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Posted on August 16, 2012 - 2:06pm in Blog

A company’s variable compensation process consists of several factors:

• Indicators
• Source of information used to measure indicators
• Rules to calculating each indicator
• Variable Compensation model (commission, levels of achievement/merit based, etc.)
• Tools that monitor and report each indicator’s results

Any compensation model is composed of the selected indicator’s payment structure based on its result.

According to the indicator’s result, there is an intersection with ranges and defined scales of achievement; the longer the range, the greater the employee's variable compensation.  Variable Compensation can be, for example, a percentage of salary or a fixed value.

Example:

Outcome Indicator: 97% (Actual/Target) VC: 15% of salary – Employee A achieves 97% of their target, using the defined scale below, Employee A receives a bonus equivalent to 15% of their salary.

Ranges of Achievement:

The range model is widely used by consumer goods companies for sales team compensation. However, some important details must be taken into consideration to ensure better use of the model, which then encourages the team to reach better individual results and thereby increase the company's results.

1. Size and number of ranges: Range achievement should be defined according to the results of the team. The greater the dispersion of results, the greater the size/number of ranges need to be in place in order to encourage employees to improve their performance. See the two examples below. 

2. Amount paid per range: The range must pay a higher variable compensation to reward the employee's effort and encourage them to "jump" from their current position to the next range set. Often this is overlooked resulting in the employee not trying to achieve better results. Below is an example of what NOT to do… The additional amount paid per range is not attractive enough to incent the employee to try harder.

If an employee with a fixed salary of $ 2,500 "jumps" ranges – the result: a gain of 0.7% (between range 1 and 2) which, for this person is only an additional $17.50. Not so motivating.  

The “human factor” prevents constructing a model that is empirical variable compensation. Conducting analysis on the results of the team and the amount paid per track, as shown, are very important in defining a model that, in fact, encourages staff to achieve better results in return for a financial reward, that rewards the efforts of the best people and, finally, optimizes business results.

Posted on August 9, 2012 - 2:17pm in Blog

As the market is more competitive than ever, marketing strategies and sales alone are not enough to achieve the company’s desired results. Thus, trade and “market execution” have become a very powerful weapon for organizations.

“Market execution” can be defined as all of the company’s actions the point of sales:

• Presence of product, considering the right place and exhibition
• Product price positioning
• Placement of merchandising material
• Extra promotional spaces and product or brand exhibition can also be considered as execution actions

Market execution is usually the responsibility of the account manager and/or POS promoter.

You must align demands and expectations of the entire company and also ensure they are aligned with the current company’s market position. Therefore, it will be possible to migrate to a Marketplace execution model or develop what is already in place.

Considering the different activities related to market execution, it is possible to classify companies according to their stage of maturity:

• Basic: product presence in store and Consumer Price positioning
• Intermediate: Share of shelf in the category and Communication (promotion, price, presence)
• Advanced: Extra promotional space in the POS and Temporary Promotion

Within some organizations, it is easy to find the desire to reach the advanced execution level without first having established a consistent performance in the basic or intermediate level. There is no question that a temporary promotion can have a major impact on share gains and increase sales volume. But, what is the purpose of a temporary promotion if products are not available in the store or consumers do not have a reference price of the product?

Often, we find several departments of the company directing their efforts towards different goals. For example, sales team may be concerned with increasing the inventory of a client and negotiates high volumes at low prices. On the other hand, Marketing is now using all of its resources to correctly position Consumer Price. In the end, none of the teams accomplish what they set out to do – all they really managed to do was waste time, energy and resources.

We believe internal alignment across the organization is fundamental to direct all of the available efforts, tools and resources towards the same goal. For example, if the goal right now is in-store presence and correct positioning of the Consumer Price, this indicator should be reflected in all possible places – sales team variable compensation, commercial policies, set indicators to monitor promoters, the bonus of executives, in addition to directing the investment from all areas. The result: maximization of market investments. After the ‘basic’ step has been overcome, the entire organization should target their efforts in the next step – as a united front.

By ensuring the correct understanding of the organization’s present situation, aligning all involved and properly directing efforts and resources, your company can focus on the difficult activity to ensure implementation in the market and achieve a great result of healthy sales.

