fixing your goals - abila€¦ · · 2009-09-302009-09-29 · fixing your goals: the biggest ......

Fixing Your Goals:The Biggest Challenge in Medical Products and Devices Incentive Compensation

WebinarSeptember 29, 2009

ZS Associates | 847.492.3600 | www.zsassociates.com

1 Goals Webinar 09-29-09 1.0© 2009 ZS Associates

Today’s Objectives & Agenda

AgendaReview importance of sales goalsDiscuss common challenges with appropriate goal-settingReview trends and potential analytical frameworksDiscuss improvement opportunities and best practices

Objectives of Today’s DiscussionRaise awareness of common goal-setting issues and provide a framework for overcoming those issues


Tobi Laczkowski is a Manager in ZS Associates’Evanston office. He has worked primarily on medical device and diagnostics projects in numerous practice areas, including sales strategy, organizational design, compensation planning, value proposition design and recruiting effectiveness. Tobi has a B.S. in chemical engineering from Northwestern University and an M.B.A. from Northwestern’s Kellogg School of Management.

Phone: 847.492.3190Email: [email protected]

Tobi Laczkowski Manager in Evanston, IL

Today’s Presenters

Chad Albrecht is a Principal with ZS Associates in Evanston, IL. He leads the sales incentive practice for the medical devices industry vertical and has worked with clients in implantable medical devices, diagnostics, orthopedics, laboratory services, and other healthcare and non-healthcare industries. Chad has helped create and implement motivational sales incentive plans, set fair and challenging sales goals and helped implement incentive administration plans. He has a bachelor’s degree in computer science from the University of Iowa and an M.B.A. from the University of Michigan


Chad Albrecht Principal in Evanston, IL


Introduction to ZS Associates

Why “Good” Goals Matter

The Three Primary Goal Shortcomings

Signs of Suboptimal Goal Setting

Improvement Opportunities

Characteristics of a Good Goal-Setting Process

Conclusion

Agenda



ZS Associates is a global leader in sales and marketing consulting, capabilities building & outsourcing

BOSTON • CHICAGO • EVANSTON • FRANKFURT • LONDON • LOS ANGELES • MILAN • NEW DELHI • NEW YORK •PARIS • PHILADELPHIA • PRINCETON • PUNE • SAN FRANCISCO • SHANGHAI • TOKYO • TORONTO • ZURICH

A 25+ year old consulting firm specializing in sales and marketing – Consulting– Software– Outsourcing1,200 professionals – top tier from top schools –providing global service from 18 officesWorked with more than 1,000 companies across 65 countries and 25 industries Dedicated medical products practice areaFounded in 1983 by Andris Zoltners and Prabha Sinha of Northwestern University’s Kellogg School of ManagementOne of the largest Sales & Marketing consulting firms in the world


Scale Scope Expertise

ZS offers a wide range of services in incentive design and administration that are tailored to each client's unique needs

Incentive compensation is ZS’s largest business area

From simple sub-100 rep sales forces to multi-team 7,000-rep sales forcesTouches 100,000 sales reps globally, including plan design, goal-setting, and plan administrationZS software and services administer the incentive compensation plans for over 50,000 US sales personnel ($1.5B in payouts)

Wide range of program management services

Design: Program & plan design, goal-setting, contest design, communications, training, plan assessment & simulation, etc.Administration: Eligibility management, payout calculations, reporting, plan health check, help desk, communications, etc.

Sales incentive specific tools, infrastructure, and insights

Javelin™, ZS’s comprehensive incentive software platformAnnual Incentive Practices Research (IPR) studyData management and modeling/simulation expertiseRecent book: The Complete Guide to Sales Force Incentive Compensation








Conclusion

Agenda



Goal setting is a critical element within the overall compensation management process

PeriodicHealth Checks

Plan Monitoring & Feedback

Sales forceBrand teamsHR / FinanceExecutive management

Incentive Plan DesignPay for performanceMotivationalFiscally responsiblePlan communication

Goal SettingGoal settingSystem & tool setup

AdministrationData management & QCIncentive calculationsReportingExceptions & ResearchPayout management

IncentiveComp

Process

INPUTSProduct StrategySales force strategyCompany philosophyIndustry practiceSelling model / roles


Goal- / Quota-based bonus plans are quite common among medical device companies

Territory or Account Manager

Capital Equipment Specialist

Key/Strategic Account Manager

Commission

MBOs

Quota-based bonus

n=34 n=10 n=16

Relative-based bonus

Other

Source: ZS Incentive Practices Research Survey (2006-2008). Respondents could select more than one option.

62%

15%

18%

6%

82%

Movement toward quota-bonus plans in last several years(71% in 2006)

90%

30%

20%

0%

30%

23%

68%

14%

5%

59%


Quota-related

The top two issues in ZS’s most recent Incentive Practices Research (IPR) study were related to quotas

Rank Issue

2 National forecast accuracy

4 Data availability

5 Incentive plan not motivating

1 Quota setting fairness

2 Incentive plan complexity and/or field comprehension of the plan

Tie








Conclusion

Agenda



In some cases, territory goals are off-base due to inaccurate national forecast AND misallocation of that forecast

National forecast too high

National forecast too low

Misallocation of national forecast down to regions and territories

Dispirited teamSuboptimal salesHigh turnover

Unchallenged teamSuboptimal salesOvergenerous payouts

Same issues as national, at a local levelFairness issues within the team

Territory-level goals can be inappropriately set for three fundamental reasons

1

2

3


There is an ideal range for setting goals – with suboptimal sales both above and below that range

