How to Change Sales Performance Management Plans

[ read time: 5 minutes ]

By David J. Cocks, CEO

I was talking to a sales executive the other day who was concerned about introducing new commission plans to her sales force. Her firm has several hundred sales people, and she was worried that changing their compensation structure would cause a lot of disruption.

I explained that if you follow best practices for introducing new plans, you minimize the disruption, can retain virtually all of your sales representatives, and get them powerfully motivated to sell even more.

Here is the process we use, which typically results in a 98% retention rate, a 30% increase in sales in the following year, and significantly enhanced profitability.

Needs Analysis

We start by asking your sales force, sales managers, and support staff what they want. They're usually very forthcoming about what they like and what they don't like, what's important and what they don't care about, what they want changed and what they would prefer to keep.

If you're doing this yourself, don't skip this step. Even if you think you already know what they are going to say, take the time to consult with members of each group. You may be surprised by what you hear.

Competitive/Market Analysis

We analyze the competitive factors in your market and determine the potential for growth as well as possible areas of risk.

If you're doing the work, update your information about what commission structures your competitors are offering. If there any new competitors, make sure you include them. Then analyze what's happening with your market. Is it growing or shrinking? Is anything going on that will affect the demand for sales representatives?

Financial analysis

We build a business model of your company and look at where you are now in terms of revenue, expenses, and profitability. We interview top management to find out what your goals are and determine where you want to take the company.

If you're doing this yourself, take a look at your numbers and the trends. What are your goals?

Design plans

Using all the information we've obtained so far, we design new compensation plans that meet your goals, address the desires of your sales force, and are competitive for your market.

If you're designing the plans, it helps to use software that lets you do what-if analysis so you can project the results of your changes. We think our software is the best for this, but you can use Excel too.

Risk Analysis

Once we have the plans designed, we run them through several tests. First, what are the implementation risks? We break your sales force into a number of groups and analyze the impact on each group. Given the market conditions and competition, who are you most at risk of losing?

For example, if top producers have been subsidizing the rest and we equalize the plans, are we at risk of losing mid-level producers? Perhaps not, because no competitor in town has a better offer for mid-level people. But there might be a group of new recruits who are at risk.

Then we determine whether the plans can be administered. There are some accounting systems that can't handle certain types of plans. There's no point in implementing a plan that you can't pay on.

If you're doing this, run some test transactions through your accounting system.

Calculate the results by hand and compare that with what your accounting system comes up with. Do they match?

Tweak Plans

Based on what we found out during the risk analysis phase, we adjust the compensation plans.

Introduce Plans

Once the plans have been finalized, it's time to introduce them to the managers, sales representatives, and support staff. We start with the managers, making sure every manager understands the plans inside and out, because they'll have to explain them.

Then we introduce the plans to the sales representatives, explaining the rationale for the changes and showing where sales force concerns and requests were addressed. We also sit down with each associate and show them what they would have made last year on the new plan. We show them how they will benefit. If a choice is now being offered, we help them make their selection.

This is the most important step. If you're doing it yourself, spend the time it takes to make sure everyone involved really understands what's happening, why you're doing this, and what it means for them.

When you follow this process for developing and introducing new compensation structures, you stay in control. You can project what your results will be ahead of time, and manage the whole process with confidence.

Get Nimble Again

By David J. Cocks, CEO

When you first start a business, it's easy to turn on a dime when you perceive an unmet need in the market or encounter a new competitive threat. But as the business grows, it becomes increasingly difficult to respond as quickly.

How can you make an established firm nimble again?

Use a Contribution-based Approach

The first step is to design compensation structures that get everyone pulling in the same direction.

Normally, when you design sales force compensation plans, your goal is to maximize revenue. But as a manager or owner, that's not all that concerns you. You want expenses kept as low as possible, so profit can increase too. Right?

A contribution-based approach allows you motivate sales associates to increase revenue, reduce expenses, and increase profit – all at the same time. With a contribution-based approach, sales associates are responsible for contributing their fair share towards corporate expenses and profit. Once that contribution has been made, they are able to keep most of the rest of the revenue they bring in.

