutions are implemented merely to
automate what may be a bad process, at best some efficiency gains
are realized, but the greater benefits are left on the table.
ICM solutions are often acquired through an unwieldy Request For
Proposal (RFP) process that too often focuses on solution features,
while ignoring sales compensation best practices. The purpose of
this guide is to help companies that seek to acquire ICM
solutions take an approach that doesn’t simply automate an
existing process, but reengineers it by introducing best
practices that deliver measureable ROI.
This guide will examine the problems that motivate ICM solution
acquisition, the limitations of acquiring one through a traditional
RFP, a recommended approach, an example project plan and
conclude with a discussion of associated risks and rewards.
If ICM solutions are implemented merely to
automate what may be a bad process, at best
some efficiency gains are realized, but the
greater benefits are left on the table.
Sales Compensation Solution Acquisition Best Practices Report
It’s important to create some context around the need for ICM solutions. The motivation for change comes from the inconsistent performance
of the manual sales compensation process.
The scope of issues go beyond the glitches that are a nuisance to the sales compensation plan administrators; they impact the
company’s finances, break the trust between management and the sales team, or both. Addressing these issues may involve debugging
Excel macros and their resolution is more like a Band-Aid than a strategic fix, leaving all parties uneasy for the future rather than relieved.
Some of the common problems that motivate companies to investigate automating the sales compensation process include:
 Restating the numbers. When public companies have to restate earnings, the culprit is often the unexpected cost of sales. Regardless of
whether the miss raises or lowers earnings, no CFO wants to restate earnings, because it essentially says, “we didn’t get it right the first time,”
inviting scrutiny from regulators, shareholders and the media about what else is incorrect.
 Incongruent goals. The sales plan sometimes encourages, rarely intentionally, the pursuit of goals that are inconsistent with overall
corporate goals. If, for example, the prime directive from the executive suite is to maximize profitability, but the sales compensation plan
rewards only revenue generation, goal conflict can easily occur. This motivator occurs more often in companies that suffer from
organizational silos, but any organization that isn’t vigilant in monitoring alignment can experience this problem.
MOTIVATION FOR CHANGE
© 2014 Demand Metric Research Corporation. All Rights Reserved. 6
Sales Compensation Solution Acquisition Best Practices Report
7
 Scalability. At some point, a manual sales compensation
process fails to meet the needs of the organization. These
failures can result in delays paying incentive compensation or
inaccurate commission checks. Regardless of the form the
failures take, they produce concern in the sales force. Chronic
failures create a crisis of confidence that can lead to sales force
attrition, and it is rarely the low performers that decide to leave.
 Inefficiency. Very much related to scalability but deserving its
own discussion is process inefficiency. A manual sales
compensation process may simply be too painful to sustain.
Assigning more human resources to it fails to tame it, and worse,
the resources it does consume are tied up administering the
process, stealing time away from other strategic activities.
 Complexity. For some organizations, the complexity of
administering the sales compensation process is in the critical
path to closing the books each month. This complexity
introduces delays in key financial reporting and prevents
company leaders from having timely information about
profitability and margins.
 Audit findings. Audits can reveal problems with the way sales
compensation is calculated and paid. What is troubling about
this type of problem is that an audit can uncover flaws that have
affected the process for quite some time. When this occurs, it
almost always results in expense and legal liability for
underpayment, or morale-damaging efforts to claw back
overpayments.
 “Gut” feeling. Sometimes, management instincts lead to
questioning about how well the sales compensation process is
working. Are plan earnings truly indicative of who is
contributing the most? In other words, are the top earners also
the top performers? When the answer is “no”, management
should investigate and understand why.
Any of the reasons described here are alone sufficient to motivate a
company to investigate getting relief through an ICM solution.
The goal is to fix a sub-optimal sales compensation process,
but too often the solution acquisition process is flawed as well.
© 2014 Demand Metric Research Corporation. All Rights Reserved.
Sales Compensation Solution Acquisition Best Practices Report
For decades, companies have used an RFP to acquire systems and
solutions. RFPs are familiar mechanisms for acquiring accounting,
CRM and ERP solutions.
Why not ICM solutions as well?
The perception is that an RFP works well for more complex
solutions, particularly where there is some degree of risk.
There is a certain comfort level in producing a lengthy RFP, one
that has been thoroughly vetted to include questions about every
possible solution feature and capability.
The RFP approach may work well for acquiring many types of
solutions, but the “traditional” RFP falls short as a means for
acquiring ICM solutions. The reason is that such RFPs are typically
built on a flawed premise: the automation of an existing, sub-
optimal sales compensation process.
It is entirely possible for a “successful” RFP to result in ultimate
failure, because the solution it leads to acquiring doesn’t fix the
flaws of the sales compensation process, it merely automates them.
SOLUTION ACQUISITION PROCESS
8
This realization comes slowly, as there are almost always efficiencies
gained through automating any process, but if the core,
underlying process is unsound, the benefits are short-lived.
There are two critical success factors for ICM solution acquisition
that the purchase process must account for:
1. The Mathematical Model: Can an ICM solution accurately
calculate commissions, bonuses and incentive payments? While
this success factor is no trivial matter, the reality is that today’s
ICM solutions are very capable of performing the arithmetic.
By their own admission, they all are very good at calculating
variable sales compensation, even when those calculations are
rather intricate.
It is entirely possible for a “successful”
RFP to result in ultimate failure, because
the solution it leads to acquiring doesn’t
fix the flaws of the sales compensation
process, it merely automates them.
Sales Compensation Solution Acquisition Best Practices Report
the plan and how the plan is expected to perform in future
months and quarters. Ideally, a prospect for ICM could describe
the type of performance their compensation plan is intended to
drive and get vendors to share a wealth of best practices and
benchmark data to produce the desired outcome. Yet, very little
content in a traditional RFP addresses interrogates to discover
if vendors can offer wisdom and experience in this area.
The ICM solution acquisition process must fully investigate
both the mathematical modeling and calculation capabilities
of potential vendors, and also the best practices and
benchmark data associated with sales compensation plans.
The traditional RFP approach works well for the former, but what
about the latter?
With the proper collaboration, all reputable vendors can
automate a compensation model, account for exceptions,
produce reports, provide override or customization capabilities
and generate payments in a timely fashion. These capabilities
are the focus of most ICM RFPs, yet if the scope does not
go beyond these capabilities, the buyer is at risk of
acquiring a solution with a short shelf life.
2. The Best Practices: As stated in the introduction, sales
compensation is often the largest, single component of SG&A
expense costs. Like any other expense, executives should expect
a reasonable return, and the way to maximize ROI is through
identification of best practices and the tools to implement
them. ICM acquisitions that don’t also emphasize best
practices essentially results in the purchase of expensive
compensation calculators, that while capable of creating
some efficiency, only provide a backward looking view of
the compensation process.
Companies need to know with precision if their compensation
plan is producing the expected results, the impact of changes to
© 2014 Demand Metric Research Corporation. All Rights Reserved. 9
Is an RFP the ideal way to acquire
the best ICM solution?
