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

Transcription

1 Fixing Your Goals: The Biggest Challenge in Medical Products and Devices Incentive Compensation Webinar September 29, 2009 ZS Associates

2 Today s Objectives & Agenda Objectives of Today s Discussion Raise awareness of common goal-setting issues and provide a framework for overcoming those issues Agenda Review importance of sales goals Discuss common challenges with appropriate goal-setting Review trends and potential analytical frameworks Discuss improvement opportunities and best practices 1 Goals Webinar

3 Today s Presenters Chad Albrecht Principal in Evanston, IL Tobi Laczkowski Manager in Evanston, IL Phone: chad.albrecht@zsassociates.com Phone: tobi.laczkowski@zsassociates.com 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 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. 2 Goals Webinar

4 Agenda 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 3 Goals Webinar

5 ZS Associates is a global leader in sales and marketing consulting, capabilities building & outsourcing A 25+ year old consulting firm specializing in sales and marketing Consulting Software Outsourcing 1,200 professionals top tier from top schools providing global service from 18 offices Worked with more than 1,000 companies across 65 countries and 25 industries Dedicated medical products practice area Founded in 1983 by Andris Zoltners and Prabha Sinha of Northwestern University s Kellogg School of Management One of the largest Sales & Marketing consulting firms in the world BOSTON CHICAGO EVANSTON FRANKFURT LONDON LOS ANGELES MILAN NEW DELHI NEW YORK PARIS PHILADELPHIA PRINCETON PUNE SAN FRANCISCO SHANGHAI TOKYO TORONTO ZURICH 4 Goals Webinar

6 ZS offers a wide range of services in incentive design and administration that are tailored to each client's unique needs Scale Scope Expertise Incentive compensation is ZS s largest business area From simple sub-100 rep sales forces to multi-team 7,000-rep sales forces Touches 100,000 sales reps globally, including plan design, goal-setting, and plan administration ZS 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 platform Annual Incentive Practices Research (IPR) study Data management and modeling/simulation expertise Recent book: The Complete Guide to Sales Force Incentive Compensation 5 Goals Webinar

7 Agenda 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 6 Goals Webinar

8 Goal setting is a critical element within the overall compensation management process INPUTS Product Strategy Sales force strategy Company philosophy Industry practice Selling model / roles Incentive Plan Design Pay for performance Motivational Fiscally responsible Plan communication Incentive Comp Process Goal Setting Goal setting System & tool setup Periodic Health Checks Plan Monitoring & Feedback Sales force Brand teams HR / Finance Executive management Administration Data management & QC Incentive calculations Reporting Exceptions & Research Payout management 7 Goals Webinar

9 Goal- / Quota-based bonus plans are quite common among medical device companies Movement toward quota-bonus plans in last several years (71% in 2006) Territory or Account Manager Capital Equipment Specialist Key/Strategic Account Manager Commission 62% 90% 23% MBOs 15% 30% 68% Quota-based bonus 82% 30% 59% Relative-based bonus 18% 20% 14% Other 6% 0% 5% n=34 n=10 n=16 Source: ZS Incentive Practices Research Survey ( ). Respondents could select more than one option. 8 Goals Webinar

10 The top two issues in ZS s most recent Incentive Practices Research (IPR) study were related to quotas Rank Issue Quota-related 1 Quota setting fairness 2 National forecast accuracy 2 Incentive plan complexity and/or field comprehension of the plan Tie 4 Data availability 5 Incentive plan not motivating 9 Goals Webinar

11 Agenda 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 10 Goals Webinar

12 Territory-level goals can be inappropriately set for three fundamental reasons 1 National forecast too high Dispirited team Suboptimal sales High turnover 2 National forecast too low Unchallenged team Suboptimal sales Overgenerous payouts 3 Misallocation of national forecast down to regions and territories Same issues as national, at a local level Fairness issues within the team In some cases, territory goals are off-base due to inaccurate national forecast AND misallocation of that forecast 11 Goals Webinar

13 There is an ideal range for setting goals with suboptimal sales both above and below that range DOLLARS Overpay Range Expected Territory Sales Loss of Motivation Range Territory Incentive Pay Low, Meaningless Goal Good Effort Goal Peak Effort Goal Impossible to Achieve Goal TERRITORY GOAL 12 Goals Webinar