Sales associates are motivated to increase revenue; as they sell more, they make more. But with this system they can also increase their income by reducing expenses. When expenses drop, the amount they have to contribute decreases, so they keep more of the money they bring into the company.

You would naturally expect profit to increase when revenue improves and expenses are reduced, but a contribution-based approach provides a higher level of control – you define the percentage of profit you want to achieve. That amount is then built into the plan design. The result is a system that provides automatic incentives for sales associates to increase revenue, reduce expenses, and increase profit.

Meet the Needs of the Sales Force!

Now that you've aligned the goals of the sales force with yours, the next step is to reduce unnecessary expense so you can run a more efficient operation.

If you're in a service business, your biggest expenses are related to your staff – salaries, commissions, and benefits. You can mandate across-the-board expense

reductions, but the way to really save money is to find out what your sales associates don't value and stop spending money on those items. Normally, you can't simply ask what sales associates want; they want it all.

However, with a contribution-based approach, your sales associates learn that benefits, perquisites and support services come out of their pocket – not yours. We recommend that our clients design several compensation plans that offer different combinations of benefits and support services. Let the sales associates choose the plan they prefer. If no one chooses the plan with the most expensive health and life insurance, and many choose the plan with additional administrative support, you know where to spend your money.

We've had clients save hundreds of thousands of dollars, simply by adjusting their benefits packages to line up more effectively with what the sales force wanted.

By using a contribution-based system, you take a holistic approach to designing compensation. You can factor in the company's level of expense, the competitive situation, the desired level of profitability, and the needs of the sales force. The result is a more efficient operation that responds to the needs of the marketplace quickly – and stays nimble over time.

Best Practices: Adjusting Compensation Plans for Inflation

By David J. Cocks, CEO

When was the last time you adjusted your compensation plans for inflation?

Does that sound like a crazy question given today's economy? It's not. Adjusting your compensation plans each year to match inflation is one of the best practices we recommend.

Many companies set up a compensation plan and then leave it alone for years - we've seen companies that haven't changed their plans in 15 or 20 years!

Yet each year the cost of doing business increases. The sales price of your products and services typically rises too. But that's not enough to protect you.

What can happen, particularly in commission-driven industries like real estate, insurance or medical is that the higher sales price allows your sales force to reach higher commission levels faster.

At those levels, you pay them a higher percentage of each sale, which means you have less money available to cover corporate expenses. Meanwhile, those expenses are increasing.

It doesn't take long for those plans to become outdated, so they no longer recover the company's expenses and the profit margin erodes. Once this occurs, it's hard to get the money back.

You have to make such a large adjustment that it can't be done all at once - you risk losing too many members of your sales force. So you implement the change over two or three years, and by then you're behind again.

Meanwhile, you're leaving the door open for a competitor to introduce more aggressive styles of compensation and steal away your top people.

The best approach is to revisit your compensation plans every year, using the Consumer Price Index (CPI) to adjust for inflation. You can find the CPI at http://www.bls.gov/cpi/. 

TOP 5 Ways to use Sales Compensation as a Competitive Weapon

By David J. Cocks, CEO

I spoke with a gentleman recently who was buying a business and wanted to develop a sales force compensation strategy that would give him a competitive advantage.

He wanted to lure top sales representatives from his competitors, motivate them powerfully, and grow his business rapidly to the point where it would dominate the market.

Here's the approach I recommended he take:

1. Analyze your competitors' plans

First, you need to know what compensation plans your competitors offer. What salaries, base rates, draws, commissions, incentives, quotas, perquisites and benefit packages do they provide?

2. Ask sales reps what they want

Far too many firms skip this step, either because they don't care what the sales representatives want or because they think they already know. Don't make assumptions – ask! Your sales associates will tell you what they like about your compensation plans (and your competitions' plans), what they don't like, what motivates them, and how they would prefer to be paid.

3. Find out what you can afford

Many companies skip this step too. But you can't be aggressive about compensation without knowing how much your business can afford to pay your sales force. Analyze your expenses and revenue to find the maximum that you can afford to pay.