Sales Compensation Solution Acquisition Best Practices Report
In this guide’s introduction, a tale was shared of two companies that acquired ICM solutions using different approaches. That anecdote
effectively frames the acquisition discussion for ICM solutions. The company that issued the RFP may have identified an effective
solution, but the use of an RFP did not guarantee that. The second company did experience success.
There are obvious differences in the processes used by these companies to acquire a solution, and understanding these differences is
critical. The second company had a completely different focus, which was not simply the elimination of the arduous, monthly manual process
of getting commission checks out the door. Instead, the focus was far more strategic: access to benchmark data and best practices expertise to
enable collaboration with the CFO on increasing the return on sales compensation.
The bells and whistles of potential solutions were not the primary acquisition consideration, because the new VP understood from
experience that the ROI of the chosen ICM solution did not come from its features.
EFFECTIVE ICM SOLUTION ACQUISITION
© 2014 Demand Metric Research Corporation. All Rights Reserved.
Instead, the focus was far more strategic: access to benchmark data
and best practices expertise to enable collaboration with the CFO on
increasing the return on sales compensation.
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Sales Compensation Solution Acquisition Best Practices Report
1%
1%
2%
2%
3%
7%
7%
12%
12%
14%
39%
0% 10% 20% 30% 40%
Benchmarking/Best practices
Differentiators
Company culture
Implementation
Company viability
Training/Support
Data integration
Security
Technical/architecture
Business intelligence/Analytics
Features/functions
ICM RFP Content Categories
Xactly Corporation RFP Research Project, February 2014, n=2,961
To better understand the content of traditional RFPS for ICM
solutions, 15 actual RFPS used for this purpose were analyzed.
Companies in several, different industries prepared these RFPs,
which were sent to a variety of ICM vendors, and on average, the
RFPs contained 197 distinct questions. The individual questions in
these RFPs were categorized to understand what potential
purchasers were looking for in the vendor responses.
The result of that analysis reveals the emphasis of the RFPs
evaluated for this study (Figure 2).
Each of the RFP content categories has merit – there are none that
don’t deserve some consideration in the acquisition process. Rather
it is the concentration of questions in certain categories and the lack
in others that is startling. This data supports a premise of this
guide, that traditional ICM RFPs are heavily focused on solution
features and functions.
The position of this guide is that purchasers should place far
more emphasis on best practices and benchmarking data than
is indicated in this analysis.
© 2014 Demand Metric Research Corporation. All Rights Reserved.
Figure 2: ICM RFP Content Categories
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Sales Compensation Solution Acquisition Best Practices Report
 “Describe and provide examples of any non-tool related training
that is available for managers and administrators (e.g.
compensation guidelines, compensation best practices, etc.).”
 “What is the frequency of data file updates that are
accepted/required (weekly, biweekly, monthly, quarterly)
following program implementation? What do you recommend
as a best practice?”
When acquiring solutions that must conform to a set of industry
standards or generally accepted principles, such as accounting
software, RFPs can work well. For ICM solutions, however,
feature and function-oriented RFPs are far less effective
because they provide no real indicator of performance. While
an RFP might provide insights into the process efficiency gains an
ICM solution can deliver, what matters more is process
effectiveness.
Of the 2,961 RFP questions considered in the analysis
presented in Figure 2, a mere six inquired about best practices
or benchmarking data. In fact, only four of the 15 RFPs that
were analyzed contained any questions in this category, and none of
the RFPs adequately plumbed the depth of the best practices
information category.
The text of the six best practices questions found in this RFP
analysis are presented here, as they are representative:
 “Provide examples of how you share best practice information
with your clients.”
 “What reports and reporting best practices would you
recommend based on past experience?”
 “Do you have any best practices for hospitality
implementations?”
 “If you have multiple integration solutions, describe your best
practice recommendation.”
© 2014 Demand Metric Research Corporation. All Rights Reserved.
While an RFP might provide insights into
the process efficiency gains an ICM solution
can deliver, what matters more is process
effectiveness.
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Sales Compensation Solution Acquisition Best Practices Report
From one organization to another – even within the same industry – there is a high degree of creativity and variability in structuring
compensation plans, with several influences on how to structure them, including:
 Market share
 Brand awareness
 Degree of competition
 Average sales cycle length
It requires an approach that goes beyond the scope of a traditional RFP, and instead evaluates the technology, assesses a vendor’s ability to
execute and its ability to help your sales compensation process deliver more value.
Figure 3 on the next page contrasts the scope of the traditional RFP with the recommended scope of a more effective ICM acquisition
approach: There are various tools and resources that can support the broader scope of the recommended acquisition process. These
tools generally include a streamlined, business case-oriented RFP and an accelerated, agile Proof-of-Concept (POC) that aligns the POC goals
with ROI.
© 2014 Demand Metric Research Corporation. All Rights Reserved.
 Average deal size
 Industry
 Product positioning & maturity
 Economic conditions
If a traditional RFP is not the ideal way to acquire an ICM solution,
then what is the recommended approach?
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Sales Compensation Solution Acquisition Best Practices Report
Does the solution do what I
need it to do?
Recommended ScopeTraditional RFP Scope
Does the solution do what I
need it to do?
Can the vendor provide
professional services,
implementation support and is it
financially viable?
Will the vendor co-develop the
business case, prove ROI, and
share best practices to create a
higher-value process?
Validate
Technology
Ability to
Drive ROI
Ability to
Execute
Validate
Technology
Figure 3: Traditional RFP Scope vs. Recommended RFP Scope
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Sales Compensation Solution Acquisition Best Practices Report
The preferred outcome of an ICM acquisition process is the
selection and smooth implementation of the solution that:
 Minimizes the inherent risks of administering a sales
compensation program.
 Provides information that helps keep the compensation plan
aligned with corporate objectives.
 Delivers the best possible ROI.
Before describing a recommended acquisition approach in more
detail, it’s helpful to briefly discuss how ICM solutions produce
ROI: through providing the means to directly link and trace
sales compensation payments to outcomes.
Since sales compensation plans are designed to encourage specific
behavior and outcomes, it’s always been important to understand
how well the payments are influencing the outcomes.
RECOMMENDED ICM ACQUISITION PROCESS
15© 2014 Demand Metric Research Corporation. All Rights Reserved.
Even without an ICM solution, most companies start out well
aligning their plans to the preferred outcomes. However, as plans
are implemented, most are “tweaked” to accommodate a variety of
situations. For example, new sales representatives who come on-
board during the plan year are granted exceptions. Mid-year sales
contests are launched. Other exceptions and exemptions are made
for reasons that seem logical. Very rarely are the cumulative effects
of these changes and exceptions understood in advance. Making
changes to the plan without a means of understanding the impact
they will have is like driving in the fog down a steep, winding road
without guardrails – at some point, you’re going to go over the cliff.
Very rarely are the cumulative effects of these
changes and exceptions understood in advance.
Making changes to the plan without a means of
understanding the impact they will have is like
driving in the fog down a steep, winding road
without guardrails – at some point, you’re going
to go over the cliff.
Sales Compensation Solution Acquisition Best Practices Report
ICM solutions deliver ROI by serving as a set of guardrails. They allow companies to not only see through the fog of plan changes and
exceptions, but also model them and forecast their impact in advance.