TERRITORY GOAL

DO

LLAR

S

Low, Meaningless Goal Good Effort Goal Peak Effort Goal Impossible to Achieve Goal

Territory Incentive Pay

Expected Territory Sales

Overpay Range Loss of Motivation Range








Conclusion

Agenda



Seven signs that goal setting may be suboptimal

1

2

3

4

5

6

7

Extreme outliers on either end of the performance spectrum

Sales incentive spending higher than expected

“Top performers” missing their goals (or below average are in the top tier)

75% or more of salespeople achieve at least 100% or their goal

50% or more of salespeople miss their goal

Turnover is higher than industry norms

Significant variation in salesperson rankings from year to year








Conclusion

Agenda



A variety of methodologies are used to set quotas; The most common methods are weighted index and top-down manager assignment

Territory orAccount Manager

Capital Equipment Specialist

Key/Strategic Account Manager

Weighted index

Time-series trending

All grow by same % over their previous baseline

All grow by same unit or $ amount over previous baseline

Bottom-up Forecasting

Top-down manager assigned

n=32 n=9 n=16

Everyone receives same total quota

Other

Source: ZS Incentive Practices Research Survey (2006-2008). Respondents could select more than one option.

Significant declines in last 2 years (38%/45% in 2006)

50%

16%

19%

34%

9%

13%

13%

25%

33%

0%

22%

33%

0%

11%

22%

33%

63%

13%

6%

38%

6%

19%

0%

0%


There is typically a trade-off between simplicity and effectiveness among goal-setting methodologies

Increasing Complexity

Equal % Growth

Require everyone to grow by the same percentage

Maintenance + Growth

All territories expected to maintain some percentage (e.g., 80%) of last year’s sales Remaining quota allocated to territories based on other factors such as remaining market potential

Weighted Index

National goal is divided among the territories based on multiple variables: historical sales, remaining market potential, market share, growth trends, customer count, etc.Weight of specific variables determines their relative importance

Tends to unfairly bias some territories based on underlying

characteristics

Tends to remove bias and retain reasonable simplicity for the field

Tends to remove bias and increase

predictive accuracy








Conclusion

Agenda



Territory Opportunity Rigorous Methodology Manager Refinement

Territory potential must be incorporatedCan include multiple metrics related to accounts or geographic elementsTypical metrics include medical procedures, account characteristics, population demographics, and contracting status

Accuracy is tested using historical simulations to check for correlations to actual sales results

Fairness is evaluated by grouping territories with similar characteristics and observing any historical biases

Local knowledge helps refine goals to reflect on-the-ground reality and increases buy-in of sales managers

Reasonable limits on the degree of change should be imposed, as well as a rigorous process

Effective goal-setting processes include a variety of common characteristics

20

60

100

140

160

Low Medium High

PREVIOUS-YEAR GROWTH

% G

OAL

ATT

AIN

MEN

T C

UR

REN

T YE

AR

40

80

120

20

60

100

140

160

Low Medium High


% G

OAL

ATT

AIN

MEN

T C

UR

REN

T YE

AR

40

80

120

20

60

100

140

160

Low Medium High


% G

OAL

ATT

AIN

MEN

T C

UR

REN

T YE

AR

40

80

120

Procedures, Installed Base, Etc.

Prod

uct S

ales

Pot

entia

l ($)

Procedures, Installed Base, Etc.

Prod

uct S

ales

Pot

entia

l ($)


Setting appropriate goals involves a 5-step process

Ensure that the national forecasts are reasonableEnsure that national forecasts are compatible with sales data

Understand product, market, customers, and sales behaviorsDetermine predictive metrics Develop potential allocation methods

Test potential allocation methodsEnsure final method is fair, accurate and explainable

Allow management review and refinementEnforce rules (zero sum, maximum changes, etc.)

Provide goal reports for each level of sales managementProvide goal sheet / calculator for each rep

Communicate Goals

Refine Goals

Simulate & Finalize Method

Determine Goal-Setting

MethodValidate National

Forecasts


Goal-setting methods should be quantitatively tested to ensure both accuracy and fairness

The Relationship of Goals to Sales

Accuracy evaluationPredictability of future sales

Fairness evaluationDegree of bias across territory groupings

0

4,000

8,000

12,000

16,000

20,000

0 5,000 10,000 15,000 20,000

Q1

SA

LES

Q1 GOAL

R2 = 94%

20

60

100

140

160

Low Medium High


% G

OA

L AT

TAIN

ME

NT

CU

RR

EN

T Y

EA

R40

80

120


Goal refinement tools allow the field to propose changes based on local knowledge

Subject to pre-approved rules (e.g., maximum changes, zero-sum)Subject to approval by senior management

The success of a goal-based program can be enhanced by allowing field sales management to review and refine their goals

22 ZSA17246a.ppt








Conclusion

Agenda

Conclusion


In summary, goal-setting can be holistically improved through proper diagnostics, analytical methods, and processes

Good goals matter

Methods are becoming more refined

You can diagnose whether you likely have

suboptimal goals

You can improve your goal-setting process

Commonly used in compensation plan designCritical element within the overall compensation management processTied to sales results, compensation, morale, and turnoverBiggest issue in sales compensation today

Trend toward increasing complexity of methodsExpectation of higher predictability

Seven key indicatorsPerformance vs. payoutsIndividual performance variation

Incorporate territory opportunityUtilize a rigorous methodologyAllow manager refinement


Questions?


Tobi Laczkowski Manager in Evanston, IL


Chad Albrecht Principal in Evanston, IL

fixing your goals - abila€¦ · · 2009-09-302009-09-29 · fixing your goals: the biggest ......

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