Why does sales performance management make more sense than CRM?

12th Aug 2013

“First prize is a Cadillac El Dorado. Second prize is a set of steak knives. Third prize is you're fired.” 

David Mamet’s 1992 film Glengarry Glen Ross might have been a dramatic depiction of life in the cut-throat world of sales, but it wasn’t considered particularly unrealistic. Sales was a dog eat dog world.

That may not necessarily have changed, but 20 years later and sales leaders have learnt to take a more sophisticated approach to motivating their reps to help the team hit their targets.

“There has been a huge shift in thinking from sales VPs in the past five years,” explains Patrick Stakenas, research director at Gartner. “In the old days, there was very much a ‘sell or you’re fired’ mentality – so you would hire a sales person, give them some training, give them some leads and a computer and tell them to go out and sell, and it was up to them to figure out how and understand the market and so on.

“But now it is changing to a much more nurturing environment, where they work with the sales people, understand where their strengths lie, and where their potential cautions are, and then attack those weaknesses with training. And this training isn’t just classroom training, but ongoing information, iterative processes that allow the sales person to get better at what they do and more knowledgeable about how to sell.”

This more sophisticated approach to sales people has been largely driven by the acknowledgement that just as consumers have evolved in recent years, so reps have changed as well.

“A big piece of this is the concept of Generation X and Generation Y,” notes Stakenas. “A lot of the baby boomers are retiring, and the attitude of working 24 hours a day or whatever needs to be done to make the sake is kind of going away. The new generation is coming up and saying that they’re willing to work hard, but they want help to be successful. Generation X and Y have a much grander expectation of using technology and being coached and nurtured in the selling process.”

With traditional sales tools not providing adequate support for these changes, an emerging branch of technology has begun to bloom - sales performance management (SPM). Distinct from sales force automation (SFA) and CRM technology, SPM encompasses automation software and data analysis to manage sales quotas, territories, incentive compensation, hiring and onboarding, appraisals, sales coaching and forecasting. And with IBM’s 2012 acquisition of leading SPM player Varicent Software, the signs are that the wider industry is acknowledging the growing interest in the technology.

“Sales people are recognising that they can’t get the functionality that they need inside of their CRM and SFA tools – they want a system based around the sales rep, rather than a system based around the customer,” says Stakenas. “You’re not able to have that interaction or coaching or compensation or behavioural management environment inside of the CRM world. So SPM is taking on a life of its own, because it’s a different model. It is fundamentally a model based around the rep as opposed to being based around the customer.

The seeds of SPM were sown with incentive compensation management a few years ago, he continues. “Incentive compensation was just a tool for HR or finance to use to calculate commissions, but that has changed to this because there is lots of information there that can be used to help drive behaviours – how profitable the seller is; are they selling the right markets; are they selling the right products; do they know and understand the market? And once you better understand these things you have a much higher trained sales force.”

Motivational science

Explaining the growing interest in SPM, Christopher Cabrera, founder, president and CEO at Xactly, believes that sales leaders are waking up to what he calls “the motivational science of compensation”.

“As the proverbial carrot-and-stick model suggests, certain targets motivate people. What we are finding now though, is that a new generation of workers is motivated by multiple factors – everything from money, to trips, to public recognition,” he says. “Sales performance management technology enables companies to better understand what drives performance and results within their organisation and how to create and align incentive programs that motivate desired behaviours that are in line with company goals.”

And of all of SPM’s functionality, its ability to streamline incentive compensation plans is one of the biggest draws for sales leaders.

“At the heart of most sales performance management initiatives is incentive or sales compensation,” continues Cabrera. “For example, US companies spend more than $800 billion a year on sales compensation – three times more than they spend on advertising. Even though the cost of compensation dwarfs other areas of spend, like advertising, companies tend to analyse comp plans much less rigorously than they scrutinise line items like ad spend. Businesses as a whole simply don't do a very good job of measuring, iterating, and optimising their incentives and compensation.