Contact Intelectas to learn more about aligning your company's efforts to maximize market execution.

Posted on August 3, 2012 - 1:57pm in Blog

Note: This post was written from the perspective of a consumer goods manufacturer but the principles will be the same across all industries.

During the search for a beneficial agreement on the exchange of goods and money, there is also exchange of information when negotiating with clients. This exchange might be through a formal process, or incidental, as it generally is, but it always tells the client something about the company, it shows them your company’s "personality."  The delivery of this information should also be taken into consideration.

We call this “personality” a commercial policy, ie, the entire agreed upon investment, discounts or allowances, or gratis policies negotiated with the client

The salesperson’s subjectivity will alter the client’s interpretation of your company as well; and having a great amount of subjectivity in the negotiating process on a client-by-client basis can result in market distortion (for example, selling the same product at very different prices to clients with a similar profile).

To avoid these distortions, you need to have a well-structured commercial policy that is clearly communicated across the board, to clients and the sales team. To construct an efficient policy, one must keep in mind the following “requirements:”

• Transparent, fair and ethical for all parties.
• Clear, understandable, communicable – No questions, no room for interpretation.
• Based on counterweights that reflect your company’s strategy - The client will be rewarded only if it complies with certain rules that are linked to the business strategy. By doing this, the client understands why it is receiving the investment and your company knows why it is investing.
  • Counterweight examples: Achieve the planned volume, buy the right mix for its profile, or sell the products at the defined price.
• Linked to the company strategy – the counterweights should be defined to help the company to achieve its strategy
  • Example: Your company has an average of 2 categories per store and it want`s to increase to 3 so your company can give a discount if the clients who buy at least 3 categories.
• Measurable – Use available and quantitative information and not dependent upon the subjectivity of evaluators.
• Reliable - Information sources must be deemed ‘reliable’ for the commercial policy to be taken seriously.
• Align the interests of your value chain – It is possible for the counterweight of the commercial policy to vary with the role of each customer in the value chain.
  • For example, a distributor discount criteria may be the number of clients to which it sells the company`s products or its sell out price; for a supermarket, maybe the product’s presence or shelf position and the price to consumer.
  • Moreover, it is also necessary that the commercial policy ensures there will be no cross channel, for example, prevention of a retailer selling the products to customers at a lower price than the distributor sells to its clients.

A well-structured commercial policy makes it clear to the customers and the sales team important items for the company, which begins to align the different links of the value chain and their efforts on achieving the same goals. In addition, the company`s negotiations are less susceptible to the subjectivity of each sales team member, ensuring uniformity in the "personality" of the company.

Posted on July 30, 2012 - 10:02am in Blog

When thinking about Strategic Pricing, monitoring and tracking the price charged to consumers at retail stores is essential.

These questions will help you track the price at which consumers are buying your product and run some additional analysis:

1. Does the price of your products on the shelf indicate your company’s consumer price strategy is being followed? Remember that the definition of the ideal price point takes into account various factors such as consumer research, elasticity, market analysis and other studies. If the price point is not met by retailers, the brand strategy for the product is likely to fail.
2. Is the ratio of price compared to the competition healthy? Monitoring market prices can identify a price outlier relative to competition, which can cause loss of market share and profitability.
3. How is profitability distributed across the value chain? Analysis of the industry’s sales margin at each link in the value chain (from start to end) allows us to understand if the margin (or mark-up) is rewarding every step of this process fairly. Thus, it is possible to identify lucrative opportunities across the value chain and balance the division of gains.

