The Future of Pharmaceutical Compensation Update

I saw this article today, CIAs pressure pharma to rethink sales rep compensation and thought it was interesting enough to share.  A few weeks back we discussed in detail the future of Pharmaceutical Sales Compensation and neglected to take into consideration Government oversight, which appears to be a major driving force in Pharma comp.  For those not familiar a CIA is a "Corporate Integrity Agreement" between the Department of Justice and a Corporation, it generally comes with a substantial fine. 


 In this case Novartis is going to have to cough up $422M dollars. It appears that Novartis was compensating their reps to push sales of products that are reimbursed under government programs. The compensation related language in the CIA includes, "ensure that financial incentives do not inappropriately motivate [sales reps] to engage in the improper promotion, sales, and marketing of products reimbursed by government healthcare plans." 


Is Novartis the first company to come under scrutiny from the DOJ for their compensation practices?   No, the article also talks about GlaxoSmithKline who signed a five-year CIA in 2003 (and paid $88 million) Over the summer, the company announced that it would end bonus structures for sales reps based on sales targets, and instead focus on qualitative measures, like customer evaluations.  We discussed GSK's new compensation policies specifically in an earlier blog post the future of pharmaceutical sales compensation


In September it was Forrest Pharmaceuticals - $313M fine, CIA language includes, "Policies must be designed to ensure that financial incentives do not inappropriately motivate such individuals to engage in improper promotion, sales, and marketing of Forest’s products. 


Also this year; Allergan - $600M fine, CIA language includes compensation (including through salaries, bonuses, and contests) for Relevant Covered Persons who are sales representatives. These Policies and Procedures shall: 1) be designed to ensure that financial incentives do not inappropriately motivate such individuals to engage in improper promotion, sales, and marketing of Allergan’s Government Reimbursed Products; and 2) include mechanisms, where appropriate, to exclude from incentive compensation sales that may indicate the off-label promotion of Allergan Government Reimbursed Products;


Government regulations impact the way a number of industries have to think about, design, pay, and track sales compensation.  The Future of Pharmaceutical compensation will certainly be one of those industries   The next wave of this that will be taking place is in the health insurance industry as the impact of health care reform will start to ripple through starting Jan 1, 2011.  I hope to discuss this in more detail in a future post.  


Thanks for reading.  Comments and questions are always appreciated. 

SPM News Weekly Wrap Up

The lunch and learn in Dallas at the Capital Grille yesterday went well, some good conversation, good food, and very interesting themes and questions from the attendees.  Hope to see you at the next one. 

Next week I’m really looking forward to speaking at the World at Work Spotlight on Sale Compensation conference.  I’ll be co-presenting with Jennifer Kerr from Ecolab a very talented manager with a world of experience in how to leverage technology and reporting to drive sales performance.   Our presentation is titled ‘Sales Performance Management: Market Review and Vendor Selection’ and will be on Wednesday the 22^nd from 8:45 – 10:00.   More information on the workshop can be found here. For anyone attending the conference, I guarantee it will be worth your time to stop and listen.  For those of you not attending the conference, I’m not going to share the whole presentation here, but there a few exciting highlights that I will be posting the weeks to come.    

Does Technology matter when it comes to Sales Performance Management?  You better believe it! I finally had the chance to sit down and read the excellent research titled ‘Sales Performance management: Getting Everyone on the Same Page’ from Peter Ostrow, Research Director, Sales Effectiveness at Aberdeen Group.  Performance Dashboards, Automated Solutions to forecast rep performance against goals / expected compensation, and CRM or SFA that includes a compensation module are all things that best in class organizations share more so than companies defined as average or laggards. The full research report can be found here.

Well that’s it for this week’s wrap up - For the most current up to date Sales Performance Management news please follow me at https://twitter.com/SPMconsulting

SPM News Weekly Wrap Up Sept 11th

If you are in Dallas next Friday and would like to hear more about Sales Performance Management I will be speaking at a free luncheon and would love to see you there.  The main topic will be how SPM can help strategically align your compensation plans, drive the right behaviors, and increase selling time.  More details and RSVP information can be found here: SPM - Lunch. Network. Learn  


This week I got down and dirty with 5 of the leading applications in the space.  It had been a while since I had actually touched the products, so I went and logged into to a number of different environments and built some rules, built some hierarchies, created a workflow, made some manual adjustments and modeled some scenarios of potential new plan changes.  There is something to be said for doing vs. seeing and the end results was pages and pages of notes and some new insights into the latest product functionality and ease of use.  Good stuff.    


I saw a quote this week from Donal Daly the CEO of The TAS group and founder of the Sales 2.0 Network, "The impact on a customer of a bad buying decision is always greater than the impact on a sales person of a lost deal."  I agree 100% with Donal and I find that I really enjoy the role of customer advocate when helping with a vendor selection process.  The corporate and personal risk to my clients of potentially purchasing the wrong technology solution to meet their problems is something that I take very seriously. As I see more and more companies and individuals market their Vendor Selection services in the Sales Performance Management space I hope that they share the same viewpoint and don't just view it as another project. Thinking about this here are three attributes to look for in a company that I would trust to help you match the right solution with your business needs and aspirations.  


