More than anywhere else, it is on the front lines of sales where performance and compensation are most immediately and quantitatively related. While this comes as news to no one, not everyone understands the unwieldy processes involved in managing multiple variable compensation (VC) plans, and the difficulties that arise when trying to optimize the sales force for performance, self-service and satisfaction.
It's not surprising that large, distributed organizations would want to centralize management of variable compensation across the enterprise to streamline data entry and payments, and to gain insight that can boost revenues and margins. Over the last decade or so, this combination of process efficiency, analysis and reporting has come to be known as Enterprise Incentive Management (EIM), a category that is maturing with its own set of tools and applications. "Establishing quotas and managing commissions for sales teams was traditionally a side task done in spreadsheets," says Mark Smith, SVP of research at Ventana Research. "This activity ran in parallel to traditional sales force automation (SFA) systems, which are about putting opportunities in front of people and managing contacts." The result was unconnected sets of forecasts, compensation plans, pending and closed deals with different people managing incentives and quotas. Not only was the unmanaged process clumsy, it was non-compliant, too slow for more than annual adjustment and even more difficult for expanding organizations seeking to merge and align sale forces.
A Need to Centralize
LexisNexis, the ubiquitous provider of information and services for legal, risk management, corporate, government, law enforcement, accounting and academic markets, is nothing if not a growth story. From the time of its 1998 acquisition of rival Matthew Bender - when the company managed 215 sales reps and about 50 compensation plans - LexisNexis today employs 1,300 reps covering almost 200 plans, a figure likely to grow in 2007.
In 2000, LexisNexis was looking for an EIM solution to help manage its burgeoning sales team, which involved the creation of a single repository for all sales and compensation information. "Back then we really needed a central database for both our online and new Matthew Bender VC that would be able to provide complete tracking, reporting and combined management reporting, and enable us to create plans and performance measures around the integration of these companies," says Kristi Weaver, director of sales commissions at LexisNexis. The company settled on a product called TrueComp from EIM specialist Callidus for the scalability it expected to need in the future.
Five years and several acquisitions later, LexisNexis is closing in on a strategy for integrating sales teams in support of a "total solutions" approach to meet customer needs. "As of this year we are still in a transition where we still have segmented sales force by acquisition," says Weaver. "We still have what I would consider a specialized sales force where some of our new companies have not yet crossed the bridge. We're using Callidus because it's a scalable incentive model to start paying and compensating our employees on all the various products of our company, not just our traditional 'mother' business."
The root technical problem rested in merging data from separate homegrown systems that used different regional and product definitions. "This started even before I joined the company; there was a lot of data movement that needed to occur amid a lot of disparate data feeds that are critical to the business," according to Stephen Iddings, manager of application integration, LexisNexis. "That's one of the integration challenges for the future as well, as we acquire and incorporate more businesses."
From the beginning, the goal of building a single repository would be to increase revenue and profit margin, with a secondary benefit of maximizing sales effectiveness. User-facing tools that came with Callidus included a portal for streamlining sales input on the front end and reporting and analysis capabilities enabled by software from Actuate. Coincidentally, the greater business at Lexis Nexis had begun to develop a full-blown data warehouse for financial reporting and analysis, which suited Weaver's group perfectly. "It coincided well because when we implemented Callidus, all of a sudden we had this huge data mine of information that we could use with our data warehouse. It became a much more powerful story for us to determine how we could incentivize our reps and determine if they were achieving what we wanted in the first place. Now we could tell those things, not only from the Callidus VC compensation, but also from the data warehouse, by the actual revenue and other things we were measuring in the company."
A wealth of information from the repository would allow business users to dig into individual activity and performance, and examine whether behavior was aligned with the strategy of the company. "The value of a central system is that it helps tell us we are selling the right products and services to the right customers through the right reps, and incenting them in a way that reflects what the company wants them to do," says Weaver. "It enables them to focus on what's most important." Business managers began to use compensation data to assess individual sales rep portfolios and whether those portfolios carried too many products - or not enough. They gained confidence in the data, which, compared to spreadsheet entry, was highly accurate and dependable. This would provide more credible performance management and other benefits. "You begin to see trends, not just across revenue, but how that plays out in our compensation model. Are we paying our reps equitably to the revenue we are earning out and if we're not, why not?"
Facing a variety of VC plans, sales reps rightfully grumble about a lack of visibility and plan equity, which EIM can address. At LexisNexis, reps get all their VC information in one place, understand how their compensation is calculated and can be confident they are being correctly compensated in a timely fashion. This increases sales satisfaction and reduces frustrating disputes and restatements. Maximizing sales effectiveness in this way is a logical precursor to maximizing profit margins and increasing revenue.
Managers and administrators benefit from consolidation of data that lets them analyze a variety of sales and compensation data quickly, with high accuracy, in one place. "We're able to produce reports and rollups for the executive level for all the data in our system," Weaver says. "Even with the data warehouse, we are the only shop in LexisNexis that has all the accountabilities within the sales organization, and the customer-facing view with revenue included from all the companies."
None of this happens without a strong contribution from IT, where Iddings says there is an ongoing effort to normalize and standardize. "Assimilating new businesses can be painful, but it hasn't grown out of control because we haven't been adding companies out of control," he says. "We maintain a skills set within my group that is very good at extract, transform and load-type applications." This group identifies where data resides in a specific business and facilitates the delivery, coordination and loading into the system. "We're looking at trying to standardize an interface that will improve the whole process, because we have a whole handful of companies we're going to need to integrate." The biggest thing on Iddings' radar is a TrueComp upgrade this year that will enhance functionality and meet management oversight needs.
Even now, the EIM system offers a compliance edge to LexisNexis compared to some of its counterparts at parent Reed Elsevier that still use spreadsheets. "We have very controlled procedures, controlled access, calculated incentives, plans and rules that are not necessarily confidential, but very secure," says Weaver. "That will go as long way to help us meet Sarbanes-Oxley requirements with control and auditing benefits."
The upgrade will also allow Weaver's group to be able to write VC plans without direct IT intervention for the first time. "This is going to let us respond very quickly to the business because we don't have to rely on code that the normal business layperson doesn't understand," says Weaver. "We can write our own plans in my own shop and that means that if someone has a change based on a new strategy, we can quickly implement that."
Weaver and Iddings agree that 2006 is a transition year for LexisNexis in which the ongoing sales integration will align a variety of managers, specialists and assets with bundled products and services. While the EIM upgrade is part of that, Iddings says there's a lot of work to do assimilating good processes and making the most of functionality. Though the initial EIM integration reduced headcount for managing compensation, the team has since been increased by three, driven by more new data feeds for products and requirements for creating new commission plans. Meanwhile, the system has scaled quickly and now handles more than 750,000 transactions per month. The insistent challenge of integrating acquisitions has kept the focus on technical processes and rigid accuracy, followed by the human processes employed to do that. "It's not overwhelming, but it is a constant barrage," Weaver says. "Where we've improved is in the consolidation and representation of the data and the reporting aspect so that it's all together in a nice neat package," thus making the strategic growth plans of LexisNexis as fruitful as possible.
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