This capability delivers ROI by keeping an organization’s plan aligned with company objectives. The use of an ICM solution from a vendor
that provides benchmark data and best practices equips the organization to make intelligent and beneficial plan change decisions,
not just take shots in the dark.
What then is the best way to acquire a solution and get this ROI?
While the traditional RFP described in this guide has limitations, a business-case RFP that lays the foundation for the ICM business case is
recommended. Its scope includes:
 Objectives for sales compensation plan
 Forecasted growth of revenue and sales staff
 Current challenges with the process
Unlike a traditional RFP, a business-case RFP provides as much or more information to vendors as it asks for in their response. The goal of
the business-case RFP is not to identify the ideal solution, but instead to identify a short list of candidate vendors with which to
conduct a Proof-of-Concept implementation.
© 2014 Demand Metric Research Corporation. All Rights Reserved.
 Known analytics and reporting needs
 Sources of data needed to administer the compensation plan
 Example exception or change scenarios
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Sales Compensation Solution Acquisition Best Practices Report
Figure 4, to the left, contrasts the previously shown traditional RFP
response content categories with a set recommended for a business
case-oriented RFP.
Once again, each of the response categories depicted in this chart
are important, but some deserve greater emphasis than others. As
this guide has consistently maintained, benchmarking and best
practices inquiries represent the largest single area of inquiry in a
business case RFP. Next in importance are differentiators, company
viability and implementation, because these aspects are not always
fully addressed in a POC initiative. Finally, the remaining categories
are touched on in the RFP, but not to extreme detail, because
questions about each are fully addressed during the course of a
POC.
The Proof-of-Concept, then, is the critical part of the
acquisition process, as this is where the customer and vendor
collaborate on a reusable “mini” ICM implementation. This is
work that isn’t thrown away at the end of the POC, but rolled into
production. Effective POCs have specific goals and are built using
an ROI model, so that at the end of the POC, customer and vendor
alike clearly understand the business case for ICM. Done correctly,
the POC takes the risk and guesswork out of the acquisition.
5%
5%
5%
5%
5%
5%
10%
10%
10%
15%
25%
0% 10% 20% 30%
Security
Technical/architecture
Features/functions
Company culture
Training/Support
Data integration
Business intelligence/Analytics
Implementation
Company viability
Differentiators
Benchmarking/Best practices
ICM Business Case RFP Content Categories
Xactly Corporation RFP Research Project, February 2014, n=2,961
Figure 4: ICM Business Case RFP Content Categories
© 2014 Demand Metric Research Corporation. All Rights Reserved.
Sales Compensation Solution Acquisition Best Practices Report
Proof-of-Concept projects usually take one of the following forms:
1. Pilot. This approach to a POC identifies a subset of users that will do a full, end-to-end contracting process with a vendor, an
implementation and then use of the solution in production. While a pilot is the most costly of the POC approaches, it does the best job of
lowering the risk of the full deployment.
2. POC. This approach doesn’t include the full contracting as with a pilot, but does assume some level of shared work and risk. This
approach does an implementation to address targeted business challenges, such as accrual or managing SPIFFs. While not a live, full-
production implementation, it does show how well a vendor can execute across the set of presented business challenges. This approach is
often the least expensive approach to a POC.
3. Parallel POC. This approach is the same as the POC described above, but is done with the top two vendors. Each vendor is presented
with the same problems and process. Because this approach does require shared work and risk, more resources are needed to complete a
parallel POC, and it costs more than the POC described above.
Quite often, traditional RFPs include a requirement for a custom demonstration, leading some prospects to conclude that there isn’t a significant
difference between the traditional and recommended acquisition approach. The differences may seem subtle, but they are significant. Custom
demonstrations are designed to showcase features and functions, usually using a subset of customer data. The purpose is to satisfy checklist
items in an RFP by showing that a solution can indeed perform specific functions. Using customer data provides greater confidence, sometime
false confidence. Custom demonstrations are highly choreographed and do not require high degrees of collaboration. Most vendors can
study the RFP, load the customer data into their system and perform an impressive “custom” demonstration. The customer is a
spectator in the custom demonstration.
18© 2014 Demand Metric Research Corporation. All Rights Reserved.
Sales Compensation Solution Acquisition Best Practices Report
The crucial difference between such a demo and a POC is
proof of ROI. A POC essentially runs in a production
environment, almost always in parallel to the existing sales
compensation process. Because a POC is a “mini” end-to-end
implementation, it touches on most if not all of the critical factors
for success, such as integration. The key differentiator between
custom demonstrations and POCs is shared risk: both the vendor
and customer collaborate in and commit resources to a successful
POC. The customer is a user in a POC.
In addition to the proof of ROI that a POC provides, the process
creates trust. The experience of working together during the POC
demonstrates to the buyer that the vendor has skills, knowledge and
expertise to effectively implement and support the solution. A
proper POC also answers key questions about usability. ICM
solutions typically aren’t used everyday, so when they are used, they
must be very simple. 19
A POC may seem like a major effort, but in reality it’s no more
work than the traditional RFP process, and it yields a better
outcome. The amount of time required to draft a traditional RFP,
(which on average contains 197 questions), distribute the RFP,
consider the responses, assess the top vendors and finalize an
acquisition is often 6-8 months.
At the end of this process, some uncertainty remains about how
well the chosen vendor will ultimately perform, and final
determination of vendor effectiveness must await implementation
and productive use. The recommended approach of an agile,
business case-oriented RFP and POC produces results as
quickly, ensures that the buyer and vendor have a stake in the
outcome and provides greater confidence in the acquisition.
The following section of this guide presents a sample project plan
for acquiring an ICM solution through a business case RFP and
POC.
The key differentiator between custom
demonstrations and POCs is shared risk: both
the vendor and customer collaborate in and
commit resources to a successful POC.
Sales Compensation Solution Acquisition Best Practices Report
The ideal ICM acquisition process will typically include some or all of the processes, tools and resources described in this section. Major
projects that attempt to address critical flaws in the current sales compensation process should consider each of the potential plan elements
below. Minor projects that are addressing lower impact issues with sales compensation have the luxury of selecting those plan elements that best
serve the purpose:
 Project charter. Any serious initiative should start with the end in mind. Develop clarity about what the ideal outcome looks like, and then
get some level of management approval to pursue a solution. What’s needed at the beginning is not budget approval, but acknowledgement
of the need and authorization for the search. Communicate that the process will produce precise ROI estimates, which will later serve as the
financial justification for acquiring a solution.
 Vendor Identification. Identify the pool of candidate vendors for distribution of the business-case RFP.
 Draft the RFP. In conjunction with identification of candidate vendors, draft the business case RFP that contains question categories that
reveal how solutions create value and how well vendors can execute. Example questions might include:
 “What is an optimal compensation plan in my industry?”
 “How should I set quotas in my industry?”
 “How does this solution help identify whether my top earners are also my top performers?”.
Make sure the RFP does more than ask for a list of solution bells and whistles.