4. Blend what the sales reps want with what the company needs

When you know what your sales force wants and you know what you can pay and you know what else is available in your market, you are in a good position to create very desirable plans.

For example, top producers might be frustrated with plans that put a ceiling on their income. You can create a compensation plan with a lower base and a higher commission that rewards them for accepting more risk by giving them the opportunity to make more money.

Sales associates who have high fixed expenses (or trouble managing their money) might be willing to accept a lower total compensation package in exchange for the security of a higher base.

People who have health insurance through a spouse's plan may resent having to pay for coverage through your insurance plan. You can structure plans so people who don't want benefits don't have to pay for them.

5. Offer a choice

The key to success is realizing that the same compensation plan isn't going to work for everyone. You'll get the best results if you create several plans, each meeting the needs of a different group, and then let your sales associates choose which they prefer.

When you follow this five-step process, you can design a compensation strategy that supports your business plan, positions your company successfully against competitors, and allows you to recruit and retain the sales force you need. 

How to Handle Sales Performance After a Merger or Acquisition

By David J. Cocks, CEO

When companies go into a merger or acquisition, there is often a tendency to leave compensation alone – the feeling is that the ownership change will be traumatic enough without changing the commission structure too.

However, this leads to problems. Invariably, representatives compare plans. There are bound to be differences: different commission levels, base salaries, incentives, perquisites, benefits and more.

No matter how generous the plans are, representatives are going to feel that "the other guys have a better deal."

One company's reps see that sales associates at the other company receive a higher commission, while the other company's reps notice the higher level of administrative support and lead generation the first company provides.

To keep everyone happy, there's a tendency to creep towards a plan that has the best of both – higher commissions and higher levels of support, services and benefits. This can be disastrous.

The longer it goes on, the worse it becomes. Top producers have the leverage to cut better deals for themselves, and resentments build and fester.

Additionally, the longer plans are left alone, the harder it becomes to find a good time to make a change.

Right after a merger or acquisition is the perfect time to rationalize compensation. Creating new compensation plans makes a clear statement of the company's goals and positions everyone to move forward without the baggage of the old arrangements.

Start by asking sales people from both companies what they like and don't like about their compensation structures. You'll get good feedback that will help you design new plans, and you'll also have information about what works and doesn't work that you can use to better manage the combined sales force.

The simple act of asking what they want sends a powerful message to the sales force and is an excellent retention device.

Then you need to decide what value proposition you want to offer the sales force. Can you combine what each company is doing now? If one company has a particularly attractive culture, you may want to transition everyone to that offering. Or it may make sense to start over with something brand new.

You can take this opportunity to rationalize the compensation structures, bringing them into line with what the sales force needs and wants. Maybe some of the services or benefits one of the companies offered are no longer needed. We have actually seen companies pay for an acquisition simply by restructuring compensation.

Don't forget to do a thorough financial analysis of any proposed changes. We saw a merger once where one of the companies offered a very generous commission at high sales levels, which they could afford to do because very few people ever reached that level. The company they merged with had far more high producers, and when management decided to offer that plan to everyone they quickly found themselves in serious trouble.

Of course, you need to take into account the revised cost structure of the new company. You'll be saving money through consolidation and reducing duplicate costs. Those savings can go to the bottom line.

Or you might invest them in your sales force by designing plans that provide higher commissions – which would be highly motivational to the existing sales force and very useful for recruiting.

By taking advantage of a merger or acquisition to revise your compensation plans, you can better meet the needs of the combined sales force and position your company for greater growth in the future. 

At Risk of Losing Your Top Producers?

By David J. Cocks, CEO

Are you at risk of losing your top producers?

In our work with hundreds of sales organizations, we see many making the same mistakes with regard to their top producers. To keep from losing your best sales reps, here's how to avoid these common pitfalls.

Reward proportionally to their contribution

In many organizations, top producers are carrying the load for the new reps and other low producers. This just isn't fair. You need to design your commission structures so that even lower producers generate a profit for you. That way, you can afford to pay your top reps more. Fair warning... if you don't figure out how to do this, one of your competitors will!