1. Experience - The consulting firm should have experience in running Vendor Selection projects, both from a time perspective and from a quantity perspective.  If the consulting firm hasn't led 10-15 of these projects I would take that as a huge red flag.  It takes time to develop the skill sets, knowledge and tools necessary to lead these projects.  Something else to look for business and technical background.  The consulting firm should have the institutional knowledge to address both IT and the businesses concerns when looking at new technology.  


2. Methodology - At every step in the process the consulting firm should be able to bring to the table it's own methodology, best practices, templates and worksheets. 


3. Knowledge - What pool of resources will the consulting firm pull their knowledge of the different technologies from?  Hopefully it includes a majority of the following - relationships with the vendors, implementation expertise on the products, recent deep dive demonstrations of the potential technology, research analysts, and production customers.        


That's it for this week, I hope everyone has a great weekend.  

  For the most current up to date Sales Performance Management news please follow me at https://twitter.com/SPMconsulting

SPM News Weekly Wrap Up

In the absence of a lot of industry news, this week has flown by for me personally.  The first part of the week was spent finishing up and submitting my presentation for the upcoming WorldatWork Spotlight on Sales Compensation event.   I’ll be speaking on the Sales Performance Management Market and on Vendor selection.   With such a dynamic and rapidly evolving space I wanted to present a different way of thinking about the technology solutions available and I think I succeeded.   For those of you attending the conference I hope you can find the time to stop by and participate in the discussion.   For those of you that aren’t able to attend I’ll share the most well received ideas shortly afterwards.

The rest of the week was spent speaking with clients (and perspective clients).  This week a common theme I heard was cost - How to drive cost out of the administration of compensation?  To me the answer is not to cut costs per se but to relentlessly drive economic value to the organization by better utilization of human capital, technology, and the optimization and where applicable the automation of processes.   Today I want to quickly touch on the human capital side of the equation.

To achieve cost-cutting measures it rarely makes sense to arbitrarily cut heads in the sales compensation administration department.  The focus should be on changing the department from a cost-center to a center of excellence that adds value back to the organization.  Which leads to the question – Can compensation administration organizations be differentiated?  Is there a vast difference between the average and market leading organizations?  Our experience says yes - It is just not enough to produce accurate compensation payments in a timely manner and provide some reporting to the field.  This level of performance is not even average and unfortunately I still see organizations that cannot execute on these table stake activities (note – even the poorest performers shouldn’t lose hope!).    

Now envision a market-leading organization where the self sufficient compensation team delivers excellence in the above activities and proactively evaluates effectiveness of the compensation program and delivers improvements.  An organization where a whole host of reports, dashboards, and analytics are made available for all compensation stakeholders – Finance, Field Sales, Sales Management, and Executives.   An organization where when sales would like to make a change to the compensation program or introduce a short-term incentive the questions are not, how long will it take to code and how much will it cost to do so?, the questions are more along the lines of, “How would you like to measure the effectiveness of the change?” How about a compensation administration team that can support the quota setting and territory planning activities as well as administer disputes but more importantly systematically drive errors out of the process to prevent disputes from happening in the first place?  These are just a few example of what high-functioning teams are out there doing today.   

To move from the organization of ineffectiveness and inefficiency where the question is how many heads to cut to an organization of the future that adds value takes significant vision, leadership, and persistency. To achieve this transformation take heart in knowing that the roadmap to success already exists and the payoff in terms ROI is there for the taking. 

For those in the states, hope you have a happy and safe labor day weekend.   

  For the most current up to date Sales Performance Management news please follow me at https://twitter.com/SPMconsulting

SPM news weekly wrap up

Two stories of note this week - 

First –

Xactly www.xactlycorp.com announced that their flagship product Incent, a SaaS Sales Performance Management solution, achieved Oracle validated integration With Oracle CRM On-Demand. (Read more here) This is the 2^nd year in a row that Xactly has recognized this achievement.  Xactly also is very tightly integrated with SalesForce.com. 

Data integration on SPM projects are almost always a potential flash point and rarely go without a hitch.  Drawing a line in the sand between IT and Implementation Vendor responsibility is something that should be addressed very early in the Sales Proposal cycle, not after the project has been kicked off.  

Different vendors have went done various paths to provide integration flexibility, functionality and risk mitigation.  Some of the solutions have fixed schemas to map to while others allow “on the fly” configuration of target tables within the system.  Some vendors have partnered up with best-in-class ETL (extract, transform, and load) solutions and others have built the tools into their core systems.  

When companies like Xactly go the extra mile to pre-build the connections to source systems it helps lower the costs, lowers the time to deploy, and lowers the risk associated with integration.   

