Build Vs Buy: Framework to make right choice for Commissions Management Solution
When deciding between building a custom in-house system and buying an off the shelf Commissions/Incentive Management solution, it is not enough to use product features as the basis of system comparisons. Critical evaluation of all contributing factors is mandatory and explains the efforts that lies ahead. Robust product functionality is of high importance—though development and deployment experience, as well as on-going product support, also heavily influence the success of such an initiative. Often cost is the most common reason why organization go for in-house development. However, we cannot overlook the risk and the cost associated with project failure, overrunning deadlines, or incomplete or partial functionality. Mission-critical processes like incentive compensation management carry huge deployment risk.
There are five essential aspects of a build-versus-buy decision to consider:
1. Completeness of Functionality
The management and deployment of incentive compensation programs (including territory alignment, credit splits, performance tracking, and commission calculation) is an extremely complex problem to solve. When custom built, these systems are the product of years of evolution, often as a part of larger in-house developed enterprise software packages. Naturally then, the maintenance of sales incentive strategies requires a strong understanding of these system’s existing custom code and the adaptability of that code any small change in the source code could render the entire enterprise system useless. This is an especially risky situation when the original developers have left the company or when an outside vendor did the primary development. Hundreds of global organizations have experienced many of these challenges and since chosen to implement a best-of-breed, Enterprise Grade Commissions/Incentive Management solutions which help manage the complexities associated with sales compensation for every channel direct sales, distributors, brokers, agents, dealers or retailers. It has all of the tools needed to design, administer, and optimize variable compensation plans. Functionality is what drives companies to search for an off-the-shelf software package. Given that, usability in the following four key areas must be diligently scrutinized
Functionality is what drives companies to search for an off-the-shelf software package. Given that, usability in the following four key areas must be diligently scrutinized.
a. Business Rules
Today’s business climate causes company processes to change at a moment’s notice, resulting in rapid adjustments to incentive plans affecting business rules. These rules constitute the heart of any system since they contain instructions as to how compensation data should be structured, stored, and processed. Business rules are one of the most common types of custom coding. As a result, custom coding of business rules is where most of the errors and bugs occur in any system. Custom coding of business rules does not seem to be a large obstacle, but to work properly, there are a number of implications. The most significant involves the need for a technical resource to implement any change to a business rule. Therefore, it is crucial to find a solution where all business rules are contained in a data model that provides a flexible, responsive, and business-centric system. The Process Model within Enterprise Grade Commissions/Incentive Management solutions delivers an easy-to-use and flexible mechanism for business users to implement and manage compensation programs. Business users, leveraging intuitive graphical interfaces with drop-down menus and check boxes, quickly and easily implement small or major business rule changes. All rules are accessible to business users, so that they can directly design, view, and process all business rules without being at the mercy of the IT department. More importantly, a dramatic reduction of commission errors is now achievable from a packaged solution where business rules are easily accessible and outputs are quickly traced and verified before payment even takes place.
b. Data Integration
Most enterprises have sophisticated information technology infrastructures composed of many disparate systems, from Enterprise Resource Planning, Customer Relationship Management, Sales Force Automation, Supply Chain Management, and even internally developed proprietary solutions. Quick and simple data integration into an organization’s current application infrastructure is one of the keys to the successful implementation of any compensation system. This need for data integration adds time and resource requirements to a custom application development cycle. implementation teams commonly plan for the custom coding of data interfaces between the compensation system and other disparate systems during the initial implementation phase, but often do not factor in the ongoing maintenance that these interfaces require. As a result, dramatic cost increases and accuracy issues arise when the IT infrastructure or compensation programs change throughout the life of the system. By design, Enterprise Grade Commissions/Incentive Management solution easily accepts data feeds from multiple and disparate information systems, such as ERP and CRM systems, while communicating with Human Resources, Payroll, and General Ledger systems, to provide accurate, real-time data. The integration functionality, built on industry-standard ETL technology, enables IT organizations to build robust, standardized interfaces to any administration, payment, and accounting system quickly and cleanly.
On top of which, these Enterprise Grade Commissions/Incentive Management solution providers have amassed years of expertise in deploying enterprise solutions. Combined with the ability to draw upon this experience, they have developed standard integration bridges for common, established back-office and ERP systems such as SAP, Oracle and any other solutions. Ultimately, the benefit from years of joint development work between the providers and its clients extends to any organization making an investment in Enterprise Grade Commissions/Incentive Management solution.
c. Extensibility and Maintenance
Just as marketplace demands are dynamic and ever changing, so too are every organization’s sales tracking and compensation processes. Consequently, Enterprise Grade Commissions/Incentive Management solutions must be easily extensible with minimal ongoing maintenance required. True extensibility means that these applications must be able to adapt to constantly evolving business needs and support new and creative incentive strategies. Companies that have chosen the “build” route find responding to new requirements requires modifications and/or additions to source code. Unfortunately, it is very difficult for custom solution teams to predict future functionality. Ideally, organizations would have the benefit of using an application set that offers a flexible framework to facilitate easy and rapid implementation of new incentive compensation initiatives.
“Out-of-the-box”, Enterprise Grade Commissions/Incentive Management solution solves a myriad of incentive compensation challenges. It accomplishes this using a compensation-specific rule engine that can represent any incentive compensation situation. More importantly, with these solutions, the business user easily addresses these types of challenges with little or no assistance required from IT the result being a truly extensible solution with reduced ongoing system maintenance requirements.
