I thought David Kelly did an excellent job raising the issue of the connection between customer loyalty and comp plans, and I wanted to contribute some additional insight on this issue based on Merced's experience.

One metric that many organizations are adopting is Net Promoter Score (NPS) (click here for another interesting link on NPS). NPS is a defined and measurable metric developed by Bain & Co. that has proven to be an effective way to measure customer referrals.

While NPS offers one effective means of measuring customer loyalty, there are other metrics that organizations commonly track as indicators of customer satisfaction, and incorporate into comp plans as a means of driving desired behavior at the front line. Below is a short list of metrics we at Merced see our customers utilize to measure customer loyalty, and which are often hooked into individual's compensation plans.

Customer Related Metrics:

• Customer Satisfaction
• Customer Retention
• Customer loyalty
• Customer profitability
• Increase in CLV (Customer Lifetime Value)

Productivity Metrics (most of which David lists):

• Number of calls or meetings
• Average meeting/call time
• Rep coaching
• Availability
• First Contact Resolution (FCR), or issue resolution time (to read more about FCR, check out my colleague, Wendy Lauther's posting)

The metrics above are just a sampling of potential customer loyalty metrics, and it is important that each organization identify the metric or blend of balanced metrics most suitable to the individual operation.  Choosing a few key metrics or weighting the averages of a set of several metrics helps to reduce the number of data tracked and enables quick action to be taken.

Generally we see two key approaches organizations take in integrating these non-sales metrics into comp plans to drive customer-focused behavior among the front line.  In one approach these metrics act as qualifiers - if employees do not meet specific thresholds, they are not eligible for incentives.  In this approach, once a rep qualifies to receive incentives, variable pay is calculated off sales metrics.  The other approach incorporates these non-sales metrics directly into the comp plan.  For example, a rep that receives a customer satisfaction score of 80 will only receive 80% of his or her comp.

In closing, I would like to spin the old business mantra of "what gets measured gets improved." Rather, from my experience I have learned that "what get's measured, get's measured." Just because something is measured doesn't necessarily mean it will be improved.  If you're expecting improvements based on distributed information, you must also provide the tools to enable action on that data.  However, stopping there again won't necessarily elicit improvement.  The final step to guarantee improvement is checking on progress, to ensure the proper action has been taken.

If you have any other interesting metrics you're using to track customer loyalty, send them my way!

I read an article by Randall Smith in The Wall Street Journal titled Aligning Incentives with Corporate Success and Corporate Goals last Thursday.

The article was focused on the trend toward declining bonuses for different positions within the financial community. Based on projections by two compensation experts, bonus payments in finance roles will drop between 20% and 50% across the board, with the deepest cuts affecting bankers and traders in businesses that blew up during the credit crisis. The article also stated that star performers will see their pay stagnating at last year's levels, while everyone else's pay will be down 40% to 75%.

Wow, your company blows up (his words, not mine) and your incentives only drop 20% to 50%? Something seems inherently wrong with that formula.

Smith goes on to say that chief and other top executive bonus pay - which must be disclosed to shareholders - for the next year is projected to tumble 60% to 70%. In particularly hard-hit areas, which churned out collateralized debt obligations that blew holes in many Wall Street balance sheets, managing directors could potentially see their bonuses fall 50%, to $750,000 to $950,000 (their base pay is about $200,000 a year). Less senior employees will also see their bonus drop to between $200,000 and $250,000, on top of an average base of $140,000.

Considering most, if not all of these companies incurred huge losses this year, it seems strange to me that top management is still on track to earn any bonuses, that while lower than what they are used to, are still much higher than the average Joe's. I wonder what shareholders who lost significant amounts of money in the financial meltdown think of Managing Directors still making close to million dollar bonuses?

Smith wraps up the article by stating that in the coming years Wall Street firms may reform their bonus processes by shifting towards a multi-year, performance-based pay structure.

While I understand that market conditions and competitive pay rates determine how companies salary and incent their employees, from my experience, pay-for-performance incentive schemes tend to produce just that - superior performance.  A pay-for-performance system on Wall Street would mean that companies actually need to make money (what a novel idea), or at least not spiral to the point where they need multi-billion bailout loans from the government.

