The Cost of Homegrown Systems: A Recurring Compensation Quandary
For a long-time Silicon Valley resident like myself, it’s hard not to admire Hewlett-Packard – and rare to see such a widely admired icon stumble. But this unfortunately happened recently when it came to correctly compensating a significant chunk of its sales force over the past several quarters. According to a recent Wall Street Journal article: “Problems with an in-house system named Omega have kept about 2,000 of H-P’s more than 23,000 salespeople from getting their proper monthly commissions for much of this year.” Says the article, some have had to settle temporarily for just 60 to 70 percent of what they should have been getting for their efforts.
Subsequently, three employees have filed a class-action lawsuit on behalf of all employees and ex-employees affected by the problems. According to the Wall Street Journal, the plaintiffs claim that more than 50,000 people may have been underpaid due to issues with Omega.
Omega, it seems, was inherited from Compaq, which H-P acquired in 2002. And Compaq itself had inherited Omega when it purchased DEC way back in 1998. As a compensation-management system, Omega was probably adequate back in the day. But, as is the case with so many homegrown legacy systems, it hit a wall as “H-P’s product lines and sales channels ballooned, creating more data for Omega to digest,” suggests the Wall Street Journal. H-P, of course, did all it could to fix Omega, including “new software to ease how it processes sales data,” but some things are resistant to fixes.
That’s one of the big problems with homegrown systems: they can cost you big time, often just when you need them the most. In terms of hard dollars, homegrown systems are pricey to build, costly to maintain, difficult to economically scale, and expensive to modify in the face of business change. In terms of opportunity costs, they lack the latest features and functionality, and they slow down and mess up vital business processes and initiatives – in this case, sales compensation, which has a direct bearing on sales performance.
H-P is by no means the only large company affected by problems with legacy commissions-management systems. In December of 2008, it was reported that Sprint was facing a lawsuit from thousands of its store employees who said the wireless carrier failed to pay them proper commissions. The article went on to state that “19,000 former and current employees are potentially affected,” and it was the integration of Sprint and Nextel’s back-end systems that led “to more than $5 million in lost commissions.”
Back when many of these original systems were conceived, there were no commercially available alternatives. Fortunately, that is no longer the case.
Companies relying on homegrown legacy systems to drive sales performance should investigate the powerful solutions available today, and prepare themselves for some very pleasant surprises in terms of scalability, cost of ownership, flexibility, ease of deployment, analytics capabilities and visibility into business processes. In particular, the next generation of multitenant Software-as a Service (SaaS)-based sales performance management solutions deliver these advantages in spades.
The alternative? Keep throwing money at the old homegrown system… and hope the Wall Street Journal doesn’t call.
Written by Chris Cabrera
Moving from Traditional Licenses to Subscription (SaaS) – Better Sales Comp Practices
Sales compensation is a strategic business tool - no matter how you slice it. However, this is never more true than when you are making a dramatic shift within your company. Moving from traditional licenses to a subscription model is one of these shifts. With over two decades of industry experience, Clinton Gott of Better Sales Compensation Consultant is ready to share what he sees as the most common concerns companies voice when moving from a traditional license model to SaaS.