However, it is noteworthy that the data capturing process in the field is not a simple task. Rather, it is a laborious and costly activity:

• Data capture agents - research can be performed by internal agents (e.g., sales or merchandising promoters) or by companies that specialize in data collection at the point of sale. Some factors should be considered when making this decision:
  • Cost to hire a third party or add an additional activity to employee's routines (which takes time; training can remove focus from other activities and requires a tool to help capture prices).
  • Reliability of data collected - since the data can be used, for example, in the pricing strategy, negotiations with clients, investment payments and variable compensation of the sales force, it needs to be accurate and dependable.
• Defining products with data collection - depending on the size of a company's product portfolio, it is impossible to monitor all of them. To collect data in a manageable and successful way, you must set a process for choosing products. For the selected group of products, you can consider a number of indicators: Profitability, the importance in volume or revenue, portfolio strategy, etc.  This process should include prioritization criteria to select its own products and the competition’s products, and provide a periodic review of the product list.
• Sample of stores and frequency of price surveys - the purpose of collecting prices directly impacts the criteria for defining the survey sample, and its regular price. For example, if used for variable compensation you should follow the assessment period while also considering a number of stores which are representative for each employee of the sales force. For a Pricing Strategy, it is important to define a panel of stores - considering the channels and regions - to understand the dynamics of price fluctuations and placements; and, if it is possible to act promptly, the collection timeline should be more frequent.

Therefore, the price survey can provide information of extreme importance not only for strategic pricing, but also for other company processes. However, as we have seen, it is essential to have clear goals and a purpose for the survey sample to set price, frequency and products to be surveyed, as well as the agent and the process of capturing price.

Finally, it’s not enough to just have the data available. You need tools that consolidate all data and submit reports to help the decision-making process and, better yet, that points opportunities or directs tactical decisions according to the direction and strategy.

Posted on July 9, 2012 - 12:07pm in Blog

Today, there is a lot of buzz around Performance Management, but what does it really mean? The concept goes beyond simply evaluating an officer or employee and aims to improve the performance of each individual. To start, define clear and unbiased objectives then provide support for employees to achieve their targets. This will result in the company, as a whole, realizing its goals and having superior results.

Performance Management involves the whole human resource development process at the individual level - from planning, through monitoring and coaching, and onto evaluation. This process should be cyclical and continuous:

The first step in the planning stage consists of defining the indicators or KPIs by which the employee will be assessed. As you define the KPIs, always keep in mind that they must be measurable and easy to monitor. In addition, the indicators chosen should be relevant to and aligned with company strategy.

After defining the KPIs, the company must establish a mechanical evaluation of the employee, i.e. what rules will be followed to determine their performance results? For Example:

• Do all indicators have the same relevance? Should some of them have a greater weight at the time of evaluation?
• What scales are used to measure the results? Will the outcome be comparative (in relation to the rest of the group)?
• How frequently will the calculation occur?

By defining these rules, you can also coach employees to improve or focus on challenging areas that will yield great results for them and the company.

In defining the evaluation mechanics, it is necessary to also set the benefits/rewards that will be given to those who meet or exceed their goals. Also create and define the possible consequences that an employee will suffer in case of negative outcomes or performing under the target for a given time period.

Speaking of goals, this is a great challenge for a company: setting the target for each KPI for each employee. How do you ensure that the target, and therefore the evaluation process, is fair? There is no simple answer, much less a magic formula, to ensure the proposed assessment process is fair to all who are being evaluated.

To create fairness in the goal setting process, consider the following aspects:

• The history of the indicator. If there is no history, it is best to have a more flexible goal. When a history and pattern become apparent, you can slowly decrease the flexibility.
• The potential of the indicator, considering the characteristics of the market. For example, should it be easier to increase the number of customers in a region where the distribution is 70% of that region or where the distribution is 90%? Use a weight for this indicator hat reflects this discrepancy.
• And finally, the company cannot fail to consider its own goals, ie, the result it wants to achieve. It is extremely important that the goals defined by the company for its employees are fully aligned with the objectives - the goals that shareholders or executives defined!

Last but not least, the company must ensure that employees have clarity and understand how they will be evaluated: which indicators are considered, the calculation methodology, targets for each indicator and what they can expect for rewards and consequences. For the performance management process to work, that is, for the individuals and also the company to achieve extra-ordinary results, you need clear communication. All employees must understand how the program functions and have a clear definition of their goals and priorities.

Contact Intelectas to learn more about performance management and how your company results can grow significantly with a few tweaks.

Posted on July 6, 2012 - 9:21am in Blog

There are several factors that feed a meritocratic model of management; one of the most vital factors to succeeding is identifying and selecting the best* indicators for your company’s GOALS (as discussed here). Unfortunately, this is just the first step in pursuing superior company results.