I look forward to seeing how Wall Street bonuses shape up in the future and whether financial institutions will end up changing their incentives models to align with performance or dare I say reality....

Got an opinion on executive bonus pay?  I'd LOVE to hear about it!

I recently read Julien's posting on LeapComp regarding ICM vendor selection and implementation.  I agree with most of the conclusions he draws, but would like to offer a slightly revised view regarding "finalized requirements."

Like with any enterprise software implementation, nailing down the requirements will always be one of the most difficult aspects of an ICM implementation.  However, given the dynamic nature of incentive compensation plans, my experience has taught me that "finalizing the plans" prior to a vendor or tool selection isn't realistic for many organizations.  Rather, we at Merced believe that organizations have to work collaboratively with vendors during the selection process to understand how flexible the solution is and whether it's a good fit for the organizational structure, scalability requirements, and plan complexity.  Just as the organization's incentive plans change over time, so too do the vendor's products.  So it's important to pick a vendor with a product roadmap that aligns with the changes the organization anticipates in coming years.

We've found that the key to dealing with this moving target is for ICM vendors to be involved early in the definition of requirements and to be able to aid the customer in shaping their thoughts.  Often enough the client doesn't have a concrete list of needs and wants, but rather is engaged in compromise between HR, Finance and Sales.

In the end, everyone benefits if an RFP truly represents the system's ability to deliver benefits to the customer.  Unfortunately, RFPs are often composed of wish-list items from several different departments rather from dictated ICM strategy needs.  In the vendor selection process, companies would benefit from expert advice early on.

Pin the Tail on the Donkey is a beloved children's game, but this same concept doesn't translate well into running large enterprises.  Rather than marching forward with figurative blindfolds on, executives, supervisors and managers, and front line staff in sales and service organizations must be empowered with a comprehensive set of advanced, personalized dashboards, and integrated workflows, enabling every individual to efficiently and effectively measure, manage, and improve their performance.  Sales and Service Performance Management (SSPM) provides the information and tools necessary to improve the performance of every employee in the operation.

Executives: For sales and service executives, advanced analytics offer critical insight into key business drivers.  Knowing, for instance how First Contact Resolution impacts customer experience and productivity, executives are able to change course and balance competing objectives in response to changing business needs.  Having this direct insight into key business levers allows executives to focus their attention on mission-critical issues, rather than toiling in the weeds.

Supervisors: Having a succinct view into the performance of their team, supervisors and managers don't waste precious time gathering spreadsheet reports and hand-written performance reviews, but instead can spend their time on what's truly important - developing their team.  Armed with the right set of tools and information on their team's performance, supervisors and managers can cut to the chase and more effectively align and track their team's progress against personalized goals, as well as overarching company objectives.

Front Line: Finally, at the front line, highly personalized dashboards foster a culture of continuous improvement, healthy competition, and accountability for performance.  Front line representatives have visibility into how they're doing and can take immediate action to self-correct when certain metrics slip.  Furthermore, reps understand that their performance is being graded fairly, and that they are being compensated appropriately.  Empowered with the information they need to track their performance, reps are able to grow in their positions, which not only leads to a reduction in turnover, but also ensures that customers are interacting with better trained, more knowledgeable and more motivated reps.

In large customer-facing operations, highly personalized dashboards, advanced analytics, and integrated workflow are critical to ensuring behavior at every level is aligned with company strategy.  With timely and accurate information about performance delivered to every role in the organization, executives, supervisors and managers, and front line staff can more effectively and efficiently impact the business.

First Call Resolution is a relatively new concept in the marketplace and therefore, often misunderstood.  Similar to the introduction of service levels nearly a decade ago, FCR solutions are creating more confusion than providing resolutions.  Yet confusion over FCR can be extremely costly for organizations.  When customers have to call into an organization multiple times to resolve an issue, the organization's bottom line is directly affected by the higher cost per contact.  But more significantly, a low FCR rate can have a more costly, yet less tangible impact on an operation - many studies suggest a high correlation between low FCR rates and customer churn.  With customer satisfaction as such a potent weapon in today's economic landscape, incremental improvements in FCR can lead to increased customer satisfaction and revenue generation. 