Second –

Callidus Software Inc. www.callidussoftware.com announced Lenovo, one of the world's leading personal computer manufacturers, has successfully implemented Callidus Software's Quota Management solution to help manage sales goals and coverage for 1,900 members of its sales force world-wide. (Read more here)  Quota Management software to me is a somewhat underutilized enabling technology that I think many companies can take advantage of.

In my experience leading Sales Organizations successfully approach the quota setting process by –

·                               Having a clearly articulated process

·                               Model Quotas using historical data, market input, field sales inputs and take in consideration the competition

·                               Setting Attainable Quotas

·                                Effectively communicating Quotas in a timely manner

What does the recent research show? In 2009, on average, sales representatives achieved only 52% of quota, sales departments achieved only 79% of plan and sadly most companies do not plan to invest in more sales training or technology in 2010. When will companies realize that hope is not a strategy! In addition most companies plan to raise sales quotas in 2010 by 10% or higher. (Source: CSO Insight’s 16^th annual, Sales Effectiveness Research Project, 3,000 participants.)

For the most current up to date Sales Performance Management news please follow me at https://twitter.com/SPMconsulting

SPM news weekly wrap up

This week from a news perspective was very positive for Callidus Software.  They had two press releases, both in the financial services industry, regarding wins for their Monaco On-Demand platform.  Why is this important? Over the past few years Callidus Software has dramatically shifted their corporate strategy from a traditional software model of deriving revenue from selling on premise software licenses, the associated annual maintenance, and implementation services to today's reoccurring revenue model built around the On-Demand platform and on going services. These two deals are continued affirmation of the commitment to and success of the new strategy.   I think it's also an important indicator of the continued growth and acceptance of SaaS / Cloud applications in the SPM space.  

For the most current up to date Sales Performance Management news please follow me at https://twitter.com/SPMconsulting

  

SPM Application Scalability

A very common line of questioning that I hear from clients is around scalability and their concerns with the different applications being able to handle a particular size of sales force or the volume of business events that they would like to pay on.

• Brief Aside – A business event can be Billing, Shipping, Invoicing, Cash, Booking, Clearing Credit or anything else that you would like to trigger a compensation event.
  

The quick answer on SPM scalability is if you have less than 10 Sales Representatives or more than 100,000 or would like to pay on a handful of business events or tens of millions of business events per pay period there is one or more third party applications that can handle this. Sounds great in principle but unfortunately stopping here would be doing a great disservice to clients as the short answer never tells the whole story.

To really answer these Scalability questions we need to do some further investigation into the client's needs, performance expectations and vision of the enabling technology. The first thing I like to find out is the performance expectations. What is an acceptable length of time to process commissions from data load to report generation? This provides a good baseline for the rest of the scalability answer, as needing things to run in 15 minutes is a lot different than being happy with an overnight process.

The next piece of the conversation is a multi-dimensional view of system usage that I call Intensity. The factors of intensity are the potential limiters or bottlenecks that will cause the various systems performance to degrade processing to an unacceptable cycle time or cause SLA's to not be met. A good analogy for Intensity is MPG for your car. The sticker may say 25 MPG for your new car but your actual experience turns out to be something much less. What causes the difference? Well the sticker MPG is based on something unrealistic like a strong tailwind, going downhill, smooth acceleration and with just the driver in the car. You want to drive in varying wind conditions, sometimes going uphill, with the A/C on high, half of the soccer team in back and rapidly accelerating into traffic to merge only to find yourself playing stop and go on the freeway - This is Intensity.

 Some example factors of SPM application Intensity to consider include:

• Number of Payees
  
• Number of Compensable business events to be processed
  
• The Ratio of single business events to number of people who get paid (think Direct Sales Rep, Manager, Director, VP, Sales Engineer, Channel Sales Manager, etc.)
  
• Complexity of Configuration
  
• Number of Reports
  
• Number of Concurrent Users
  
• Number of Cycles per pay period
  

The applications in the Sales Performance Management space have different ways of scaling to handle load such as flexible application grid servers that grow by adding CPU's and the associated memory, pushing the work back to the database server, or leveraging a distributed workload in the Cloud but in general the top plays in the space are all scalable within reason but with associated cost. At this point in time we can diverge into a Cost/ Benefit or ROI discussion, take a rough estimate at costs based on the expectation and vision or perhaps the client has a budget number in mind to spend on environments or hosting and we can use that rough number as a baseline to continue.

At this point we are ready to match up the client requirements around scalability to the different applications in the space and give an objective answer to the question of what systems can meet or exceed these requirements.

Before wrapping up I wanted to quickly mention Performance Tuning as this is an issue I see frequently with customers that have already deployed an application and are now wondering how to make it faster. For implementations that we weren't originally involved with, we rarely see an aligned administration organization, proper training, optimized processes or expertly tuned configuration. I'll save that for another post but the short story (see above) is generally there are ways to improve system performance.

Let me know if you have any questions about matching up your organizations scalability requirements with the different vendors in the space.