AberdeenGroup

Sales Performance Management

Business Value Research Series

January 2005

The Business Value Research Series

Executive Summary
Executive Summary
Key business value findings from this research include: The most important strategy to generate successful sales performance management is perceived as implementing a culture of continuous improvement (91%) The key influences on sales performance management today include the inability to plan for strategic sales (83%), and the lack of actionable data (78%) The business capabilities with the greatest positive impacts are improved sales planning data for forecasting and strategic planning, and increased visibility and timely access to data relevant to future planning Better, more accurate software solutions were seen as providing the greatest positive impact by 50% of the respondents

Companies seek to better coordinate their overall sales activities and plans with visibility to ongoing sales performance. They seek to motivate and reward top performance, thereby retaining their top revenue-generators and sales talent. Successfully managed sales-driven enterprises strive to deliver definite benefits, such as the following: Focused employee activity and behavior (sales and the rest of the workforce) Increased productivity potential Profitable sales and channel operations Increased likelihood of shareholder value

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Table of Contents
Executive Summary .............................................................................................. i Executive Summary........................................................................................ i Chapter One: Sales Performance Management: Issue at Hand ..........................1 Introduction:................................................................................................... 1 Business Drivers: Key Issues at Hand........................................................... 1 Barriers to Improvement: Why Isnt Sales Performance Management Better Today? ..................................................... 2 Overcoming the Challenges.................................................................... 2 Chapter Two: Managing a Sales Force What Keeps Executives Awake ...........3 Pressures, Actions, Capabilities, Enablers (PACE)........................................ 4 Chapter Three: Plan of Action: Improving Sales Performance Management........7 SPM in the Sales-Driven Enterprise .............................................................. 7 View of Technology........................................................................................ 7 What Should Managing a Sales Rep Cost?................................................... 8 Conclusions and Implications for Action ........................................................ 8 Author Profile ..................................................................................................... 11 Appendix A: Research Methodology .................................................................. 12 Demographics of Respondents ............................................................. 12 Appendix B: Related Aberdeen Research & Tools ............................................. 15 About Aberdeen Group ...................................................................................... 16

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Figures
Figure 1. Key Issues in Sales Performance Management....................................2 Figure 2: View of Strategic SPM vs. the Competition ...........................................3 Figure 3: Executive Views of Sales Performance Management ...........................6 Figure 4: State of the SPM Art..............................................................................7 Figure 5. Titles or Positions of Respondents ...................................................... 12 Figure 6. Respondent Breakdown by Company Size (Employee Count) ........... 13 Figure 7: Respondent Breakdown by Annual Revenue (2003)........................... 13 Figure 8: Payees on Plans in Responding Companies ...................................... 14

Tables
Table 1: PACE Framework ...................................................................................4 Table 2: PACE (Pressures, Actions, Capabilities, Enablers).................................5 Table 3: Cost and Optimal Cost Per Sales Representative Per Month.................8

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Chapter One: Sales Performance Management: Issue at Hand

Introduction:
Sales performance management is the business process that structures the oversight of all aspects of sales planning, performance, visibility, and review. As such, it exceeds in breadth such disciplines as sales force automation (SFA), customer relationship management (CRM), or enterprise incentive management (EIM). Past technology solutions have focused on the automation of sales compensation, forecasting tools, and territory and quota management, among others. These solutions often provide valuable data, yet fail to provide full sales performance management support due to a lack of full integration and analysis capability. This research, conducted by AberdeenGroup in December of 2004, surveyed the challenges and solutions that motivate companies to use technology in support of corporatewide sales performance management and the kinds of choices they see as valid.

Business Drivers: Key Issues at Hand

The lack of visibility into sales activities on an ongoing basis haunts the majority of executives today who rely on a sales team to generate corporate revenue. They often simply cannot tell how a quarter or period is going until it is too late and course corrections are impossible. Many of these companies are basing much of their decision making on spreadsheets, a medium that they report does not provide the quality of decision-support data that they need to remain competitive. The effect is more often the reporting of past results, than accurate forecasting of revenues in process. Striving to be proactive, these executives seek improved decision-support data data that is accurate and timely. Concomitantly, sales managers seek to decrease the time their field members spend on shadow tracking, as they calculate their own commissions because they do not trust the accuracy of legacy corporate plan management programs. Issues of primary importance to responding executives are shown in Figure 1. Respondents rated the items on a five point scale from not at all important to extremely important. Results of the important, very important, and extremely important are summarized here. Ninety-three percent stated that visibility into sales activities on an ongoing basis is the most important issue. Some issues did not resonate with the respondents: only 46% thought the ability to better comply with Sarbanes-Oxley was important to sales performance management, with 27% noting it as not at all important. The ability to model sales outcomes based on business simulations was only seen as important by 28% of the population surveyed.