MODEL ICM ACQUISTION APPROACH
20
Sales Compensation Solution Acquisition Best Practices Report
 RFP distribution. Send the final RFP to the previously
identified pool of candidate vendors. Give vendors an
appropriate amount of time to respond. Since this RFP is not a
traditional one, the response window is shorter, allowing vendors
to respond more quickly. A 30 to 45-day response window is
more than adequate.
 Evaluation RFP responses. Review the responses and identify
a short list of two or three well-qualified vendors. Obtain
references from at least three current users of each short-listed
vendor, and check them.
 Issue POC invitation. Invite the most promising vendor to
conduct a POC.
 Develop POC goals. Jointly develop specific goals, based on an
ROI model, which will serve as the criteria to judge the success
of the POC.
 Launch the POC. Run the POC through at least one payment
process cycle, and more if necessary. Test a number of real-
world scenarios during the POC, such as quota changes, a sales
21© 2014 Demand Metric Research Corporation. All Rights Reserved.
contest or adding a new sales representative to understand how
easy they are to do.
 Evaluate POC. Determine how well the ICM vendor met the
goals of the POC. If the goals were not met, prepare to repeat
the POC process with the next, short-listed vendor.
 Recommend solution. If the POC goals were met, take a
recommendation forward to management for acquisition
approval. The customer, not the vendor, should present the POC
results and recommendations to management.
 Implement solution. Collaborate with the vendor to complete
the solution implementation, reusing the work that began with
the POC.
Based on the scope of their project, companies can select from
these processes and tools to create a plan for successfully acquiring
and implementing an ICM solution.
Sales Compensation Solution Acquisition Best Practices Report
ANALYST BOTTOM LINE
As stated in the introduction of this guide, sales
compensation is for many companies the largest SG&A
expense. As long as sales compensation is managed through a
manual process, it will remain an expense, with accuracy,
consistency and efficacy an elusive goal. Even when manual
processes for getting commission checks calculated and & paid
work smoothly, they only provide a view of what happened in the
past.
Since the sales compensation plan is in reality the gate key to
most of a company’s revenue, it should be viewed as an
investment, managed to achieve the highest possible ROI.
This can only occur through reengineering the compensation
process with automation tools that help users implement best
practices. Tools that merely automate existing, manual processes are
little more than expensive commissions calculators.
The cost of getting sales compensation wrong – delayed financial
reporting, restated earnings, legal liability or just plan/objectives
misalignment – is too high. While there is perceived risk in the
acquisition of an ICM solution for companies using a manual
Tools that merely automate existing,
manual processes are little more than
expensive commissions calculators.
process, there is greater risk in maintaining the status quo. Both
types of risk are mitigated through the acquisition process
recommended in this guide. At the heart of this recommended
process is the POC, and it’s essential because only a POC
provides an accurate assessment of true performance and
ROI.
The first imperative this guide encourages is to replace
manual sales compensation administration processes with
best practices driven automation. Companies are ideally strategic
enough in their thinking to recognize the value of doing this,
without having a negative triggering catalyst, such as a restatement
of earnings. The second imperative is to then pursue the
acquisition of a solution using the process this guide recommends.
Doing so will ensure the right solution is implemented the first time
because it exactly solves the problems it needs to.
22
Sales Compensation Solution Acquisition Best Practices Report
Jerry Rackley, Chief Analyst
Jerry Rackley is Chief Analyst at Demand Metric. His 30-year marketing career began at IBM, and
includes experience in the technology and financial services sectors.
He has worked with companies ranging in size from startups to members of the global 1000, performing
marketing, marketing communication, public relations and product management work.
ABOUT THE RESEARCH ANALYST
© 2014 Demand Metric Research Corporation. All Rights Reserved. 23
Sales Compensation Solution Acquisition Best Practices Report
OUR BEST PRACTICES REPORT METHODOLOGY
Demand Metric’s Best Practices Guides investigate new developments and approaches in a given focus area to provide marketers with up-to-date,
practical and efficient solutions to modern day challenges. Each guide identifies a challenge, discusses previous solutions to that challenge,
presents new solutions based on in-depth research and suggests a recommended approach to implement new solutions.
Each Best Practices Guide involves hours of analyst research, focus area specific surveys and comprehensive interviews with executives in a
given focus area in order to recommend solutions for the presented challenges.
© 2014 Demand Metric Research Corporation. All Rights Reserved. 24
Sales Compensation Solution Acquisition Best Practices Report
ABOUT XACTLY CORPORATION
With Xactly, companies of all sizes and industries can unleash the motivational power of their incentive compensation programs to inspire better
employee performance and business results.
Xactly’s secure, cloud-based incentive compensation and performance management solutions enable emerging businesses to Fortune 500s to
easily design, manage and optimize incentive programs that save time, cut costs, reduce risk and align employee behaviors with corporate goals.
To learn more about Xactly Corporation, please visit: www.xactlycorp.com.
© 2014 Demand Metric Research Corporation. All Rights Reserved. 25
Sales Compensation Solution Acquisition Best Practices Report
© 2014 Demand Metric Research Corporation. All Rights Reserved.
ABOUT DEMAND METRIC
Demand Metric is a global marketing research & advisory firm serving a membership community of over 35,000 marketing professionals,
CEOs, and business owners with advisory services, custom research & benchmarking reports, vendor studies, consulting methodologies,
training, and a library of 500+ tools and templates.
Using Demand Metric resources, members complete projects faster and with greater confidence, boosting respect for the marketing team
and making it easier to justify needed resources. Our 1,000+ clients range from start-ups to members of the Global 1000.
TO LEARN MORE ABOUT DEMAND METRIC
To discover how Demand Metric can help you become more strategic, please visit us online at www.demandmetric.com
CLIENT SUPPORT
For information, inquiries and general support, please contact us toll-free at +1 866 947 7744, or info@demandmetric.com
We offer discounts for academic and nonprofit institutions, provide group memberships and license our content to associations and large
enterprises for use on corporate universities and intranets.
Best Practices Report

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Sales Compensation Solution Acquisition Best Practices Report

  • 1. Sales Compensation Solution Acquisition: Getting to Automation & ROI © 2014 Demand Metric Research Corporation. All Rights Reserved. Best Practices Report By Jerry Rackley, Chief Analyst February 2014
  • 2. 3 6 8 10 15 20 Introduction Motivation for Change Solution Acquisition Process Effective ICM Solution Acquisition Recommended ICM Acquisition Process Model ICM Acquisition Process 24 25 26 Our Best Practices Report Methodology About Xactly Corporation About Demand Metric 22 23 Analyst Bottom Line About the Research Analyst TABLE OF CONTENTS
  • 3. INTRODUCTION 3 Sales Compensation Solution Acquisition Best Practices Report © 2014 Demand Metric Research Corporation. All Rights Reserved. Consider this tale of two companies. One has a respected, 100 year-old brand that employs several hundred sales people who are paid through a manual process for administering commissions. While the need for relief from its manual process was acute, there was anxiety about introducing change – even beneficial change – to the sales compensation process. To acquire a solution, the first company produced a traditional RFP because it was a familiar way to acquire an unfamiliar solution. The second company was newer with a sales force numbering between 400 and 500 representatives. It hired a new Vice President of Sales that came from an organization that used an Integrated Compensation Management (ICM) solution. The new VP made acquiring this same ICM solution a condition of employment with the new employer; no RFP was issued, just an order to the ICM vendor. Which company fared better in its acquisition?