After discovering the “best” performance indicators for your company and throwing out the frivolous data, the trick becomes correctly distributing them between the various jobs and organizational tiers. Indicator X, identified as critical to the success of the company, may not need to be collected for all employees – are you surprised? Well, don’t be. Building a good equation from selected variables and spreading responsibility among different functions is essential to achieving a more synergistic result.

Imagine a company facing problems maintaining high inventory for a particular product line... An initial idea pegs inventory turnover as an indicator which can be applied to all teams that are somehow involved with this process - logistics, sales, trade marketing, etc. This approach is rarely the most efficient way to address problems. High inventories may be caused by a number of factors at different times of the production and sale. To account for the variances, assign responsibility for different goals to diverse areas of the company. This will produce more convincing result. So, to map out an entire sales cycle:

1. Planning: Individuals responsible for setting the sales objectives and predicting market forecasts/trends can be measured by an 'assertiveness of sales planning' such as MAPE (mean absolute percentage error). 
2. Production: Producing as planned – amount and on time.
3. Selling: For the sales team, assign an indicator for the amount of clients that purchase out of your total client base for the given product line.
4. Close: The Promotion team should be graded on the presence of products at the Point of Sale (POS).

This expands the coverage of possible causes for the observed high inventory and helps fix the issue quicker.

It’s important to limit the total number of indicators by which the employee is measured. Assigning too many targets can cause confusion, poor time management and lack of focus on what really needs to be accomplished to achieve results. Ultimately, performance is compromised, motivation suffers and morale falls.

Once the indicators are aligned and well distributed throughout the team, it's time to put them to work: it is necessary for the team to hit the expected results. Again, the company has a vital role for this process to run smoothly. To see results, it is essential to promote robust and transparent indicator monitoring.

To be successful, your team members ONLY need the tools and information necessary to help achieve their goals – that. is. it. They don’t need the kitchen sink too. If you over inform with analysis, forecasts, charts and reports, you force them to identify and extract the relevant data and potentially create analysis paralysis. This effort uses TOO much time and energy, which they could be using to effectively pursue their goals. Therefore, all information that reaches the hands of the team should be lean and focused.

To close this cycle, it is a great practice to verify results. In reality, the calculation of results generates the richest input of the whole process, so we must dive deep. By doing this, it is possible to identify the existing strengths and opportunities at an individual level and feed a concrete plan for the next period. Basically, derive and communicate an objective plan from the verified results that mitigates the main gaps in the next period. You will increase team motivation, responsiveness to expectations of your company and pave the way to achieve the expected results in the short and long term.

Going through each of these steps is like planting the pillars for a strong process that feeds a robust meritocratic management model. Without any of them, the strength of this model is put at risk along with the results and profits.

To find our more about how Intelectas can help you plan, create and implement a meritocratic culture, contact us!

*(don’t be fooled – “best” is a loaded word. Make sure you ask the right questions and perform the right analysis when picking these indicators.)

Posted on May 6, 2012 - 3:19pm in Blog

At Intelectas, we are passionate about what we do, how we do it and who we are as a company - we want the world to see that too. So, to better communicate this message, we have decided to create a new look that better aligns with our growth, values, philosophy and people. Our hope is that this decision will align internal and external perceptions of Intelectas and allow us to flourish.

If you have visited our website recently, you have already begun to notice the changes - our logo colors, a new website and our messaging. We are very excited about these changes and hope you are too. Our communication style and culture are both informal and fun - now our image is too. We hope this channels focus onto the really important things - our hard work, our great people, and our proven results - and away from flowery language and formalities...like business suits.

This new look represents our movement from strictly a consultancy to a consultancy and software company and also our expansion to the U.S. We made this strategic movement to offer our clients the most customized, implementable solutions in order to better equip them to win in the marketplace. Intelectas continues to serve to some of the best companies in the world and looks forward to expanding our experience and products in the U.S.

The world is changing how it does business and we are excited to be a part of it. Our team has worked on projects across the globe and is always pushing the envelope  when it comes to our software, methodologies and new solutions. We are anxious to see what opportunities present themselves in the future and how we can help steer the direction of technology’s role in business.