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Figure 1. Key Issues in Sales Performance Management

Decrease sales reps time spent on "shadow tracking" Decrease reliance on managementby-spreadsheet Obtain better decision-support data Increase visibility into sales activities on an ongoing basis

20

40

60

80

100

Percentage of Respondents

Source: AberdeenGroup, January 2005

Barriers to Improvement: Why Isnt Sales Performance Management Better Today?

Given these clear issues keeping sales executives up at night, what is preventing sales management improvement? Two areas tied at the top with 50% response each: budget constraints, and lack of a compelling business case or unclear ROI. Forty-five percent cited the lack of active executive support as a barrier to improve sales performance management. Overcoming the Challenges Respondents report three top ways to overcome these challenges: Demonstrable effects of improved sales performance management on revenue Demonstrable effects of improved sales performance management on sales force productivity And a tie for third: o o An ROI-based case-for-action or demonstrated proof of savings in a company like ours An easy-to-use business application

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Chapter Two: Managing a Sales Force What Keeps Executives Awake

For the most part, companies in this study perceive themselves as average in their overall management of their strategic sales force initiatives compared to their competitors. None thought they were dramatically worse than their competition; three percent thought they were dramatically better (Figure 2). Close to a quarter thought their company was above average compared to their competition. Figure 2: View of Strategic SPM vs. the Competition

3%0% 24%

21%

Dramatically Worse
Below Average
Average
Above Average
Dramatically Better

52%

Source: AberdeenGroup January 2005

Yet even when seeing themselves as average or better, these sales-driven companies readily identified the business drivers that challenge their sales processes today.

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Pressures, Actions, Capabilities, Enablers (PACE)

Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined in Table 1. Table 1: PACE Framework PACE Key
Pressures external forces that impact an organizations market position, competitiveness, or business operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive) Actions the strategic approaches that an organization takes in response to industry pressures (e.g., align the corporate business model to leverage industry opportunities, such as product/service strategy, target markets, financial strategy, go-to-market, and sales strategy) Capabilities the business process competencies required to execute corporate strategy (e.g., skilled people, brand, market positioning, viable products/services, ecosystem partners, financing) Enablers the key functionality or technology solutions required to support the organizations enabling business practices (e.g., development platform, applications, network connectivity, user interface, training and support, partner interfaces, data cleansing, and management)

Here the PACE methodology is applied to a study of sales executives (CXO level, executive management, VPs outside of sales, and sales management) to determine and prioritize the business drivers and challenges they face managing sales performance in their organizations. Respondents noted their pressures (what keeps them awake at night), the actions they foresee as responding to those challenges, the capabilities that need to be in place to respond successfully, and the enabling technologies in use today that may assist in alleviating those pressures. The inability to plan for strategic sales ranks as the number one pressure. (Areas where responses tied are noted with both items in the same box, connected with AND.)

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Table 2: PACE (Pressures, Actions, Capabilities, Enablers) Priorities

1 Planning

Prioritized Pressures
Inability for strategic planning

Prioritized Actions
Implement a culture of continuous improvement

Prioritized Capabilities
Improved sales planning data for forecasting and strategic planning

Enablers in Use Today

Sales force automation AND Customer contact management systems Customer relationship management system

2 Data

Lack of actionable data from current use of spreadsheets

Achieve a more flexible environment for plan management that is easier to change Improve reward structure to retain star performers Eliminate reliance on spreadsheets

Increased visibility and more timely access to data relevant to future planning Better, more accurate software solutions Move to hosted applications for sales planning, compensation tracking and management AND Cheaper software solutions We are great the way we are today

3 Performance 4 Cost

No compelling evidence of use of SPM in our enterprise Cost of new software, hardware and implementation time

Sales rep access to static customer information Territory management system

5 Timeframe

Protracted time to ascertain and deliver commissions

Reduce administrative costs by decreasing in-house software, hardware

Quota management system AND Sales rep access to dynamic information on progress toward quota achievement AND Integration of the SPM and the CRM systems

6 Error Rate

High error rate in tracking, allocating commissions

Create a less errorprone commissiontracking environment

Source: AberdeenGroup, December 2004

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Sales executives see their sales-supporting technologies as insufficient for their needs. Overall, they rarely perceive that their companies are excelling in sales performance management, while believing that improving SPM is a valuable strategy for competitive advantage (Figure 3).