  • 4. 39% 1% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Features & functions Benchmark data & Best Practices Traditional ICM RFP Focus: Missed Opportunity Xactly Corporation RFP Research Project, February 2014, n=2,961 4© 2014 Demand Metric Research Corporation. All Rights Reserved. Less than 1% of questions in ICM RFPs analyzed while researching this guide were related to benchmarks or best practices. Both acquired the same solution that capably addressed their needs. But the focus of each acquisition was very different. For the first company, the emphasis was on the bells and whistles of the solution. The fact that this acquisition process produced a good outcome was almost accidental. For the second company, the focus was on known performance, and the success of the acquisition surprised no one, because it had a benchmark. Yet less than 1% of questions in ICM RFPs analyzed, while researching this guide were related to benchmarks or best practices. Note: For all graphs within this report, “n” equals the number of RFP questions analyzed for this guide. Figure 1: Traditional ICM RFP Focus: Missed Opportunity Sales Compensation Solution Acquisition Best Practices Report
  • 5. 5 This guide suggests a better process for acquiring an ICM solution. For many companies, sales compensation is the largest component of Sales, General and Administrative (SG&A) costs. The monthly calculation and payment of variable sales compensation is often an arduous, manual process that must accommodate a number of exceptions and changes: rarely does a sales compensation plan start and end a fiscal year intact. The plan must survive the attrition and addition of sales representatives. It must accurately calculate and pay commissions on time, as there are risks and trust issues involved when it doesn’t. While the sales compensation plan is, theoretically, an enabler of revenue growth, these characteristics prevent it from scaling as the business grows. Given these challenges to managing and administering a sales compensation process, the motivation to automate, streamline and even reengineer it are high. However, the perceived risks of introducing change to this often brittle or fragile process are high as well. A number of vendors offer ICM solutions that are enjoying increasing acceptance and adoption. Their potential value is immense, if they are implemented using a consultative approach where the vendor and customer partner to integrate best practices. If, on the other hand, ICM solutions are implemented merely to automate what may be a bad process, at best some efficiency gains are realized, but the greater benefits are left on the table. ICM solutions are often acquired through an unwieldy Request For Proposal (RFP) process that too often focuses on solution features, while ignoring sales compensation best practices. The purpose of this guide is to help companies that seek to acquire ICM solutions take an approach that doesn’t simply automate an existing process, but reengineers it by introducing best practices that deliver measureable ROI. This guide will examine the problems that motivate ICM solution acquisition, the limitations of acquiring one through a traditional RFP, a recommended approach, an example project plan and conclude with a discussion of associated risks and rewards. If ICM solutions are implemented merely to automate what may be a bad process, at best some efficiency gains are realized, but the greater benefits are left on the table. Sales Compensation Solution Acquisition Best Practices Report
  • 6. It’s important to create some context around the need for ICM solutions. The motivation for change comes from the inconsistent performance of the manual sales compensation process. The scope of issues go beyond the glitches that are a nuisance to the sales compensation plan administrators; they impact the company’s finances, break the trust between management and the sales team, or both. Addressing these issues may involve debugging Excel macros and their resolution is more like a Band-Aid than a strategic fix, leaving all parties uneasy for the future rather than relieved. Some of the common problems that motivate companies to investigate automating the sales compensation process include:  Restating the numbers. When public companies have to restate earnings, the culprit is often the unexpected cost of sales. Regardless of whether the miss raises or lowers earnings, no CFO wants to restate earnings, because it essentially says, “we didn’t get it right the first time,” inviting scrutiny from regulators, shareholders and the media about what else is incorrect.  Incongruent goals. The sales plan sometimes encourages, rarely intentionally, the pursuit of goals that are inconsistent with overall corporate goals. If, for example, the prime directive from the executive suite is to maximize profitability, but the sales compensation plan rewards only revenue generation, goal conflict can easily occur. This motivator occurs more often in companies that suffer from organizational silos, but any organization that isn’t vigilant in monitoring alignment can experience this problem. MOTIVATION FOR CHANGE © 2014 Demand Metric Research Corporation. All Rights Reserved. 6 Sales Compensation Solution Acquisition Best Practices Report
  • 7. 7  Scalability. At some point, a manual sales compensation process fails to meet the needs of the organization. These failures can result in delays paying incentive compensation or inaccurate commission checks. Regardless of the form the failures take, they produce concern in the sales force. Chronic failures create a crisis of confidence that can lead to sales force attrition, and it is rarely the low performers that decide to leave.  Inefficiency. Very much related to scalability but deserving its own discussion is process inefficiency. A manual sales compensation process may simply be too painful to sustain. Assigning more human resources to it fails to tame it, and worse, the resources it does consume are tied up administering the process, stealing time away from other strategic activities.  Complexity. For some organizations, the complexity of administering the sales compensation process is in the critical path to closing the books each month. This complexity introduces delays in key financial reporting and prevents company leaders from having timely information about profitability and margins.  Audit findings. Audits can reveal problems with the way sales compensation is calculated and paid. What is troubling about this type of problem is that an audit can uncover flaws that have affected the process for quite some time. When this occurs, it almost always results in expense and legal liability for underpayment, or morale-damaging efforts to claw back overpayments.  “Gut” feeling. Sometimes, management instincts lead to questioning about how well the sales compensation process is working. Are plan earnings truly indicative of who is contributing the most? In other words, are the top earners also the top performers? When the answer is “no”, management should investigate and understand why. Any of the reasons described here are alone sufficient to motivate a company to investigate getting relief through an ICM solution. The goal is to fix a sub-optimal sales compensation process, but too often the solution acquisition process is flawed as well. © 2014 Demand Metric Research Corporation. All Rights Reserved. Sales Compensation Solution Acquisition Best Practices Report
  • 8. For decades, companies have used an RFP to acquire systems and solutions. RFPs are familiar mechanisms for acquiring accounting, CRM and ERP solutions. Why not ICM solutions as well? The perception is that an RFP works well for more complex solutions, particularly where there is some degree of risk. There is a certain comfort level in producing a lengthy RFP, one that has been thoroughly vetted to include questions about every possible solution feature and capability. The RFP approach may work well for acquiring many types of solutions, but the “traditional” RFP falls short as a means for acquiring ICM solutions. The reason is that such RFPs are typically built on a flawed premise: the automation of an existing, sub- optimal sales compensation process. It is entirely possible for a “successful” RFP to result in ultimate failure, because the solution it leads to acquiring doesn’t fix the flaws of the sales compensation process, it merely automates them. SOLUTION ACQUISITION PROCESS 8 This realization comes slowly, as there are almost always efficiencies gained through automating any process, but if the core, underlying process is unsound, the benefits are short-lived. There are two critical success factors for ICM solution acquisition that the purchase process must account for: 1. The Mathematical Model: Can an ICM solution accurately calculate commissions, bonuses and incentive payments? While this success factor is no trivial matter, the reality is that today’s ICM solutions are very capable of performing the arithmetic. By their own admission, they all are very good at calculating variable sales compensation, even when those calculations are rather intricate. It is entirely possible for a “successful” RFP to result in ultimate failure, because the solution it leads to acquiring doesn’t fix the flaws of the sales compensation process, it merely automates them. Sales Compensation Solution Acquisition Best Practices Report
