House On Fire: Why Homegrown Systems Fail

Given that compensation is the largest component of any organization’s total labor costs– around 70% – , one can draw the logical conclusion that businesses spend a lot of time and resources perfecting it. For most companies, developing and using their own homegrown systems for sales comp management seems like the obvious answer.

Well, at least before the pitfalls are revealed!

This study done by Deloitte’s is an eye-opener: According to the 2020 Global Human Capital Trends survey, 56 % of the organizations felt the need to redesign their compensation strategy in the last three years. 64% are in the process of redesigning the strategy as we speak. 69 % of organizations have stated that the changing nature of compensation expectations and strategies is “important” or “very important” to their success and growth over the next 12 to 18 months. However, only 9 percent report being “very ready” to address this trend. 

The summary – Organizations are struggling to design, implement and manage a working IC plan. The reason- Homegrown IC management softwares that simply cannot keep up!

So what exactly are homegrown systems? To put it simply, homegrown systems can be of two types-

• Those built by technical experts already working in the organization, like the developers in IT. These systems will be driven by database centered technologies.
• Those built by business analysts in the organization. These systems will be driven mostly by spreadsheets. 

Both the above mentioned systems come with their own problems. A natural progression in your IC plan design is natural. With this ever changing business ecosystem, your plan is bound to change. Good plans will have the potential to adapt to changing company goals, product launches and new market practices. It is therefore imperative that your organization has a system in place that can work around these challenges. 

Unfortunately, homegrown IC management systems have not been able to address these challenges for most companies. The amount of time and resources that companies spend to develop and run their own sales comp systems does not translate into systems that are designed to identify and rectify bottlenecks.

The reason?

Sales comp is complicated! While it is true that using your own in-house teams brings a certain familiarity to this otherwise daunting process of compensating your sales team, the truth is that sales comp requires a dedicated team that focuses just on ICM.

If you are an organization that is using a homegrown system for your Incentive Compensation Management, here are three reasons why you should reconsider- 

They are not flexible- 

When designing a system for sales comp calculation, IT teams face the challenge of applying a wide set of business rules to an even wider data set. Enterprise database technology is the core of a system like this. This makes perfect sense because sales comp vendors make use of the same technology. However, the problem arises when constant changes in your incentive compensation plan will most likely break this homegrown system.

Plans, organizational goals and structures are always changing. Therefore, it takes quite a high level of sales comp specific experience to identify what kind of flexibility your sales comp software will need. Needless to say, this is not something that your IT team can provide alone. 

They are not scalable-

Is your homegrown system architectured in a way that it is capable of reflecting growth? Most homegrown IC systems- especially those built by business/financial analysts rely heavily on spreadsheets. While spreadsheets may seem convenient at first, the truth is that constant changes in your incentive compensation plan will most likely break this traditional system. 

Spreadsheet-based systems usually hit a wall when growth demands scalability. This could happen when-

• There is an increase in the amount of data flow when the company is rethinking strategy or simply analysing trends
• The sales force is growing which means there are more reps to manage

For most systems, this is only sustainable in the short run. 

Sustainable support is difficult to find-

The administrative pandemonium is real when those who built the system and know where the skeletons are buried move to other companies/jobs. Anyone brought in to hold the reins at this point is faced with the daunting task of understanding how the system works and how to modify it to incorporate future challenges.

A key element to comp management success is an automated system that supports the cycle of feedback and can quickly incorporate changes. If your organization uses a homegrown system, asking yourself these questions to make sure that your solution is really automated and future-ready should be a good starting point- 

• Is your solution built for integrations across CRM, ERP and HRIS?
• Is your solution capable of change?
• Is it easy for your sales leaders and reps to interact with your solution?
• Can your solution incorporate incentives like bonuses, spiffs, and MBOs?

To learn more about how an automated Incentive Compensation Management solution can help you make better real-time strategic decisions, read this blog– ‘Automation v/s Automation: An Incentive Compensation Management Perspective’ and book a demo with us today!