Figure 3: Executive Views of Sales Performance Management

SPM is best provided as hosted, web-accessed solutions SPM applications are nice to have, but not mission-critical Improved SPM is a valuable strategy for competitive advantage Our company should not spend money on SPM software Our current SPM is excellent today

Disagree Neutral Agree

0% 20 %

40 %

60 %

80 100 % %
Source: AberdeenGroup, January 2005

Overwhelmingly, improving sales performance management is viewed as central to competitive advantage and mission-critical. The majority saw SPM as meriting expenditure in their companies.

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Chapter Three: Plan of Action: Improving Sales Performance Management

SPM in the Sales-Driven Enterprise
Over half of the respondents in this research described their companies as sales-driven, with nothing more important than the efforts and outcomes of sales, hence the importance of sales performance management on an ongoing basis. These sales executives cite a litany of needs towards the improvement of their sales performance management: The sales-supporting technology is insufficient The technology they do use is not integrated so planning information is incompatible They selected their current solutions on price, not best functionality

Their views are presented in Figure 4. Figure 4: State of the SPM Art

Insufficient sales suppo rt techno lo gy

20% 43%
Unintegrated techno lo gy, thus inco mpatible data

37%
P icked o ur current so lutio n o n price

Source: AberdeenGroup January, 2005

View of Technology
Given disparate, unintegrated solutions, and an overall lack of technology supporting sales today, many companies are ready to consider a move to a better solution. Some are indeed satisfied with the methods in place in their companies today, and some bemoan their original selection criteria price over functionality.

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What Should Managing a Sales Rep Cost?

Managing the cost of sales is always an issue for a sales-driven company. In addition to the strategic planning behind successful sales execution, the sales effort is generally labor-intensive. It is also typically an area of fairly high turnover, with ensuing reiterative costs of training, and potential negative effects on customer relations through churn. Aberdeen surveyed sales executives on their current costs for sales performance management today on per sales representative basis per month. We also inquired what they though the optimal cost per rep should be (Table 3). Table 3: Cost and Optimal Cost Per Sales Representative Per Month
$1-20 Cost per Sales Rep Today Optimal Cost per Sales Rep 6% $20-50 14% $50-75 17% $75-100 14% $100200 25% Over $200 25%

14%

33%

25%

22%

3%

3%

Source: AberdeenGroup, January 2005

Today, half of the surveyed organizations pay over $100 per sales representative in internal performance management activities. For this population, with payees on plan, the cost ranges to $1,000,000 a month in sales management costs, excluding commissions. Not surprisingly, these executives see lower per capital management costs as more attractive, citing ranges from $20-$100 per representative per month as optimal ranges for internal management costs.

Conclusions and Implications for Action

Efforts at enterprise-wide sales performance management are fragmented. The fragmentation is due to both a hodge-podge of tools (spreadsheets, for example) and unintegrated applications (SFA, CRM, quota, or territory management). Often these latter applications were selected on the basis of low cost, rather than their ability to manage the task at hand. The larger challenge for sales executives is the inability to manage current sales activity and to accurately plan a sales strategy for the future. The data simply is not there, and what data is available is often inaccurate and out of date. The business process is broken. The key issue is really twofold: the lack of visibility into current sales activities and progress and the inability to get solid decision-support information for future planning. In both cases, the result is the same: you cannot control what you do not know.

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Yet, sales executives are very pragmatic. Perhaps burned in the past by poor technology choices, they look for a solid business case behind future solution decisions; a business case that demonstrates a clear return on the investment and, if possible, demonstrates the ability of the investment to positively impact revenue acquisition or sales force productivity. They also ask for references to validate savings in companies similar to theirs. Companies, for the most part, express neutrality as to whether the solution resides inhouse or is a hosted solution, but all express reticence for expensive infrastructure overhauls or protracted implementation cycles. In any event, they articulate a requirement for a more flexible environment for plan management, an environment that is easier to change. And the majority sees business solutions that address sales performance management as mission-critical. Companies cited perceived barriers to entry: 37% thought that investments in SPM were not perceived as feasible for a company their size 37% thought the added cost of infrastructure was prohibitive 34% saw a lack of technology maturity or functionality to support such an endeavor 29% thought that implementations were too long or costly