Remove disincentives to greater production

Sales reps often stop working once they reach a certain level, either because their commission gets capped or they are concerned that their territory will be reduced. When you remove these disincentives and structure commission plans correctly, you can motivate your top reps to keep working hard year round, increasing revenue and profits substantially.

Occasionally we'll run into a situation where the disincentives are in place because the CEO doesn't want anyone else making more than he or she does. But this isn't an appropriate comparison. The compensation sales reps receive is based on short-term revenue; CEOs are typically compensated over the long term with ownership or stock options. You should be delighted when you have sales reps making more than you do!

Reward the right behaviors

Sometimes compensation plans are so complicated that the reps can't figure them out or they end up rewarding unproductive behavior. You want to design plans to focus on what's most important for the company, which usually is increasing market share and operating profit.

Maintain consistency

Some organizations will introduce a compensation plan, then halfway through the year when the results aren't what they expected, they change the plans. Their top people get frustrated and leave.

You need to model the results of your compensation plans before you introduce
them – using a modeling approach that has been proven accurate in the past – so you know what's going to happen before you launch the plans. Then you can leave them in place for a full year before tweaking, giving your sales reps the predictability they need.

Well-designed plans retain your top reps, who are so important to achieving your revenue goals, and reduce the hiring and training costs associated with high turnover. 

They're a solid investment in your future.

Why Choice Matters

By David J. Cocks, CEO

One of the issues we discuss often with managers is why offering a choice of compensation plans is such a smart strategic move for the business, especially in this market. Here is what we tell them...

The fact is no single compensation plan is going to be able to address the needs of all members of your sales force.

People have different levels of experience and ability. Some need more training and support; others don't want the services and prefer to be independent. Some are more willing to take risks; others value security and having a predictable income.

When you offer only one option for compensation, you are not meeting the needs of everyone who works for you as well as you could.

The result is that you leave open the door for competitors whose plans do a better job of meeting the needs of specific individuals.

The way many managers deal with this is to make exceptions. But special deals erode trust and leave some people feeling like they are not being treated fairly.

Offering a choice of plans solves these problems.

When you provide a variety of options, you allow each sales associate to choose the plan that most effectively motivates them. They can balance their need for risk and reward, as well as for support and independence.

You can design new plans that motivate more effectively than what you had before – you can remove disincentives to greater production and inspire sales people to new heights.

You can introduce a true merit-based system that fairly rewards all sales associates, regardless of their level of productivity.

This also gives you the opportunity to address legacies – outdated and unprofitable compensation structures that no longer serve the purposes for which they were designed. Instead you offer a selection of other options and let each person make their own decision. Giving people this level of control makes it substantially easier to convert your sales associates to new plans.

But what's more important is that you are introducing transparency into the compensation system. You are treating everyone with trust, respect and fairness. Instead of secretive special deals, you are showing integrity by publishing an official set of plans and letting people choose.

The result is a much stronger, more competitive business, where recruiting and retention become significantly easier. 

BIG Hat, NO Cattle? | Thriving in a Market Downturn

Thriving in a Market Downturn

By David J. Cocks, CEO

Is your business all hat and no cattle? In other words, are you focusing on increasing revenue at the expense of profit?

A lot of business owners focus primarily on top-line revenue growth, even though a business can't be run on revenue alone.

Here are some common misconceptions we see in the market:

Top Producers = Profit

Betting the farm on top producers might leave you without a farm. Big-name sales associates can negotiate high commissions and generous perquisites. Although their volume is impressive, it is not unusual to find companies losing money on their most productive sales associates.

Mergers and Acquisitions = Profit

One of the most popular ways to grow a business is by acquiring or merging with another company. But if the company was not properly valued, efficiencies don't materialize as expected, or compensation plans are not restructured to reflect the combined company's expense structure, the net result can be negative.

Cash Flow = Profit

In smaller companies, we often see owners who pay themselves with what's left over after expenses are covered. Although this helps ensure the company's cash flow, it's not an accurate accounting of profitability. Owners who sell need to pay themselves as if they were regular sales associates – and compensate themselves for the time they spend managing the business.