But why are so many companies today struggling with FCR?  In our first FCR Blog post, we talked about the challenge organizations face in simply measuring FCR, as it's not just composed of a single source of information, but rather a combination of data from systems across the organization. 

However, there is another challenge organizations face in addressing FCR, and that is approaching FCR as a strategy, rather than a metric.  FCR is a dynamic measurement because of the multitude of data that must go into calculating it - from CRM, IVR, Quality, Speech Analytics, Customer Satisfaction systems, etc.  As a result, FCR must be considered holistically as a guiding strategy, rather than a one-dimensional metric.

To help you in approaching FCR in your organization, below are a few tips to approaching FCR strategically: 

1. Find meaning in the data -The cornerstone of a performance management solution for FCR is the ability to capture and organize data from disparate systems to provide a complete picture to management.  Too often organizations fixate on a certain metric, such as Average Handle Time, that they believe will solve their FCR problems.  However, this is too simplistic.  A good measure of FCR takes a combination of metrics from various operational systems into consideration.  
2. Deliver actionable information - Without insight into their performance, front line employees cannot improve.  When approaching FCR as a strategy, it is important to deliver contextual and actionable performance information to every role in the organization, from the front line to the executive, and to individuals' performance in different areas, like quality and handle time, to specific activities for improvement.    
3. Establishing realistic goals - Using benchmarking data combined with internal reporting, realistic goals for FCR within an organization can quickly be established.  This analysis also allows organizations to set cost effective short-term and long-term goals for FCR improvements. 

We hope these tips offered some insight into how your organization can approach FCR as a dynamic strategy, rather than a metric, and we'd love to hear your stories about how your organization has approached FCR.

 

Imagine trying to ensure the success of a complicated open heart surgery by a novice surgeon using only monetary incentives.  Do you think that promising her $10,000 for a successful operation will enable her to actually perform the procedure?  It's highly doubtful.  Without the proper training and coaching the likelihood of her succeeding is extremely low.

When I talk with companies about the concepts of a complete sales performance management offering and bring up this example, I often get the retort, "but you can't compare a complex medical operation to sales!" Granted there are a few "small" differences, but the fundamentals are the same.  In each case, you are looking to improve the performance of an individual conducting a task. Today's sales environment is growing increasingly complex and competitive.  However, simply throwing money at sales reps won't ensure success if an organization doesn't have the proper tools in place to help employees respond to incentives.  To enable sales reps to succeed in this competitive environment, organizations must provide suitable coaching, goal setting, and follow-up tracking.  Just as a surgeon never stops studying and practicing new techniques, a sales rep's path to success is to never stop refining and improving upon his or her message and methods through targeted coaching and training.

To improve front line performance, an organization must utilize all the levers it has to enable its employee in the sales cycle.  It's not enough for an organization to roll out a new compensation plan in a vacuum.  Rather, as noted in Ventana Research conducted earlier this, leading and most competitive sales organizations today are adopting sales coaching and variable pay systems to drive performance.  

There's more to come on the various levers sales organizations can use to drive results.  But in the mean time, we want to hear about your experiences with incentive compensation!

 

Every year at our customer Executive Summit, I'm continually impressed with the innovative and impactful ways our clients are using our solution, but this year, I got some feedback that really stuck out.  I kept hearing, "Wow - I thought I knew a lot about Merced and performance management.  But I had no idea how much more there is out there."  I believe this was in response to the myriad of Merced customer presenters at the conference who are using Merced's performance management solutions outside of the contact center - in field sales, retail sales, partner operations, tele-sales, field service, and back office functions - and to our new products such as Merced Incentive Management and Analyst Workbench.

What's clear is that to enterprising companies, performance management is a simple, universal concept.  It's measuring and managing and improving performance in a broad array of customer-facing functions.  At Merced, we call this Sales and Service Performance Management (SSPM).  This simple concept of aligning and changing the behaviors of front-line employees can be applied in any type of operation in any industry to help companies to hit their performance targets and thrive in their respective markets.