AberdeenGroup, which has been following the enterprise incentive management market since 1998, notes that either Excel spreadsheets or rudimentary and fragmented functionality were used to manage sales performance in the past. Implementations were indeed often both protracted and expensive. Todays technology, however, far better addresses issues of performance and functionality than earlier predecessors. Optional delivery methods, including hosted on-demand support or total business process outsourcing, address both the pressure of infrastructure investment and of long implementations. Ondemand solutions hosted at a third party site also provide lower entry opportunity for smaller companies through subscription pay as you go pricing. Only recently have technology providers begun to address the fragmentation of the business process, as functionality characteristically provided in sales force automation and customer relationship management tools and commission management and tracking programs are combined or integrated. Overall sales performance excellence is beyond simply the application of automated management programs. Automating a bad plan provides no business value. Best practices in plan development and compensation management are required to create motivating plans that incent a sales force. Professional plan designers can provide those best practices, and some vendors have incorporated best-practice plan templates into their solutions to speed implementations. Once created, automated solutions can be modeled and managed to provide the ongoing, dynamic tracking and information analysis required for continuance improvement initiatives. Sales performance management is an end-to-end business process and has to be viewed as such. Technology suppliers have addressed a great many of the parts, from the customer to the commission plan, but savvy companies today will require the integration of the parts into a comprehensive solution, a solution that provides actionable data points

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early in the sales cycle and reduces the overall cost of ownership. Executives should evaluate new solutions, both hosted and on-premise, that provide this integration to help companies achieve competitive advantage through optimized sales performance management.

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Author Profile
Katherine Jones, Research Director Enterprise Applications Aberdeen Group
Area of Focus Katherine Jones provides research and consulting services in business applications those software solutions that are essential to the conduct of enterprise-wide business in today's challenging environments. She focuses on the fundamental processes of business operations and strategy, and the effects of technological change and innovation on these processes within the global organization. In addition to traditional Enterprise Resource Planning (ERP) environments such as business, industry, and manufacturing, Jones addresses the application of enterprise solutions in education, the public sector, and the federal government. She provides consulting support and market positioning to new and growing companies. As part of Aberdeen's Human Capital Management practice, Jones covers variable compensation management, staff hiring and retention issues, application service provider (ASP) solutions, and employee self-service. Current Research Jones is charged with forwarding Aberdeen's research efforts in process manufacturing, supply chain management and execution, and alternative delivery methods for business applications, such as application hosting through ASPs, mid-market programs, and Webbased access. Experience A veteran in enterprise applications, Jones has been responsible for technical product marketing and strategic alliance management in several computer companies since 1984. Prior to a high technology career, Jones was a university dean, involved in academic administration, research, and teaching. Jones is a frequent speaker and is widely published in the U.S. and abroad. Education Jones has a PhD and MA from Cornell University and a BS from the University of Minnesota. She conducted post-graduate work at the University of Connecticut.

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Appendix A: Research Methodology

Demographics of Respondents This study surveyed populations intimate with sales management. The majority was in sales management or were vice presidents in areas other than sales. The breakdown by positions is shown in Figure 5. Figure 5. Titles or Positions of Respondents

CEO,CFO, COO EVP 3% 3% 35% 34% 14% 11% Non-sales Sr. Mgnt Sales Mgnt Sales Ops Comp Admin

Source: AberdeenGroup, January 2005.

Respondents company sizes ranged from small (1-50 employees) to over 5,000 employees. The majority of the surveyed population was from companies with fewer than 1,000 total employees. The distribution is shown in Figure 6.

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Figure 6. Respondent Breakdown by Company Size (Employee Count)

3% 0% 3% 3% 1 to 50 13% 31% 51-100 101-200 201-500 501-1000 1001-2000 11% 13% 11% 12% 2001-3000 3001-4000 4001-5000 5000+

Source: AberdeenGroup, December 2004

By annual revenue for fiscal year 2003, the majority of companies were less than $50 million, with the next greatest range up to $249 million (Figure 7). Figure 7: Respondent Breakdown by Annual Revenue (2003)

5% 8% 5%

8%

Less than $50M

$51-$249M
$250-$499M
$500-$999M
$1-5B
Over $5B

56% 18%

Source: AberdeenGroup, December 2004

Of greater interest in a study of sales performance management, however, is how many of the employees were payees on plans those employees that are paid through variable compensation or commission programs. Fifty-three percent of the responding companies had between one and 50 payees on plans; 18% had 51-100 payees on plans; and 16% had 251-500 payees on plans. The remainder ranged from 100 to over 10,000 payees on variable compensation plans (Figure 8).

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Figure 8: Payees on Plans in Responding Companies

3% 0% 16% 52% 5% 0% 3% 1 to 50 51-100 101-250 251-500 501-1,000 1,001-2,500 2,501-5,000 5,001-10,000 18% 10,000+
Source: AberdeenGroup, December 2004

3%

Industry Representation Forty-one percent of the companies responding were high technology or software companies; 24% were finance, banking, or accounting. Other industry areas represented include computer equipment and peripherals; consumer durable goods; consumer electronics; education; healthcare, including medical and dental services; industrial equipment manufacturing; insurance, real estate or legal services; retail/wholesale; or telecommunications equipment. Geographies Represented Eighty-two percent of respondents were from the United States. Other companies represented included Argentina, Canada, Germany, India, the Netherlands, South Africa, and the United Kingdom.