Any Enterprise Grade Commissions/Incentive Management solution must allow for rapid creation and delivery of a variety of report types from sales tracking and goal sheets to performance attainment and commission payment reports. In custom solutions, even if the data is stored in open, relational databases, the compensation logic and data is almost always embedded in the source code, making the extraction of this information for new and up-to-date reports extremely difficult. Within Enterprise Grade Commissions/Incentive Management solution compensation data is stored in an open, relational database, where it is securely and easily accessible with common, standard report and query tools. The web-based reporting solution from these Enterprise Grade Commissions/Incentive Management solution, provides a hub of compensation-related information, which extends the benefits of the solution to the desktop of every individual in the enterprise via the web. It is the key to secure, online access to up-to-date compensation information, schedules, reports, and critical performance metrics. These powerful features combined with dynamic report generation capabilities are what many Callidus customers are using to gain competitive advantage.
2. Scalability and Performance
The scalability and performance designs of most homegrown systems can only accommodate the current organization size and transaction load. Naturally, as companies evolve via attrition and growth, these systems quickly become obsolete or do not provide the performance necessary to provide timely compensation payments and reports. Progressive compensation systems deliver performance today and have the ability to scale as the organization and transaction loads increase. Unlike many in-house systems, Enterprise Grade Commissions/Incentive Management solution provides scalability and performance that adapt to your growing business needs. By design, the Providers architecture delivers scalability and performance for calculation processing through grid computing, making scalability possible and affordable. Additionally, the Web based reporting engine provides a variety of features that scale to handle report generation and distribution to hundreds of thousands of users. The providers scalable architecture ensures that compensation payments are always accurate and timely irrespective of present and future-regardless of the data load.
3. Length of Deployment
Management of Commissions/incentive compensation plans and disbursements have direct impact on the revenue stream of an organization. Since effective compensation processes directly affect every company’s bottom line, timely deployment of an automated system is of principal importance. Because in-house compensation systems require more time to implement, there are significant opportunity costs. These costs involve complex technical and functional requirements. The time it takes to define and create sales credit, tracking, and incentive rules and logic has a dramatic impact on the length of deployment of an in-house system. From the point at which each element of functionality is designed, the team must engage in custom development and rigorous code testing. Enterprise Grade Commissions/Incentive Management solution deployment times are considerably shorter than most in-house implementations. Rarely is there any custom code development needed to extend its functionality. Additionally, after the creation of compensation rules, the core commission engine is ready for operation. A typical first phase deployment of such solution runs between two and six months, which includes compensation plan design as well as data integration. This provides a two to five times factor improvement over a custom-built application implementation schedule. The solution providers measure its success based on how quickly its products are deployed and how rapidly a return-on-investment can be realized.
4. Customer Support
While both solution types require a level of support and maintenance over the course of their lifetimes, a Enterprise Grade Commissions/Incentive Management solution provides a variety of options to ease the cost of product maintenance. Often at a moment’s notice, the upkeep of an in-house system may require the resources or expertise that IT groups do not have. Similarly, most custom-built systems offer minimal training and documentation. The often hidden expenses related to maintaining and supporting in-house expertise and resources must not be overlooked.
The solution providers offer a variety of support plans that provide the required services on demand while allowing companies to meet their corporate and financial needs. In addition, client partners of solution providers benefit from having the largest dedicated solution development team continuously introducing new product functionality made available through periodic upgrades. The solution provides the industry’s best training and detailed documentation to ensure that its user population is always able to effectively manage their compensation programs. By choosing the solution providers support plan, clients share the costs and benefits of a world-class support team with other customers.
5. Total Cost of Ownership
At the outset, cost is often what motivates a build-versus-buy scenario. Unfortunately, project teams often overlook hidden costs involved in estimating the overall lifecycle costs to build a custom incentive compensation application. However, when all system and deployment costs are defined, off the shelf Enterprise Grade Commissions/Incentive Management solution will prevail as the most cost-effective alternative. Common hidden “build” costs are as follows:
a. Implementation Cost
Deploying a Enterprise Grade software solution is considerably shorter than developing a custom application and the additional up-front dollar investment is far less than the effort and prolonged consulting costs associated with a custom solution
b. On-going Maintenance
For custom solutions, costs never decrease because any change to business rules, user interface, or data interface always requires some level of technical resources and time. Additionally, as the application scope grows in size and complexity, the amount of resources and time required to maintain it increase as well.
c. Opportunity Cost
Resources today are at a premium and the development of custom solutions require dedicated fulltime, internal resources that are better utilized for revenue-generating or customer-facing activities. This opportunity cost could be a very significant number through the lifetime of long, resource intensive projects.
Sales, marketing, and other front-office functions are arguably the most visible groups within the organization and their compensation links directly to their performance. Therefore, when dealing with software projects that have an immediate impact on the bottom line, companies must exercise caution to ensure that business needs align with the product functionality and scalability. Any tool is only as powerful as the needs it addresses. An organization derives value from a product through the assurance that all current and future concerns will be addressed. When presented with a build-versus-buy decision, an organization needs to be proactive in first identifying its business problems, and then identifying the optimum solution to those problems. The issue of compensation management, its automation and ongoing maintenance are extremely complex problems that must be implemented using a powerful and flexible tool. Enterprise Grade Commissions/Incentive Management solution not only addresses the current needs of an organization, but also provides unparalleled flexibility for future expansion — dramatically lowering ongoing usage and maintenance costs. Most importantly, this solution efficiently addresses all of the varied challenges of Commissions/Incentive compensation management faced by global companies across all industries, ensuring that the right person is paid the right amount, on time every time.
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