When we last saw Arthur and Heather, they were discussing Arthur’s commission system replacement project and what objectives the team should use to measure the project’s success.
Heather had helped Arthur identify three objectives based on their discussion of the problems he faced. They were about to move on to identifying ways to meet those objectives when Arthur realized they might be missing something – the impact on sales.
Let’s join them now as they discuss the impact on sales and also identify some long held assumptions in the organization that could have a big impact on the project. But, first, a quick re-cap on where they currently stand:
“Actually, commissions have a big impact on sales. At least we think so. That’s why we have all these unique rules. I think” Arthur said, the concentrated perplexity giving way to careful pondering.
“You think?” Heather asked honing in on Arthur’s comment. “I hear at least two assumptions in there. First, paying commissions in general has a big impact on sales. Second, the impact of commissions is greater if the rules used to determine them are unique to the agent.” She wrote those two assumptions on the white board.
“Yes,” said Arthur, looking at the white board, “I suppose you are right. We do assume those things, though I don’t see how that’s relevant for this project.”
Heather looked at the white board thoughtfully for a moment. “Well, the first assumption is pretty general, but suppose if we were to look at it from the perspective of this project, given the assumptions that commissions impact sales is true, does that necessarily mean that a more efficient commission process would lead to more sales?”
Arthur gazed at Heather for a second, then at the white board, then back at Heather. “I… don’t think….” said Arthur pausing between every word to gather his thoughts, “that… would have an impact on overall sales… except … if the commission process stays the way it is…. then we may lose agents.”
“Ok,” said Heather, thinking through what Arthur had just said, trying to remove the pauses, “what I think I heard you say was that you think commissions do impact sales, but that the connection between an efficient commissions process and sales is less concrete.”
“Yes, I believe that is right. So… I suppose it would be kind of difficult to set an objective of increasing sales by 10% for this project,” said Arthur wondering now if his brilliant insight had in fact turned to irrelevant observation.
“Oh, it’d be easy to set the objective, but it could be real difficult to meet it,” Heather said, looking at the white board again.
She was conflicted. She was upset with herself for earlier assuming the efficiency objectives were all there were and had started to move on.
She was relieved that Arthur had spoken up and mentioned that he thought the objectives weren’t complete.
However, she was disappointed that it was starting to appear that this project wasn’t impacting a key focus for the organization – increased sales.
Then she realized that she may be looking at the matter from the wrong perspective.
“Since increasing sales is such an organizational focus, and you don’t even want to make the assumption that a more efficient commission process can positively impact sales, why do the project at all?” Heather asked, looking at Arthur with one eye brow raised.
Arthur was a little flustered. “Well,” he spluttered, “all those reasons that I told you earlier. All the duplication, all the inefficiency, all the late nights, all the screaming agents…” Arthur trailed off.
“Right,” said Heather, expecting this reaction, “You don’t seem willing to assume that an improved commission process will increase sales, but you are fairly sure that if the process stays the way it is, you may lose agents and as a result sales down the road. Is that fair to say?”
“Yes,” said Arthur, “since you put it that way.”
“So in a sense we’re protecting existing sales. There may still need to be an objective around sales, but it should be that we aren’t going to negatively impact them. If the true objective of a project were to increase sales, it probably would not focus on tweaking the commission system, though it may have something to do with tweaking the actual commissions.”
“I guess that makes sense.” said Arthur, “So we could have an objective that sales will stay the same for the next year? I don’t think many people would get too excited about that.”
“I’d suggest we write it as Sales will be equal to or greater than they are when we start the project. Basically we’re putting a lower limit and saying that we don’t want to do anything that is going to hinder sales.” said Heather, writing the following on the white board underneath the three objectives they had already discussed.
- Sales are >= $X
“We’ll fill ‘X’ when we know what the current sales numbers are.” Heather noted. “Now let’s talk about that second assumption. Do you have any idea how much all those different commission rules have on sales?”
“Not really,” replied Arthur, with a sigh. “Boy it would be ironic if we spend all this time and do all this work on these special commission plans and they didn’t do a bit of good. Actually, it may be a little depressing…” said Arthur, trailing off.
Heather was momentarily blinded from the tremendously brilliant insight Arthur unwittingly muttered. Then she asked, “Do you know of anyway you could find that out?”
“Find what out?” asked Arthur.
“Whether the commission rules have any impact on sales. For example, is there a group of agents that have simple commissions rules that you can compare against another group with very complicated rules?”
Arthur thought about that for a minute. “Yes… I think we might.”
Arthur described a couple of different companies that had been acquired in the past five years. They both offered the same general product lines to very similar markets. One company had a history of using very simple commissions structures, basically a straight percentage on the value of the products sold. The other company, one that Arthur referred to as “the thorn” because he was always having to change their commission plans and locate new sources of information as the head of sales in that area dreamt up a new commission structure what felt like every month.
Arthur and Heather agreed to set aside some time the next day to dive into the data about these two organizations and see what came out. The data was not necessarily organized very well for this sort of analysis, so they had to make a lot of assumptions. It also took them quite a while to get it arranged in a way that provided for meaningful comparisons. They finally decided to compare average sales per agent on a month-by-month basis for the two companies. What they found was interesting. There was no discernible difference in sales between the company with all the special rules, and the company with a standard commission structure. Arthur looked at that data for a long time, and even rechecked several of his calculations and assumptions thinking he had obviously messed something up.
Heather found that she was not as surprised as Arthur was, but decided it was best to help him convince himself that what he was seeing was in fact really happening. She then asked if there were any agents who sold products from both companies. Arthur took a look at the data and found that there were about 50 agents who sold both. So they narrowed the study down to those 50 agents. The results made Arthur’s eyes bug out even more.
Agents who sold both companies’ products actually sold more of the company that did not have the unique commission rules. It wasn’t a huge difference, but it was significant that there was a difference in that direction.
Arthur sat back in his chair. “So what does this mean?” he asked, his hands instinctively going up to his head again.
“Well,” said Heather, looking at the three objectives they had written yesterday, “If you really want to accomplish those things, one way you could do it is to simplify the rules.”
“The sales managers are never going to go for that.” said Arthur, shaking his head and shuddering slightly as he reflected on how that conversation might proceed.
“Sure, if you don’t change their perception of the impact that commissions… or, should I say complicated commissions rules… have on sales. One of the things you can do is show them these numbers.”
Arthur and Heather’s conversation shows the important part that assumptions play in formulating objectives and setting the direction for projects. Heather made up for her original mistake of not digging deep enough into the true objectives of the project by identifying Arthur’s assumptions then talking through whether those assumptions made sense and figuring out ways to test them.
This led to the inclusion of a fourth objective, not one that implied a causal link between the commissions process and sales, but rather an objective that placed a constraint on the solution. The new solution could not have a negative impact on sales.
They then went a step further to validate the assumptions they had identified, and by doing that, identified new information helpful in selecting a possible solution.
Of course Arthur is now concerned about the assumptions his stakeholders hold. In the third and final post in this series, we’ll see how Heather and Arthur use a simple but elegant model to determine how unique their solution needs to be based on the nature of the activities that the project is trying to support.
Read more on starting a COTS project in Part 3 of this blog series, Starting a COTS Project: Parity.