We often get asked to audit channel programs and incentives, in order to diagnose why channel facing staff or partners are behaving in a certain manner. In many cases, the answer comes down to the way the reward system has been structured. Partners (like staff) will always look for the easiest way to achieve target, but how they go about it may not have been what the program developer intended.
When designing a channel engagement strategy, program or promotion, the two big questions are:
- What are you rewarding (and why)?
- What are the unintended consequences of the reward system?
Common Reward Systems
Incentives come in all shapes and sizes, and of course different things motivate different people, so it is crucial that we look at the overall reward system, as there are often interrelated drivers and unintended consequences. Here is an example;
A deal registration system is a common program benefit intended to reward those partners that uncover new opportunities for the vendor. It should also protect the partner’s investment in the sales qualification and development process by providing additional discount or rebates to a) cover their additional costs and b) stop a “drive by” from another partner when the deal is ready to close.
However here is an example of the actual unintended consequences of a poorly designed deal registration system. In an attempt to be “channel friendly”, this vendor aligned a range of additional staff (ie. technical staff, product managers, marketing staff, etc) with a combination of KPIs and cash incentives around any new business the partner brings in.
However they had to show some involvement in helping the partner win the business before they were eligible for any reward. Sounds like a great idea in order to gain more involvement and support for the channel. Yet in reality, the behaviour this generated was that these “hangers on” would want to meet the partner (even though they had little to no value add) just so they could report involvement and claim some credit for the deal’s success.
The result was partners actually ended up either not registering deals or even in some cases proposing an alternative due to this behaviour. The other impact was “leakage” of information in the deal registration system itself due to the fact that a variety of other people outside of the partner account manager could see the deal data and took it upon themselves to go and “help” the partner. As a result the partner’s “channel friendliness” perception of the vendor actually went down rather than improving!
So what should the vendor do in this situation? Firstly, not tag the reward with qualification criteria of direct touch partner involvement, and secondly, ensure the integrity of the deal registration system and process to prevent any leakage of information to those that do not directly need it.
In addition, a more appropriate set of measurements could be along the lines of measuring metrics or activities that will result in the deal closing (which is the ultimate aim of all of the “support” staff). This could include deal registration response times, quote to close times, number of (new) partners successfully using the deal registration system, competitive cross sells identified and closed via the deal registration system etc. All of these metrics are activity based that could involve these same ancillary people and will help the partner to be more productive and help the vendor grow its revenue, rather than having non direct channel facing staff go and visit the partner and lower both the vendor and partner productivity, yet still be rewarded for it.
Incentives based on Volume
Another example is a channel promotion that was intended to help attract new resellers to a distributor and also increase the level of sales of those that were already doing business. The incentives included a range of travel prizes and other rewards provided to the winning reseller categories. Sounds straight forward so far, but the categories for the rewards were going to be:
- Largest volume of orders
- Any reseller that had not ordered previously
- Largest overall value of orders
This promotion was re-designed when we pointed out the potential unintended consequences of these three prize categories.
- A reseller could split their orders that they were going to place anyway, thereby increasing the order volume without actually doing any more business, and at the same time increasing the workload on the distributor and potential for a logistics mishap due to more orders having to be processed
- A reseller could place an order during the promotion and never be seen or heard of again, yet win the prize
- The big resellers that are already aligned will usually win this so they were rewarding what they would probably get anyway
Five Steps to Success
Any reward or incentive system should be designed to control, motivate, influence, and reinforce the desired long term behaviours that are consistent with the organisations goals. To do this effectively takes time and a lot of careful thought as these two examples highlight.
Use the following five step process and check list to help you avoid some of the unintended consequences of poorly designed incentive or reward systems
Begin with the end in mind. What behaviour changes do you want to achieve and are they aligned to your overall goals? What are the types of people you are trying to motivate? If a reward is offered, is it in line with their values, and is it substantial enough (or the penalties for not achieving it) to warrant consideration?
Are the required behaviours new, different or the same as today, and if there is a change of behaviour required, what or how much effort is needed to achieve the reward. ie. Is the link between the effort, the results and the reward going to be worth it?
What are the short and long term results you are expecting to achieve? What can be done to link the short term results to the long term behaviour changes desired?
4. Evaluation & Measurement
How, what and why are you going to measure the success of any reward system, so as both to capture any intended and unintended changes to behaviours, systems, or processes post implementation for review?
5. Compensation or Reward
What types or range of compensation and rewards can be offered such as cash, non cash equivalents, prizes, recognition, status etc and how, when or how frequently will they be distributed?
Finally after having followed this process put yourself in the shoes of the people or organisation you are looking to reward and see what you would or could do to “break” they system, as someone out there will be.
Good compensation systems don’t just happen, they are carefully thought through and then designed to align with the specific situation against the desired goals.