"Compensation plan changes" For the better!
"How close are you to chaos!"
"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." --- Mark Twain
Most companies believe they have systemized most of their business, but that may not actually be the case. For example, if 80% of your expense is commissions and you don't have that systemized, how good are your systems?
The current economic slowdown has been called the worst since the Great Depression. It's deeper, wider and longer than anything ever seen, and no amount of personal wealth is going to be enough to protect a company that isn't on a solid financial foundation.
As this reality sets in, we are seeing companies have three basic reactions. We call them lose-lose, win-lose, and win-win.
Some focus on cutting costs – cutting back on the services they provide to their sales force. This is a tactical approach providing a short-term gain that can cause long-term damage by hampering their sales force's ability to sell and generate revenue (in effect, derailing their own business). Simply put, there is not enough wiggle room left in this economy to rely on just cost reduction to stay profitable. This is a lose-lose scenario.
Others restructure to save money but in doing so favor the needs of one group – typically management – over the needs of another group, usually the sales force. This is a win-lose scenario because the needs of one side are neglected.
Finally, there are companies that are using this market slowdown as an opportunity to look closely at their business model and reinvent themselves. They revisit the value proposition they offer to the sales force – finding out what the sales force really wants and needs – and then restructure the company to provide that value while ensuring that the company remains financially secure. This becomes a win-win strategy.
Some companies are changing their business model to become more virtual – they are cutting back on bricks and mortar because their sales force doesn't need it. They do need high quality office space to meet with customers, but floating desk space in well-located storefronts meets their needs more effectively. These companies take advantage of technology to become more efficient and provide even better service to customers. Their business model becomes more high-tech, high-touch.
Whether changes are minimal or holistic, these companies have in common the willingness and the courage to change the very foundations of their business to reinvent themselves and survive.
Aligning Systems with the Business Model
Once you have revisited your business model, systemization is the key to reaching your goals.
Systemization is defined as the act of organizing something according to a system or rationale. The key word here is rationale or, in this case, rationalization. We often believe we just have to reorganize our business during tough times like this but rationalization goes well beyond reorganization. It requires both strategy and structural changes to the business model to be effective.
When your systems closely support your business model, you're able to attract and retain the right people, and they will work hard to reach the incentives in your plan. When your systems are not supporting your business model, you could be spending money you don't need to, which puts your profitability at risk. And when compensation (which can account for as much as 80% of your expenses) is not effectively systematized, your sales force is not properly motivated and your profitability is at even greater risk. Without systemization of the compensation structure a company is basically afloat and not setting its own course for building long-term survivability and wealth.
Now, ask yourself, how effective are your compensation systems in terms of meeting the expectations in your business model?
Strategize Away From Danger
There will be losers and winners during this period of economic upheaval. Only those companies willing to challenge their business model and adapt their systems for this market will prosper in the long run.
You can be one of those companies that remains with the old way of doing business and hope there will be enough of your wealth left after the market improves to stay in business OR you can leap forward and experience incredible growth now – if you take advantage of the opportunities that are open to you.
As business owners, we need to realize the economic forces driving change in our industry will continue for some time – longer than you can wait and hope for a turnaround that favors your old ways of doing business.
We hope you will be proactive in this market and continually re-evaluate your business model and systemization to make sure the two are in sync and your company can survive and thrive in any economy.
The author Desmond J Tappin has had extensive experience in helping others help with intensive knowlege. He has been mentoring individuals on helping others for the past several years. You can contact Desmond J at firstname.lastname@example.org or visit www.ezpayitforward.info, www.equipmentleaseandloan.com, or you can follow him on Twitter at http://twitter.com/djtappin