Arck Systems – Summary

The case discusses the dilemma of Byran Mynor, Executive Vice President for
Worldwide Sales of Arck Systems, as he reviews the compensation of policy of
Lux Software Inc., a company which Arck had just agreed to acquire.

Arck Systems and Lux Software, Inc.: background information

Arck Systems was a medium-sized manufacturer of enterprise servers, which

are powerful network computers used in corporations to manage data. Arck
along with its servers sold a UNIX-based operating system which was used to
run software applications developed by third-party software houses.

The CEO of Arck made a strategic decision to grow Arck’s software business,
since the enterprise software market was growing more quickly with gross
margin more than double that of hardware. Organic growth of Arck of the
software was not feasible in the short-term. Hence, Arck decided to purchase
Lux Software, which was a leading provider of middleware. Middleware is a
software that “acts as an intermediary between software applications so that
they can exchange data. Middleware were a necessity as the software were
becoming increasingly complex, middleware was increasingly important to
corporations to ensure their applications ran efficiently. This integration was
believed to increase and capture a greater slice of the enterprise information
technology.

Arck quickly moved to purchase Lux Software with lucrative offers of bonus
large stock option grants which vested the core members to stay with the
company. The deal did not contain any provisions in retaining Lux Software’s
salespeople.

Managing Lux Software’s sales force:

With Chris Synder, Lux Software’s EVP of sales, announced immediately after
the merger that he was leaving Lux Software to head sales for a privately-held
storage software company. This meant Bryan Mynor would have to control Lux
Software’s sales force.

Bryan Mynor was a veteran with enterprise hardware sales, having focussed on
mainframes to financial institutions and had joined Arck four years back as a
Head of Sales Operations, wherein he managed Arck’s sales quota and territory
assignments, compensation plan, and other operational sales force details. He
was promoted as EVP two years later and Arck’s sales had nearly doubled since
his promotion.

Mynor and Chatterji, Arck CEO, agreed to operate the sales force both these
companies separately as the salesforce integration is notoriously difficult and
any change would mean loss of their sales force and they weren’t willing to lose
their salesforce. The sales calls at Arck and Lux were targeted at different
decision makers

● Arck sold to CIO or CTO, who would usually be concerned about server
specifications such as speed, processing power and reliability.
● Lux salespeople targeted the executives from the finance or
administration arms of corporations, who were concerned about the
software’s value creation.

Hence, hardware sales was oriented more technically, while software sales was
much more of “soft sales touch”.
 A few interesting remarks that Chris Synder made before leaving the
organization was the capability of Arck to understand and manage software
sales. Hardware sales people are geek while software sales people are
relationship people.

Mynor’s last few conversation with Synder convinced him that the sales
management approach between these organization was similar.

no Tasks Similarities

1. companies had assigned individual had 10-15 customers to

salespeople to dedicated which her or she could sell, and was
customer territories based on not allowed to sell to other companies.
geography and customer
industry.

2. The sales organizations at the idual salespeople reported to district

two companies were broadly managers (in the U.S. Arck had 30
the same. districts and Lux Software had 28),
who reported to regional managers
(Arck had six and Lux Software had
five), who reported a country head of
sales, who reported to the EVP of
Sales.

3. Salespeople in both companies rge part of a salesperson’s job at both

had relatively wide discretion companies was to negotiate an
to set net sales prices for their appropriate discount off of list price
customer when making a sale.
 arger the discount, the more senior the
executive that needed to approve the
proposed deal.

4. Key sales dynamics at Lux ypical sales cycle was about a year, and
Software were similar to what the average sale was approximately
was used to at Arck. $350,000 which matched Arck’s
average closely.

5. Sales compensation plan was mpensation plan which did not yield any
aggressive but standard for worry to Mynor initially.
industry

Sales compensation plans: Lux Software vs. Arck

Though the discussions between Snyder and Mynor was complete, Mynor was
now shocked to discover the seemingly large differences between the sales
compensation plans.

Lux’s top 10% performers were called the ‘Top Guns’ and Arck’s top 10%
perforers were called ‘Hawking Club’.

Lux’s had a component called ‘accelerator’ which were sales commission

provided to salespeople based on the quarterly sales which were achieved.

Mynor was startled by the numbers at Lux’s. Salespeople in the first percentile
in terms of pay made 30 times more than the average salesperson at Lux
Software, but were only about 14 times as productive in terms of sales. While at
Arck’s, the top salespeople make about four or five times more in pay, and are
four or five times as productive.
Mynor was now in his thoughts of his steps. For the foreseeable future, the sales
force will be kept separate which meant that there is no worry with the cultural
problems of managing a sales force with two different plans. He is now worried
how to best manage Lux Software salespeople and was thinking if he needs to
get rid of the accelerators concept at Lux’s.