How Healthy is Your Business?

Even if your revenue is on a steady upward trend, your business may have hidden profitability problems. Now that you've paid your taxes and have all your year-end numbers, it's a good time to do a quick check to make sure your cattle are growing as fast as your hat.

You'll need a few statistics for the past three years to do the assessment:

• Total revenue;
• Total expenses;
• Operating profit;
• Sales representatives ranked by production.

First, look at the trends to make sure both revenue and profit are increasing, and then calculate the percentage increases. If revenue and profit aren't growing at the same rate, that's a red flag.

Now look at expenses. They should be growing at a slower rate than revenue. If not, that's a red flag.

Last, look at sales force production levels for the past couple years. If they're not stable, that's a red flag.

Did You Find Any Red Flags?

If you did, there's still time to make changes. Adjusting compensation plans can help solve some of the toughest profitability problems. We encourage you to discuss any red flags with your accountant, and of course, give us a call to see how we can help.

The bottom line: make sure you don't spend so much time focusing on your big hat that you don't have a place to hang it at the end of the day. 

How Profitable Was This Year?

Now you're about to close the books for the year, it's time to take a look at your results and see what changes – if any – need to be made for 2016.

First, obtain the following statistics for the past three years. If you don't already have them at your fingertips, they should be in the end-of-year information you get from your accountant:

1. Total Revenue;
2. Total Expenses;
3. Operating Profit;
4. Sales Representatives Ranked by Production.

Start by looking at the trends. Revenue and profit should both be increasing. Now calculate the percentage increases. Are they comparable? Revenue and profit should be growing at the same rate. If they aren't, that's your first indicator of a problem.

Now look at expenses. They should be growing at a slower rate than revenue – and, optimally, slower than profit. If not, that's a second indicator. Also look at what expenses are increasing. Are they temporary investments that will help you increase revenue, or are they permanent?

Finally, look at production levels for your sales force over the past couple years. Are they fairly stable? If there have been lots of changes, particularly if revenue is up and profit is not, that's a third indicator. Significant increases in productivity, such as those brought about by the Internet or customer relationship management software, cause many financial problems.

How did your company do?

If you passed with flying colors, congratulations! If not, there's still plenty of time to make changes. Many profitability problems can be fixed, particularly in commission- based industries, by adjusting your compensation plans appropriately. At a minimum, though, you'll want to go over the results with your accountants. 

At CM Global Partners, we regularly perform 'current state assessments' which help to identify the pain, conflict and waste in sales compensations in companies.

Many companies rush to alter the sales compensation without going through this process. It's better to get your compensation plans right and introduce them mid-year for example, than to introduce plans in early January that you've rushed into and might have adverse consequences.

TALK TO US about how you can apply LEAN to your sales compensation and get a competitive advantage.

Happy Holidays, and have a fantastic New Year.

David J. Cocks, CEO

Applying Strength-Based LEAN Six Sigma to Sales Compensation

By David J. Cocks

Can applying a strength-based LEAN Six Sigma methodology augment and improve sales force compensation plan development? In short; YES.

Traditional LEAN Six Sigma

The traditional application of the LEAN Six Sigma method for sales force compensation begins by defining the pain, conflict, and waste in a company’s sales compensation strategy. But focusing on problems saps motivation and has negative effects on sales staff retention.  

Instead of conducting a LEAN Six Sigma analysis with the hope of correcting a perceived problem and an ultimate return to the even-keel state of business mediocrity, a strength-based approach draws attention to the strengths of the company as well as the sales team, and subsequently initiates changes that encourage continuous improvement and growth of both the company and individual sales representatives. 

Serious Consequences Result From Poorly Designed Compensation Plans

In the past, sales force compensation plans have been based on conjectured industry standards, competitive pressures, and outdated notions of objectivity. When exceptions are made for specific individuals, the unfairness quotient increases, eventually leading to the loss of vital members of the sales team. 

Imagine a sales representative who refuses to continue pursuing sales after reaching a poorly-designed predetermined compensation cap, or a company that loses a large percentage of its forecasted profit by promising unsustainable compensation to a sales team livewire. In both circumstances, someone stands to lose money and gain a mindset of resentment.