At this year's Executive Summit, we presented a few of our customers, Dell, Embarq, T-Mobile, Vonage, and WellPoint with Summit Awards for distinctive Performance Management implementations.  The interesting thing is that each of these companies has a very different business in a very different industry.  Yet each has harnessed the power of performance management to improve their respective people and processes.  Some have used coaching to effectively deliver customer feedback to front-line employees.  Others have taken complicated metrics and incentive concepts and made them simple enough so that employees can calculate their commission or bonus as they walk across the parking lot. 

We were also fortunate to have a Bain & Co. partner present at the Executive Summit.  He focused on how to apply the principals of performance management directly to improve customer satisfaction with Net Promoter® Score.  When organizations use Net Promoter® Score as both a metric and an internal organizational discipline, companies can not only calibrate the health of their customer relationships, but can also drive improved customer loyalty and nurture the lifetime value of that relationship in their sales and service organizations.  Regardless of the initiative - whether it's improving customer service or increasing cross-sales - performance management is relevant in many different operational environments.

The Sales and Service Performance Management industry is still young, but one thing is certain - it's growing rapidly.  At the Executive Summit this year, as in years past, for every good idea that surfaced, everyone present knew there were ten more even better ideas bubbling to the surface.  I continue to be impressed with the performance improvement efforts of our customers, as well as their sense of commitment and willingness to innovate with performance management in different areas of their businesses.  I can only imagine the possibilities that lie ahead for next year's Executive Summit.

 

Turn on the TV or open a newspaper and the headlines scream economic downturn.  Whether this turns into a real recession remains to be seen, but there can be no denying the enterprise ‘belt tightening' happening everywhere.  As a result, organizations are undertaking stringent financial reviews of their businesses with emphasis on maximizing profitable revenue and controlling costs.

It may seem counter-intuitive then, that in this climate, many businesses are investing in Incentive Compensation Management (ICM) software.  However when you understand how quickly and effectively ICM delivers results, the investment seems like a bargain.

Analysts estimate companies without ICM software to help standardize and monitor performance-related commission, overpay by up to 12% of the annual compensation budget.  Combine that with the an estimated 5% of selling time lost every month by staff recalculating their pay, the business impact of ICM  software is dramatic.

Equally important in today's market is the fact that ICM can be a strategic lever used to influence sales behavior - whether that's pushing a certain high margin product, or up-selling services.  Additionally, ICM software can have a positive impact on staff turnover in a short space of time. With the ability to track their individual commission payments in real time, staff are more motivated and more directed in their activities.  On top of that, organizations offering ICM-driven compensation plans have also been proven to attract top sales talent.  Good sales people recognize their earning potential through un-capped, transparent pay for performance schemes. 

So what's the return on investment for ICM?  With a revision of incentive plans and promotions, ICM has been shown to increase productivity and provide a competitive advantage almost immediately.  So although the credit crunch is nipping at the heels of many organizations, savvy companies are still spending wisely - investing in technology which has a proven track record of increasing revenue and productivity.

For in-depth examples on how organizations have used ICM strategically to drive revenue check out our Case Studies database.

 

We had a great turnout for last month's webcast with Dell Computer, but for those who weren't able to attend, I thought I would recap a few of the highlights.  You can listen to the entire webcast here.

If you missed the webcast, Dell's Global Reporting Solution Architect shared some insights on their Merced Performance Suite implementation, highlights of the end user's experience post-implementation, and some of the philosophy and corporate motivation behind their Performance Management initiative. It was great to get a glimpse of how they utilize the Merced Performance Suite application across their entire operation - from agents, to team leaders and management.

During the webcast, Dell highlighted several keys elements to producing a high-performing culture, including:

1. A Single Version of Truth - the system is a one-stop shop for performance data for everyone in the operation
2. Metric alignment and standardization - enables all roles to self-diagnose and take corrective action
3. Personalized goals, alerts, triggers, thresholds - drives accountability for individual performance and promotes agent engagement with their supervisors
4. Coaching, recognition & reinforcement best practices - having all data and workflow in a single system allows coaches, team leaders, and executives to script action and coach towards key company initiatives

Dell highlighted the key advantages of their Merced Performance Suite deployment, stating "one of the biggest advantages of having all data and workflow integrated in one place is that you can drive accountability for individual action from the agent level to the executive level.  When key operational metrics are directly tied to organizational goals, like Customer Experience and efficiency, and when that data is comprehensively assimilated into a performance management system, the end result is a high-performance culture."  To that end, Dell uses performance management to "empower the user by providing timely data to various roles in the enterprise, from execs and managers down to coaches and agents, and through providing targeted, meaningful coaching that drives the right kinds of actions based on the numbers." 