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Appendix B: Related Aberdeen Research & Tools

Related Aberdeen research that forms a companion or reference to this report includes: Enterprise Incentive Compensation 2003: Buyers Guide for Variable and Total Compensation (December 2003) Enterprise Incentive Management: Variable Compensation 2002 (April 2002) Compensation Management in the Internet Age. (November 2000) From Bricks to Clicks: The Effect of the Web on Sales Compensation Management, (July 2000)

Information on these and any other Aberdeen publications can be found at www.aberdeen.com

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About Aberdeen Group

Our Mission
To be the trusted advisor and business value research destination of choice for the Global Business Executive.

Our Approach
Aberdeen delivers unbiased, primary research that helps enterprises derive tangible business value from technology-enabled solutions. Through continuous benchmarking and analysis of value chain practices, Aberdeen offers a unique mix of research, tools, and services to help Global Business Executives accomplish the following: IMPROVE the financial and competitive position of their business now PRIORITIZE operational improvement areas to drive immediate, tangible value to their business LEVERAGE information technology for tangible business value.

Aberdeen also offers selected solution providers fact-based tools and services to empower and equip them to accomplish the following: CREATE DEMAND, by reaching the right level of executives in companies where their solutions can deliver differentiated results ACCELERATE SALES, by accessing executive decision-makers who need a solution and arming the sales team with fact-based differentiation around business impact EXPAND CUSTOMERS, by fortifying their value proposition with independent fact-based research and demonstrating installed base proof points

Our History of Integrity

Aberdeen was founded in 1988 to conduct fact-based, unbiased research that delivers tangible value to executives trying to advance their businesses with technology-enabled solutions. Aberdeen's integrity has always been and always will be beyond reproach. We provide independent research and analysis of the dynamics underlying specific technologyenabled business strategies, market trends, and technology solutions. While some reports or portions of reports may be underwritten by corporate sponsors, Aberdeen's research findings are never influenced by any of these sponsors.

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Aberdeen Group, Inc.

This research study is the result of research performed by Aberdeen Group. Founded in 1988, Aberdeen Group is the trusted advisor to the Global 5000 for value chain strategies and technology advice. Through its continued benchmarking and analysis of value chain practices, Aberdeen offers a unique mix of research, tools, and services to help G5000 executives assess their value chain performance, develop improvement strategies, and select value chain solution partners. Aberdeen delivers unbiased primary research that helps enterprises derive tangible business value from technology-enabled solutions. Through continuous benchmarking and analysis of value chain practices, Aberdeen offers a unique mix of research, tools, and services to help G5000 executives accomplish the following:

IMPROVE the financial and competitive position of their business now PRIORITIZE operational improvement areas to drive immediate, tangible value to their business LEVERAGE information technology for tangible business value. Aberdeen also offers selected solution providers fact-based tools and services to empower and equip them to accomplish the following:

CREATE DEMAND, by reaching the right level of executives in companies where their solutions can deliver differentiated results ACCELERATE SALES, by accessing executive decision-makers who need a solution and arming the sales team with fact-based differentiation around business impact EXPAND CUSTOMERS, by fortifying their value proposition with independent fact-based research and demonstrating installed base proof points

Aberdeen was founded in 1988 to conduct fact-based, unbiased research that delivers tangible value to executives trying to advance their businesses with technology-enabled solutions. Aberdeen's integrity has always been and always will be beyond reproach. We provide independent research and analysis of the dynamics underlying specific technology-enabled business strategies, market trends, and technology solutions. Although some reports or portions of reports may be underwritten by corporate sponsors, Aberdeen's research findings are never influenced by any of these sponsors. To provide us with your feedback on this research, please go to www.aberdeen.com/feedback.
The information contained in this publication has been obtained from sources Aberdeen believes to be reliable, but is not guaranteed by Aberdeen. Aberdeen publications reflect the analysts judgment at the time and are subject to change without notice. The trademarks and registered trademarks of the corporations mentioned in this publication are the property of their respective holders. Warning: This publication is protected by United States copyright law and international treaties. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, stored in a retrieval system, or transmitted in any form or by any means without prior written consent. Unauthorized reproduction or distribution of this publication, or any portion of it, may result in severe civil and criminal penalties, and will be prosecuted to the maximum extent necessary to protect the rights of the publisher. 2005 Aberdeen Group, Inc., Boston, Massachusetts