Strength-Based Approach is More Effective

When the strength-based LEAN Six Sigma process is applied to sales force compensation, significant benefits accrue to both the company and individual members of the sales force. 

Begin by thinking of your sales representatives as customers.

Just as you offer your regular customers products and services, consider how you can offer your sales executives a unique bundle of compensation and benefits that attract them to your company, motivate and retain them. 

With a strength-based approach, you can find the strengths of the company through the eyes of your customers (i.e., the sales representatives), who are in the market and aware of the strengths and weaknesses of your competitors.

A Strategic, Strength-Based Discovery Methodology

When CM Partners starts working with a client, we do interviews with the sales representatives and management team to identify those strengths. We use a narrative interview style, with 21 questions designed to identify the strengths of the company as well as the individual sales executives. Of the 21, only one is compensation-related. For example, we ask “Why did you join the company, and does that still hold true today?”  

Some interview questions help us identify issues that might be holding the company back, such as “Are there any policies that are unfair or make it harder for you to do your business?” and “Is there anything we are doing today that, if improved upon, would be really useful?”

Unlike internal company surveys, which are often designed around existing policies and agendas, this approach brings us in as an unbiased third party that can offer an environment of total confidentiality. Sales representatives typically respond very well to this approach. They are eager to share their thoughts and help make the company better. Often, they are ahead of us, telling us how to improve things before we even get to those questions. 

When designed like this, the interview process is a critical component of the solution, allowing the sales team to feel heard and helping bond them to the company. 

War Room Involves the C-Suite

Once the interviews are complete we analyze the results, looking for common themes, and present the results to the C-suite in what we call a “War Room.” We discuss the perceived strengths and barriers, focusing on the opportunities and continuous improvement. 

Executives join us for a productive exploration, focused on learning to see the strengths in their process and looking for ways to improve what they have, communicate more effectively, and get creative about addressing issues.

Coming out of the War Room, we craft a framework for a strategic approach to sales compensation. Then a mathematical layer is added.

Adaptive Algorithmic Business Model Validates the Compensation Strategy

We connect sales compensation directly to the profit and loss statement (P&L), creating an adaptive algorithmic business model that incorporates predicted sales distribution and expenses, and is compared with competitors’ plans.

The company can now develop a new compensation strategy that builds on the strengths of the business; addresses pain, conflict and waste; and delivers a powerful and sustainable competitive advantage.

It is possible, for example, to create different compensation plans to address various product lines, or to design specific plans for top producers who are willing to trade greater risk for a higher payout. With the model, compensation plans can be designed that sound very different and appeal to different sectors of the sales team while meeting the same profitability requirements. 

The model acts as a validity check – it allows the company to analyze the results of the projected changes with a great deal of precision – to know ahead of time what impact the sales compensation changes will have on revenue, profitability, sales force retention, recruiting, productivity, and shareholder value.

CASE STUDY: Revenue Increases to 209%

To illustrate the strength-based approach, let’s look at one client we worked with. When we asked the question “Is there anything that the company is doing that if improved upon could really be useful?” the sales force mentioned that the matching 401K retirement plan for salaried employees was very attractive. But they were not able to take advantage of it because they were independent contractors and not eligible to participate.

After discussion in the War Room, the company decided to implement a CMGP wealth-building program that followed approved SEC guidelines and would apply to the sales force as independent contractors. This program was build into the newly created sales compensation programs. 

The sales force was very pleased, stating that this was the best program the company had created for them and that it “beat the competition hands-down.” 

In the following year, the company saw a significant increase in production from the existing sales team and was able to attract more top sales talent. Gross revenue increased to 209% and company operating profit rose to 191%.

As you can see, with this approach, the sales compensation plan development process builds on the company’s strengths, and relies on the collaborative efforts of the entire team, not just the sales department or managers alone. 

Benefits From Applying Strength-Based LEAN Six Sigma

Why does strength-based LEAN Six Sigma work for sales force compensation?