“In addition, the risk has become too significant. Gartner estimates that sales compensation managed on spreadsheets (still the most common method) can result in an error rate of 3–8%. Again, across thousands of reps, you are talking material risk, threat of non-compliance, and millions in lost money.”

Jim Dickie, managing partner at CSO Insights, also emphasises the important role that SPM plays in nurturing rep knowledge – something that is crucial in the modern sales environment.

“Knowledge is the differentiator these days,” he explains. “What you sell used to be the big deal – when I started selling for IBM years ago, they said it’s your product that is your competitive edge. But product lifecycles have collapsed now, so if you have a feature function advantage today, the competition is probably going to replicate it really quickly. So what you sell is not the only thing to think about – how you sell is.

“So if I can be more responsive, if I can be more professionals and knowledgeable, I’m going to differentiate myself from the competition. SO you have to start realising that there is a whole lot of assets that your company has besides the products you sell, and if you can leverage the corporate knowledge base then you can do a much better job of competing.”

How to choose an SPM solution

So what do businesses need to know about SPM – and how should they choose an SPM solution?

Stakenas recommends that as a starting point, sales leaders should evaluate the type of sales organisation that they have, what their philosophy is, and what corporate objectives they are trying to achieve – for example, are they in close mode, recover mode or acquisition mode. This will provide some initial steer for what they will then be looking for from a solution.

“If you’re in growth mode, for instance, you are probably going to need less coaching tools, but you are going to need more incentive compensation or territory tools, or objective and quarter management tools,” he says. “If you are in recover mode, you are going to need more coaching tolls and you are going to need more sales training tools and appraisal management tools to help bring the sales force along. If you are in acquisition mode, you are going to need collaboration tools to bring the sales forces together. So, evaluate the type of sales force that you have, the type of environment that you’re in as a company, and then approach it with an understanding of what you’re trying to accomplish – whether you’re trying to expand territories, and be more aggressive with compensation, or trying to coach and nurture your sales reps to be better performers.”

Once that is understood, you can then start looking at the vendors and what they can offer against this.

“There are some vendors that offer a very broad functionality, and there are others that have very narrow functionality,” Stakenas continues. “But you may find that if you are in growth mode and you have a strong ICM territory management system currently in place that maybe you just need to get better utilisation out of those tools and work with the current vendors. Other companies who are just using pure SFA or CRM for sales type tools, may find that they don’t have anything, however – they are still using spreadsheets to manage compensation and they don’t have any behavioural management tools in place, so they need to go and look at it.

“So again – understand the sales force, understand the market that you serve, and then apply the functionality that best helps you get where you want to be.”

Cabrera’s advice when it comes to SPM is to ensure that you aren’t automating for automation’s sake. “Customers need to really get to the heart of what they are trying to achieve, and then find a solution or partner that can meet those needs,” he explains. “For example, if an organisation automates a bad compensation plan, they will still end up with bad results. Customers should find a vendor that can partner with them for the long run; one that offers the services and technology they need today, and the vision that can enable them to continue to innovate and transform their sales processes in the future.”

Brian Hawkes, chief executive of foresite SPA, also warns businesses to be wary of some tools labelled ‘sales performance management’, and recommends that sales leaders do a proper investigation into any solutions on offer.

“SPM is commercially still in its infancy and as yet is not very well defined,” he says. “As with CRM, vendors are using SPM to describe a wide range of functionality which makes it confusing for businesses to know exactly what they are buying into. Companies should therefore beware of anything that appears to be CRM under another name, or is merely an extension of front office functionality - e.g. territory or quota management, and evaluation or training tools.”

Despite this warning, Hawkes believes that businesses will ultimately feel the benefit of SPM tools, as they look to support the modern sales work force.

He concludes: “SPM is not something to be avoided just because it is ‘new’ – companies have been developing their own in house ideas for many years. In today’s sales environment it arguably makes better common sense than CRM/SFA in many regards.”

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