For Executives, the Merced deployment means that they can quickly gain access to high level KPI views as well as detailed drill down on data from across the enterprise to assess site, divisional, and individual performance.  If, for instance an executive sees that the level of outages for a certain site are too high, the executive can perform immediate investigation and then send off an action item to the accountable party to take corrective action, set a deadline for improvement, and track follow-up progress through the system, rather than manually alerting the site manager through an ad hoc email.

Of the various roles using Merced's performance management solution at Dell, team leaders and supervisors spend the most time on the system.  Dell discussed how Merced Performance Suite enables these roles to see focused metrics on their individual team members.  This ensures that when performance issues arise, supervisors are immediately setting up a coaching session with the appropriate agent.

And finally, because personalized, role-relevant data, benchmarked against operational standards, is delivered to every agent, agents have the ability to self-diagnose and take steps to improve.  They can also submit a coaching request form to their supervisor or coach directly through the system, asking for guidance. 

Do you have any interesting or unique experiences driving culture transformation in your operation?  We'd love to hear them - send them our way!

 

Working closely with our American colleagues, certain phrases and terminology have started to slip into my daily vocabulary - I have found myself "reaching out" and asking for the "conference bridge" to raised eyebrows from our more conservative English customers!  So I thought it would be only fitting in my debut blog to give an ‘elevator' pitch - another American colloquialism I've picked up - for ICM software.

Incentive Compensation Management or ICM as it's abbreviated, sounds complex, however the premise is very simple.  Consider a single repository for all variable pay data against which employee and channel partner performance vs. target can be measured, monitored and remunerated.  Add into the mix a suite of easy to use tools for modelling and maintaining pay plans, workflow and authorisation controls, pay statements, and performance bulletins, and you have a powerful vehicle for driving and tracking sales performance.  And the icing on the cake is, ICM will make money for your organisation and deliver a rapid ROI.

The concept is not new but an awareness that advanced software exists to aid companies in expediting a successful sales compensation strategy is amazingly low.  The majority prefer to think that their processes and pay plans are unique in their complexities and that no single software application could possibly handle their requirements!  Indeed, many organisations in Europe and in the US still rely on spreadsheets to calculate commission and bonus pay, staying wedded to their one-size-fits-all pay plans, and/or creating multiple databases, administered by numerous administrators to squeeze in new measures that can't be accommodated by the legacy database. 

Executives cannot logically hide behind this security blanket any longer - getting incentive pay right can mean the difference between profit and loss, retaining and losing top sales talent, or leading and trailing the competition, etc.  Advanced ICM applications offer a platform for tailoring pay plans to individual roles to communicate goals and targets.  Setting achievement statements against individual goals, and delivering payments in a timely manner means sellers gain trust in the plans and the results - the organization can start to drive and truly pay for performance!  

One of our customers, Cable & Wireless, took the leap of faith and saw its operating costs decrease by 37% after implementing our ICM solution, Merced Incentive Management.  Likewise, STA Travel used Merced Incentive Management to push sales of higher margin travel products such as insurance and accommodation - as a result sales increased by 21% and 14% respectively in a 12 month period, with overall productivity up by 11%. 

ICM solutions offer companies the ability to test new incentives in advance of being launched using an intuitive plan builder for modelling and maintaining business rules.  In this way managers can be assured of accurate forecasting, that an incentive will actually work, and that the commission budget won't be blown - modelling or tweaking can be undertaken until the incentive is spot on.  More importantly, all this can happen rapidly, so if a competitor launches a promotion one day, you can counter their efforts within hours. 

Bloor Research has written a white paper on what to consider when looking for an ICM system.  Check out a complimentary copy here: http://www.practique.co.uk/knowledge/whitepapers_bloor.htm

Well, my elevator pitch may have been a bit long, but we do have very tall buildings here in the UK and I do speak fast!