Build or Buy? A Vendor-Agnostic Evaluation for ICM
February 07, 2017
Whether it involves sun-setting a legacy incentive compensation management (ICM) system or upgrading from loosely-structured spreadsheet systems, there comes a critical point in any IT modernization process where a decision must be made to refactor an aging system, move towards full replacement, or purchase an off-the-shelf solution to meet the needs of the business. But what considerations should be made when deciding on a modernization strategy?
Sales transformation is often a tricky process, especially when it comes to automating many of the back-end business processes in a sales organization such as planning and incentive compensation. But when executed effectively, these technologies can provide a significant market edge by attracting, retaining, and supporting top sales talent. To keep pace with competitors, this very often necessitates the elimination of refactoring as a viable option. Before jumping head-first into an SPM implementation, an objective evaluation of the remaining solutions – build or buy – should take place to avoid years, or even decades, of operational heartache.
Key Decision Drivers
Maturity – Perhaps the most important consideration when deciding between a custom-built or commercial-off-the-shelf (COTS) solution is the relative maturity of your development capabilities. If your organization still sits on a lower level of the Capability Maturity Model (CMM), the decision may be rather academic. But for those with an established, capable in-house development team should weigh their options on whether to pursue such an endeavor.
Resources – Second to process maturity, having a comprehensive view of the various resources at your disposal is critical. What are some of the financial, technical, and personnel constraints facing the project? Custom built solutions often create a tremendous need for these resources when compared to many of the COTS solutions available on the market. Additionally, as vendors continue to shift towards cloud computing, we are continuing to see a trend in not only a reduction in the total cost of ownership but also enhanced performance for many off-the-shelf applications.
Complexity – If resources and development capabilities are of no concern, building may seem more attractive in some respects; there are very few limits on customization and, with it being in-house, a decreased reliance on outside sources. Of course, this all assumes a modest level of complexity. For some organizations, the business rules are fairly straight-forward. More often than not, this is rarely the case for large enterprises, particularly as it relates to incentive compensation plans and supporting processes. As a byproduct of organizational dynamics, incentive compensation plans are often prone to changes over time and wrought with exceptions. They may contain nuances such as recoverable draws netted over multiple periods and the need for prior period adjustments that systematically need to determine the impact in the current period, challenges that many systems do not face. This complexity is only exacerbated as new iterations are added in the form on unique compensation plans. Beyond the plans themselves, the business will need to factor in support processes such as the need for field self-service interaction via workflow use cases to define and implement to augment the core compensation calculations. With this being the case, management must make a determination whether or not they are prepared to take this on.
Understanding the Domain
Arguably the most underestimated factor in the success or failure of a custom-built sales planning or compensation solution is the developers’ familiarity with the problem domain. Incentive Compensation Management (ICM) systems are faced with many of the same complexities as an ERP implementation. They are highly cross-functional and heavily data-dependent, often requiring inputs/outputs across various areas of the business – finance, human resources, accounting, sales operations, etc. Along with being interdependent, ICM systems are unique in that they are acutely temporal. It is not uncommon to retroactively recalculate commission results for past pay periods on a regular basis. Needless to say, maintaining the integrity of past payment results is absolutely critical. And, for many, compliance to regulatory standards is a top concern. Features readily available through an off-the-shelf solution such as auditability will need to be considered in the overall product design.
Beyond these challenges, developers will need to account for how to disseminate this information through (oftentimes) web-based user interfaces while also automating many of the workflows necessary for streamlining business processes.
This raises the following question: if this risk is present, why reinvent the wheel? Clearly, these nuances should be fully understood before such an undertaking. If they are not, management will need to endure the possibility of significant project write-offs or even the potential disruption of sales operations caused by codified inaccuracies.
The “Secret Sauce”
Beyond understanding sales planning and incentive compensation, conventional wisdom has always been that the best corporate strategy for organizations is to focus on core competencies or market differentiators – often referred to as the “secret sauce” – while outsourcing other activities, when appropriate. And, as with any sound technology enablement strategy, investment in these resources should align with key business objectives. While incentive compensation plans may very well be unique to the business and provide a competitive edge in attracting and retaining top talent, they are very rarely proprietary. After weighing the benefits and risks with such a project, a determination must be made whether these activities are a key ingredient to the secret sauce or can be delivered by a trusted, third-party integrator.
Assessing Change Readiness
Regardless of the direction you take, the best determinant of project success is often your level of change readiness. It can be tempting to view an off-the-shelf ICM solution as a simple plug-and-play solution, but remember that the automation of these business rules is custom-tailored to meet the needs of your organization. You will need to prepare your people, processes, and technology assets well in advance of an implementation to increase the probability of aligning the solution with business objectives. Having a well-structured process to evaluate the type of investment needed to prepare your organization for either option (build vs. buy) will be critical to the success of the implementation.
If you are currently in the process of assessing options for a system overhaul, schedule a FREE two-hour workshop with OpenSymmetry to evaluate your organization’s current state of sales operations, or start a conversation about the landscape of existing sales compensation management tools in the market. Found this article useful? Subscribe to the blog for SPM market updates, best practices, and weigh-in from our consultants on industry topics.