  • 9. the plan and how the plan is expected to perform in future months and quarters. Ideally, a prospect for ICM could describe the type of performance their compensation plan is intended to drive and get vendors to share a wealth of best practices and benchmark data to produce the desired outcome. Yet, very little content in a traditional RFP addresses interrogates to discover if vendors can offer wisdom and experience in this area. The ICM solution acquisition process must fully investigate both the mathematical modeling and calculation capabilities of potential vendors, and also the best practices and benchmark data associated with sales compensation plans. The traditional RFP approach works well for the former, but what about the latter? With the proper collaboration, all reputable vendors can automate a compensation model, account for exceptions, produce reports, provide override or customization capabilities and generate payments in a timely fashion. These capabilities are the focus of most ICM RFPs, yet if the scope does not go beyond these capabilities, the buyer is at risk of acquiring a solution with a short shelf life. 2. The Best Practices: As stated in the introduction, sales compensation is often the largest, single component of SG&A expense costs. Like any other expense, executives should expect a reasonable return, and the way to maximize ROI is through identification of best practices and the tools to implement them. ICM acquisitions that don’t also emphasize best practices essentially results in the purchase of expensive compensation calculators, that while capable of creating some efficiency, only provide a backward looking view of the compensation process. Companies need to know with precision if their compensation plan is producing the expected results, the impact of changes to © 2014 Demand Metric Research Corporation. All Rights Reserved. 9 Is an RFP the ideal way to acquire the best ICM solution? Sales Compensation Solution Acquisition Best Practices Report
  • 10. In this guide’s introduction, a tale was shared of two companies that acquired ICM solutions using different approaches. That anecdote effectively frames the acquisition discussion for ICM solutions. The company that issued the RFP may have identified an effective solution, but the use of an RFP did not guarantee that. The second company did experience success. There are obvious differences in the processes used by these companies to acquire a solution, and understanding these differences is critical. The second company had a completely different focus, which was not simply the elimination of the arduous, monthly manual process of getting commission checks out the door. Instead, the focus was far more strategic: access to benchmark data and best practices expertise to enable collaboration with the CFO on increasing the return on sales compensation. The bells and whistles of potential solutions were not the primary acquisition consideration, because the new VP understood from experience that the ROI of the chosen ICM solution did not come from its features. EFFECTIVE ICM SOLUTION ACQUISITION © 2014 Demand Metric Research Corporation. All Rights Reserved. Instead, the focus was far more strategic: access to benchmark data and best practices expertise to enable collaboration with the CFO on increasing the return on sales compensation. 10 Sales Compensation Solution Acquisition Best Practices Report
  • 11. 1% 1% 2% 2% 3% 7% 7% 12% 12% 14% 39% 0% 10% 20% 30% 40% Benchmarking/Best practices Differentiators Company culture Implementation Company viability Training/Support Data integration Security Technical/architecture Business intelligence/Analytics Features/functions ICM RFP Content Categories Xactly Corporation RFP Research Project, February 2014, n=2,961 To better understand the content of traditional RFPS for ICM solutions, 15 actual RFPS used for this purpose were analyzed. Companies in several, different industries prepared these RFPs, which were sent to a variety of ICM vendors, and on average, the RFPs contained 197 distinct questions. The individual questions in these RFPs were categorized to understand what potential purchasers were looking for in the vendor responses. The result of that analysis reveals the emphasis of the RFPs evaluated for this study (Figure 2). Each of the RFP content categories has merit – there are none that don’t deserve some consideration in the acquisition process. Rather it is the concentration of questions in certain categories and the lack in others that is startling. This data supports a premise of this guide, that traditional ICM RFPs are heavily focused on solution features and functions. The position of this guide is that purchasers should place far more emphasis on best practices and benchmarking data than is indicated in this analysis. © 2014 Demand Metric Research Corporation. All Rights Reserved. Figure 2: ICM RFP Content Categories 11 Sales Compensation Solution Acquisition Best Practices Report
  • 12.  “Describe and provide examples of any non-tool related training that is available for managers and administrators (e.g. compensation guidelines, compensation best practices, etc.).”  “What is the frequency of data file updates that are accepted/required (weekly, biweekly, monthly, quarterly) following program implementation? What do you recommend as a best practice?” When acquiring solutions that must conform to a set of industry standards or generally accepted principles, such as accounting software, RFPs can work well. For ICM solutions, however, feature and function-oriented RFPs are far less effective because they provide no real indicator of performance. While an RFP might provide insights into the process efficiency gains an ICM solution can deliver, what matters more is process effectiveness. Of the 2,961 RFP questions considered in the analysis presented in Figure 2, a mere six inquired about best practices or benchmarking data. In fact, only four of the 15 RFPs that were analyzed contained any questions in this category, and none of the RFPs adequately plumbed the depth of the best practices information category. The text of the six best practices questions found in this RFP analysis are presented here, as they are representative:  “Provide examples of how you share best practice information with your clients.”  “What reports and reporting best practices would you recommend based on past experience?”  “Do you have any best practices for hospitality implementations?”  “If you have multiple integration solutions, describe your best practice recommendation.” © 2014 Demand Metric Research Corporation. All Rights Reserved. While an RFP might provide insights into the process efficiency gains an ICM solution can deliver, what matters more is process effectiveness. 12 Sales Compensation Solution Acquisition Best Practices Report
  • 13. From one organization to another – even within the same industry – there is a high degree of creativity and variability in structuring compensation plans, with several influences on how to structure them, including:  Market share  Brand awareness  Degree of competition  Average sales cycle length It requires an approach that goes beyond the scope of a traditional RFP, and instead evaluates the technology, assesses a vendor’s ability to execute and its ability to help your sales compensation process deliver more value. Figure 3 on the next page contrasts the scope of the traditional RFP with the recommended scope of a more effective ICM acquisition approach: There are various tools and resources that can support the broader scope of the recommended acquisition process. These tools generally include a streamlined, business case-oriented RFP and an accelerated, agile Proof-of-Concept (POC) that aligns the POC goals with ROI. © 2014 Demand Metric Research Corporation. All Rights Reserved.  Average deal size  Industry  Product positioning & maturity  Economic conditions If a traditional RFP is not the ideal way to acquire an ICM solution, then what is the recommended approach? 13 Sales Compensation Solution Acquisition Best Practices Report
  • 14. Does the solution do what I need it to do? Recommended ScopeTraditional RFP Scope Does the solution do what I need it to do? Can the vendor provide professional services, implementation support and is it financially viable? Will the vendor co-develop the business case, prove ROI, and share best practices to create a higher-value process? Validate Technology Ability to Drive ROI Ability to Execute Validate Technology Figure 3: Traditional RFP Scope vs. Recommended RFP Scope 14 Sales Compensation Solution Acquisition Best Practices Report