• Allows a narrative process improvement – Sales and sales compensation are processes, not policies. When a company’s management treats sales compensation as a dynamic process that requires input and feedback for evolution, instead of a stagnant company dogma, significant improvements are possible. For instance, most sales processes are 85% pure waste. Considering sales force compensation as a process allows the team to identify and reduce the waste that is impacting the company and the top sales representatives.
• Doesn’t rely on sales volume metrics – Traditionally, when a member of a sales team closes a sale, there is a documented increase in sales volume and the sales representative receives predetermined compensation. Inherently inefficient, this method is like a manufacturing company that only develops cost-per-unit metrics for good parts but fails to calculate the loss of scrap or reworked items. For instance, consider the time spent on unclosed sales or manipulating a sale to better fit a needy client. However, when companies connect sales force compensation with the P&L, they are able to see how the sales process influences overall financials.  
• Manageable contribution-based sales compensation – When executives consider sales force compensation, they often only see an unmanageable tide of money that ebbs and flows with sales activity. By modeling contribution-based sales compensation plans, executives can more accurately predict the effects of a sales tsunami or drought on other aspects of their business.
• Provides bottom-line insight – Executives who consider the development of sales force compensation plans a process improvement can see improvements to the company capital, and not only the sales volume.  Also, the methodology allows for successful waste remediation that can improve efficiency and provide the company with previously lost funds.

Issues in Implementing Strength-Based LEAN Six Sigma

Despite the benefits of adopting a strength-based LEAN Six Sigma process for designing and managing sales force compensation, resistance to change can stand in the way of its successful implementation.

• Emotional attachment - Often, executives are unable to clearly observe all the moving parts of their company’s machine and instead rely on a nebulous impression to make decisions. Consequently, they fail to recognize the problems or innate waste in their processes. Similar to manufacturing, sales force compensation requires LEAN tools and processes to eliminate waste and discover obstacles to success.  For example, an executive that blindly trusts their established sales force compensation plans are competitive and comparable to other contender’s plans can expect to lose their tops sales talent, customers, and market share. Electing to preserve personal comfort and maintain sales compensation plans that are based purely on conjecture will eventually cause unnecessary setbacks.
• “Status quo-or-die” management – Some executives do not consider sales or sales compensation as a process, but a management decision that once made must be maintained like it is company policy. This is the same as if a manufacturing process has internal policies that are self-imposed and are keeping the process from being improved yet management does not view it that way.
• Aversion to change – Consider an executive who does not classify sales force compensation as a process, but rather a static policy. Since companies do not normally track the efficaciousness of policies, the executive does not have access to relevant compensation metrics. Essentially, the executive does not know what they do not know. The data dearth eliminates their ability to identify factors that compel preemptive changes and is subsequently limited to resolving crises discovered after damage is incurred.
• Fear of loss – Sometimes, a company’s management is reluctant to effect financial changes due to preconceived, and often unfounded, beliefs that the change will cause their company’s future financial failure. Citing the absence of a well-defined method on which to model new compensation plans, they automatically refuse to move forward. This is similar to a manufacturing company refusing to improve quality because they believe it will cost them too much money.
• Donning business blinders– In many companies, executives draw conclusions about their sales based on an erroneous perception of their company’s current state of sales force compensation. When executives see the valid current state through the strength-based lens, including the ever present LEAN visible waste, they can transform their decision making and sales process in to a more profitable and competitive model.

Focusing on what works raises energy and motivation. A strength-based LEAN Six Sigma approach to sales force compensation creates a committed and focused sales team that continues to generate sales and actively engage in an improvement initiative. Creativity is higher than that generated by following traditional improvement methods, and innovation is therefore easier to achieve. Leveraging current or past knowledge of experiences and successes from within the system provides great resources for the next generation of sales force compensation plans. 

Authored by David Cocks, CEO, and Kevin Klump, Director, of CM Global Partners. CM Global Partners specializes in applying LEAN techniques to sales force compensation. Over the past 20 years, the company has developed innovative compensation plans that are in use by more than 65,000 sales professionals around the world. David can be reached at david@cmglobalpartners.com.