14 Agenda 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 13 Goals Webinar

15 Seven signs that goal setting may be suboptimal 1 Extreme outliers on either end of the performance spectrum 2 Sales incentive spending higher than expected 3 Top performers missing their goals (or below average are in the top tier) 4 75% or more of salespeople achieve at least 100% or their goal 5 50% or more of salespeople miss their goal 6 Turnover is higher than industry norms 7 Significant variation in salesperson rankings from year to year 14 Goals Webinar

16 Agenda 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 15 Goals Webinar

17 A variety of methodologies are used to set quotas; The most common methods are weighted index and top-down manager assignment Significant declines in last 2 years (38%/45% in 2006) Territory or Account Manager Capital Equipment Specialist Key/Strategic Account Manager Weighted index 50% 33% 63% Time-series trending 16% 0% 13% All grow by same % over their previous baseline 25% 33% 0% All grow by same unit or $ amount over previous baseline 13% 22% 0% Bottom-up Forecasting 19% 22% 6% Top-down manager assigned 34% 33% 38% Everyone receives same total quota 9% 0% 6% Other 13% 11% 19% n=32 n=9 n=16 Source: ZS Incentive Practices Research Survey ( ). Respondents could select more than one option. 16 Goals Webinar

18 There is typically a trade-off between simplicity and effectiveness among goal-setting methodologies Increasing Complexity Equal % Growth Maintenance + Growth Weighted Index Require everyone to grow by the same percentage 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 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 17 Goals Webinar

19 Agenda 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 18 Goals Webinar

20 Effective goal-setting processes include a variety of common characteristics Territory Opportunity Rigorous Methodology Manager Refinement Territory potential must be incorporated Can include multiple metrics related to accounts or geographic elements Typical 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 Product Sales Potential ($) % GOAL ATTAINMENT CURRENT YEAR Procedures, Installed Base, Etc. 20 Low Medium High PREVIOUS-YEAR GROWTH 19 Goals Webinar

21 Setting appropriate goals involves a 5-step process Validate National Forecasts Determine Goal-Setting Method Simulate & Finalize Method Refine Goals Communicate Goals Ensure that the national forecasts are reasonable Ensure that national forecasts are compatible with sales data Understand product, market, customers, and sales behaviors Determine predictive metrics Develop potential allocation methods Test potential allocation methods Ensure final method is fair, accurate and explainable Allow management review and refinement Enforce rules (zero sum, maximum changes, etc.) Provide goal reports for each level of sales management Provide goal sheet / calculator for each rep 20 Goals Webinar

22 Goal-setting methods should be quantitatively tested to ensure both accuracy and fairness Accuracy evaluation Predictability of future sales Fairness evaluation Degree of bias across territory groupings The Relationship of Goals to Sales Q1 SALES 20,000 16,000 12,000 8,000 4,000 R 2 = 94% % GOAL ATTAINMENT CURRENT YEAR ,000 10,000 15,000 20,000 Low Medium High Q1 GOAL PREVIOUS-YEAR GROWTH 21 Goals Webinar

23 The success of a goal-based program can be enhanced by allowing field sales management to review and refine their goals Goal refinement tools allow the field to propose changes based on local knowledge Subject to preapproved rules (e.g., maximum changes, zero-sum) Subject to approval by senior management 22 Goals Webinar ZSA17246a.ppt

24 Agenda 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 23 Goals Webinar

25 In summary, goal-setting can be holistically improved through proper diagnostics, analytical methods, and processes Good goals matter Methods are becoming more refined Commonly used in compensation plan design Critical element within the overall compensation management process Tied to sales results, compensation, morale, and turnover Biggest issue in sales compensation today Trend toward increasing complexity of methods Expectation of higher predictability You can diagnose whether you likely have suboptimal goals Seven key indicators Performance vs. payouts Individual performance variation You can improve your goal-setting process Incorporate territory opportunity Utilize a rigorous methodology Allow manager refinement 24 Goals Webinar

26 Questions? Chad Albrecht Principal in Evanston, IL Tobi Laczkowski Manager in Evanston, IL Phone: Phone: Goals Webinar