  • 15. The preferred outcome of an ICM acquisition process is the selection and smooth implementation of the solution that:  Minimizes the inherent risks of administering a sales compensation program.  Provides information that helps keep the compensation plan aligned with corporate objectives.  Delivers the best possible ROI. Before describing a recommended acquisition approach in more detail, it’s helpful to briefly discuss how ICM solutions produce ROI: through providing the means to directly link and trace sales compensation payments to outcomes. Since sales compensation plans are designed to encourage specific behavior and outcomes, it’s always been important to understand how well the payments are influencing the outcomes. RECOMMENDED ICM ACQUISITION PROCESS 15© 2014 Demand Metric Research Corporation. All Rights Reserved. Even without an ICM solution, most companies start out well aligning their plans to the preferred outcomes. However, as plans are implemented, most are “tweaked” to accommodate a variety of situations. For example, new sales representatives who come on- board during the plan year are granted exceptions. Mid-year sales contests are launched. Other exceptions and exemptions are made for reasons that seem logical. Very rarely are the cumulative effects of these changes and exceptions understood in advance. Making changes to the plan without a means of understanding the impact they will have is like driving in the fog down a steep, winding road without guardrails – at some point, you’re going to go over the cliff. Very rarely are the cumulative effects of these changes and exceptions understood in advance. Making changes to the plan without a means of understanding the impact they will have is like driving in the fog down a steep, winding road without guardrails – at some point, you’re going to go over the cliff. Sales Compensation Solution Acquisition Best Practices Report
  • 16. ICM solutions deliver ROI by serving as a set of guardrails. They allow companies to not only see through the fog of plan changes and exceptions, but also model them and forecast their impact in advance. This capability delivers ROI by keeping an organization’s plan aligned with company objectives. The use of an ICM solution from a vendor that provides benchmark data and best practices equips the organization to make intelligent and beneficial plan change decisions, not just take shots in the dark. What then is the best way to acquire a solution and get this ROI? While the traditional RFP described in this guide has limitations, a business-case RFP that lays the foundation for the ICM business case is recommended. Its scope includes:  Objectives for sales compensation plan  Forecasted growth of revenue and sales staff  Current challenges with the process Unlike a traditional RFP, a business-case RFP provides as much or more information to vendors as it asks for in their response. The goal of the business-case RFP is not to identify the ideal solution, but instead to identify a short list of candidate vendors with which to conduct a Proof-of-Concept implementation. © 2014 Demand Metric Research Corporation. All Rights Reserved.  Known analytics and reporting needs  Sources of data needed to administer the compensation plan  Example exception or change scenarios 16 Sales Compensation Solution Acquisition Best Practices Report
  • 17. Figure 4, to the left, contrasts the previously shown traditional RFP response content categories with a set recommended for a business case-oriented RFP. Once again, each of the response categories depicted in this chart are important, but some deserve greater emphasis than others. As this guide has consistently maintained, benchmarking and best practices inquiries represent the largest single area of inquiry in a business case RFP. Next in importance are differentiators, company viability and implementation, because these aspects are not always fully addressed in a POC initiative. Finally, the remaining categories are touched on in the RFP, but not to extreme detail, because questions about each are fully addressed during the course of a POC. The Proof-of-Concept, then, is the critical part of the acquisition process, as this is where the customer and vendor collaborate on a reusable “mini” ICM implementation. This is work that isn’t thrown away at the end of the POC, but rolled into production. Effective POCs have specific goals and are built using an ROI model, so that at the end of the POC, customer and vendor alike clearly understand the business case for ICM. Done correctly, the POC takes the risk and guesswork out of the acquisition. 5% 5% 5% 5% 5% 5% 10% 10% 10% 15% 25% 0% 10% 20% 30% Security Technical/architecture Features/functions Company culture Training/Support Data integration Business intelligence/Analytics Implementation Company viability Differentiators Benchmarking/Best practices ICM Business Case RFP Content Categories Xactly Corporation RFP Research Project, February 2014, n=2,961 Figure 4: ICM Business Case RFP Content Categories © 2014 Demand Metric Research Corporation. All Rights Reserved. Sales Compensation Solution Acquisition Best Practices Report
  • 18. Proof-of-Concept projects usually take one of the following forms: 1. Pilot. This approach to a POC identifies a subset of users that will do a full, end-to-end contracting process with a vendor, an implementation and then use of the solution in production. While a pilot is the most costly of the POC approaches, it does the best job of lowering the risk of the full deployment. 2. POC. This approach doesn’t include the full contracting as with a pilot, but does assume some level of shared work and risk. This approach does an implementation to address targeted business challenges, such as accrual or managing SPIFFs. While not a live, full- production implementation, it does show how well a vendor can execute across the set of presented business challenges. This approach is often the least expensive approach to a POC. 3. Parallel POC. This approach is the same as the POC described above, but is done with the top two vendors. Each vendor is presented with the same problems and process. Because this approach does require shared work and risk, more resources are needed to complete a parallel POC, and it costs more than the POC described above. Quite often, traditional RFPs include a requirement for a custom demonstration, leading some prospects to conclude that there isn’t a significant difference between the traditional and recommended acquisition approach. The differences may seem subtle, but they are significant. Custom demonstrations are designed to showcase features and functions, usually using a subset of customer data. The purpose is to satisfy checklist items in an RFP by showing that a solution can indeed perform specific functions. Using customer data provides greater confidence, sometime false confidence. Custom demonstrations are highly choreographed and do not require high degrees of collaboration. Most vendors can study the RFP, load the customer data into their system and perform an impressive “custom” demonstration. The customer is a spectator in the custom demonstration. 18© 2014 Demand Metric Research Corporation. All Rights Reserved. Sales Compensation Solution Acquisition Best Practices Report
  • 19. The crucial difference between such a demo and a POC is proof of ROI. A POC essentially runs in a production environment, almost always in parallel to the existing sales compensation process. Because a POC is a “mini” end-to-end implementation, it touches on most if not all of the critical factors for success, such as integration. The key differentiator between custom demonstrations and POCs is shared risk: both the vendor and customer collaborate in and commit resources to a successful POC. The customer is a user in a POC. In addition to the proof of ROI that a POC provides, the process creates trust. The experience of working together during the POC demonstrates to the buyer that the vendor has skills, knowledge and expertise to effectively implement and support the solution. A proper POC also answers key questions about usability. ICM solutions typically aren’t used everyday, so when they are used, they must be very simple. 19 A POC may seem like a major effort, but in reality it’s no more work than the traditional RFP process, and it yields a better outcome. The amount of time required to draft a traditional RFP, (which on average contains 197 questions), distribute the RFP, consider the responses, assess the top vendors and finalize an acquisition is often 6-8 months. At the end of this process, some uncertainty remains about how well the chosen vendor will ultimately perform, and final determination of vendor effectiveness must await implementation and productive use. The recommended approach of an agile, business case-oriented RFP and POC produces results as quickly, ensures that the buyer and vendor have a stake in the outcome and provides greater confidence in the acquisition. The following section of this guide presents a sample project plan for acquiring an ICM solution through a business case RFP and POC. The key differentiator between custom demonstrations and POCs is shared risk: both the vendor and customer collaborate in and commit resources to a successful POC. Sales Compensation Solution Acquisition Best Practices Report
  • 20. The ideal ICM acquisition process will typically include some or all of the processes, tools and resources described in this section. Major projects that attempt to address critical flaws in the current sales compensation process should consider each of the potential plan elements below. Minor projects that are addressing lower impact issues with sales compensation have the luxury of selecting those plan elements that best serve the purpose:  Project charter. Any serious initiative should start with the end in mind. Develop clarity about what the ideal outcome looks like, and then get some level of management approval to pursue a solution. What’s needed at the beginning is not budget approval, but acknowledgement of the need and authorization for the search. Communicate that the process will produce precise ROI estimates, which will later serve as the financial justification for acquiring a solution.  Vendor Identification. Identify the pool of candidate vendors for distribution of the business-case RFP.  Draft the RFP. In conjunction with identification of candidate vendors, draft the business case RFP that contains question categories that reveal how solutions create value and how well vendors can execute. Example questions might include:  “What is an optimal compensation plan in my industry?”  “How should I set quotas in my industry?”  “How does this solution help identify whether my top earners are also my top performers?”. Make sure the RFP does more than ask for a list of solution bells and whistles. MODEL ICM ACQUISTION APPROACH 20 Sales Compensation Solution Acquisition Best Practices Report
  • 21.  RFP distribution. Send the final RFP to the previously identified pool of candidate vendors. Give vendors an appropriate amount of time to respond. Since this RFP is not a traditional one, the response window is shorter, allowing vendors to respond more quickly. A 30 to 45-day response window is more than adequate.  Evaluation RFP responses. Review the responses and identify a short list of two or three well-qualified vendors. Obtain references from at least three current users of each short-listed vendor, and check them.  Issue POC invitation. Invite the most promising vendor to conduct a POC.  Develop POC goals. Jointly develop specific goals, based on an ROI model, which will serve as the criteria to judge the success of the POC.  Launch the POC. Run the POC through at least one payment process cycle, and more if necessary. Test a number of real- world scenarios during the POC, such as quota changes, a sales 21© 2014 Demand Metric Research Corporation. All Rights Reserved. contest or adding a new sales representative to understand how easy they are to do.  Evaluate POC. Determine how well the ICM vendor met the goals of the POC. If the goals were not met, prepare to repeat the POC process with the next, short-listed vendor.  Recommend solution. If the POC goals were met, take a recommendation forward to management for acquisition approval. The customer, not the vendor, should present the POC results and recommendations to management.  Implement solution. Collaborate with the vendor to complete the solution implementation, reusing the work that began with the POC. Based on the scope of their project, companies can select from these processes and tools to create a plan for successfully acquiring and implementing an ICM solution. Sales Compensation Solution Acquisition Best Practices Report
  • 22. ANALYST BOTTOM LINE As stated in the introduction of this guide, sales compensation is for many companies the largest SG&A expense. As long as sales compensation is managed through a manual process, it will remain an expense, with accuracy, consistency and efficacy an elusive goal. Even when manual processes for getting commission checks calculated and & paid work smoothly, they only provide a view of what happened in the past. Since the sales compensation plan is in reality the gate key to most of a company’s revenue, it should be viewed as an investment, managed to achieve the highest possible ROI. This can only occur through reengineering the compensation process with automation tools that help users implement best practices. Tools that merely automate existing, manual processes are little more than expensive commissions calculators. The cost of getting sales compensation wrong – delayed financial reporting, restated earnings, legal liability or just plan/objectives misalignment – is too high. While there is perceived risk in the acquisition of an ICM solution for companies using a manual Tools that merely automate existing, manual processes are little more than expensive commissions calculators. process, there is greater risk in maintaining the status quo. Both types of risk are mitigated through the acquisition process recommended in this guide. At the heart of this recommended process is the POC, and it’s essential because only a POC provides an accurate assessment of true performance and ROI. The first imperative this guide encourages is to replace manual sales compensation administration processes with best practices driven automation. Companies are ideally strategic enough in their thinking to recognize the value of doing this, without having a negative triggering catalyst, such as a restatement of earnings. The second imperative is to then pursue the acquisition of a solution using the process this guide recommends. Doing so will ensure the right solution is implemented the first time because it exactly solves the problems it needs to. 22 Sales Compensation Solution Acquisition Best Practices Report
  • 23. Jerry Rackley, Chief Analyst Jerry Rackley is Chief Analyst at Demand Metric. His 30-year marketing career began at IBM, and includes experience in the technology and financial services sectors. He has worked with companies ranging in size from startups to members of the global 1000, performing marketing, marketing communication, public relations and product management work. ABOUT THE RESEARCH ANALYST © 2014 Demand Metric Research Corporation. All Rights Reserved. 23 Sales Compensation Solution Acquisition Best Practices Report
  • 24. OUR BEST PRACTICES REPORT METHODOLOGY Demand Metric’s Best Practices Guides investigate new developments and approaches in a given focus area to provide marketers with up-to-date, practical and efficient solutions to modern day challenges. Each guide identifies a challenge, discusses previous solutions to that challenge, presents new solutions based on in-depth research and suggests a recommended approach to implement new solutions. Each Best Practices Guide involves hours of analyst research, focus area specific surveys and comprehensive interviews with executives in a given focus area in order to recommend solutions for the presented challenges. © 2014 Demand Metric Research Corporation. All Rights Reserved. 24 Sales Compensation Solution Acquisition Best Practices Report
  • 25. ABOUT XACTLY CORPORATION With Xactly, companies of all sizes and industries can unleash the motivational power of their incentive compensation programs to inspire better employee performance and business results. Xactly’s secure, cloud-based incentive compensation and performance management solutions enable emerging businesses to Fortune 500s to easily design, manage and optimize incentive programs that save time, cut costs, reduce risk and align employee behaviors with corporate goals. To learn more about Xactly Corporation, please visit: www.xactlycorp.com. © 2014 Demand Metric Research Corporation. All Rights Reserved. 25 Sales Compensation Solution Acquisition Best Practices Report
  • 26. © 2014 Demand Metric Research Corporation. All Rights Reserved. ABOUT DEMAND METRIC Demand Metric is a global marketing research & advisory firm serving a membership community of over 35,000 marketing professionals, CEOs, and business owners with advisory services, custom research & benchmarking reports, vendor studies, consulting methodologies, training, and a library of 500+ tools and templates. Using Demand Metric resources, members complete projects faster and with greater confidence, boosting respect for the marketing team and making it easier to justify needed resources. Our 1,000+ clients range from start-ups to members of the Global 1000. TO LEARN MORE ABOUT DEMAND METRIC To discover how Demand Metric can help you become more strategic, please visit us online at www.demandmetric.com CLIENT SUPPORT For information, inquiries and general support, please contact us toll-free at +1 866 947 7744, or info@demandmetric.com We offer discounts for academic and nonprofit institutions, provide group memberships and license our content to associations and large enterprises for use on corporate universities and intranets. Best Practices Report