Friday, November 16, 2012

5 reasons your spreadsheets are not cutting it for incentives

Why high-tech companies need to
be wary of spreadsheets

This is the first post in our series Extending Your ERP Ecosystem 

The technology industry is responsible for some of the world’s most advanced products and intellectual property. But at the same time, it never ceases to amaze me that these same companies still cannot get a handle on how to properly manage their agreements and incentive programs to continuously drive new products into market.

In constant pursuit of increased market share, manufacturing and technology companies institute creative, intricate, and complex pricing incentive programs and promotions in order to maintain a competitive edge. These kinds of incentives are usually determined by complex performance triggers -- based on anything from membership in a group purchasing organization to sales volume to percent of floor space. Each  promotion is accompanied by one or more triggers that require one or more calculations to bring about payment on the back end. This can get overwhelming pretty fast.

Most finance and accounting executives surmise that these incentives can be managed with their existing ERP systems. But, while great for basic general ledger transactions, ERP systems are just not built to execute the complex calculations associated with post-sales incentive programs. The ERP system falls short. Where to turn next?

Many information workers in finance and accounting turn to the old standby -- spreadsheets. Given their extensive experience working with spreadsheets to manage complex financial calculations, finance and accounting teams generally feel equipped to use spreadsheets for ANY complex financial quandary. But, even if you are the world’s best spreadsheet administrator, things can quickly turn ugly.

Using spreadsheets to manage such vast and complex incentive programs can introduce some high-stakes risks into an organization. There are five big reasons why high-tech companies need to be wary:

1. Multiple users inputting data: The more people who have access to the spreadsheet, the greater the chance for error. Without a way to ensure tracking of changes, changes to calculations or values can be made by one person without being noticed by others, which can cause issues. Lack of communication between users and lack of oversight for activities within the spreadsheet can lead to errors in data that can compromise the integrity of the document.

2. Input, logic, and interface errors: When errors are made in a calculation or an entered value, a ripple effect takes place. On top of this, spreadsheets provide no automation or tracking to call out any mistakes. When errors are made and go unnoticed, every outcome determined by the spreadsheet is in question and could be invalid.

3. Colossal spreadsheets: Given the complexity of most incentive programs, the number of channel partners involved, the volume of goods sold, and the revenue dollars represented, spreadsheets like these quickly grow in leaps and bounds. As the spreadsheet gets larger, it becomes more difficult to navigate and manage. It can take longer to accomplish tasks, which can quickly overwhelm employees who suddenly face time crunches and have to rush to get things done, which almost never produces desirable outcomes.

4. Extensive changes and modifications: Activity is nonstop when dealing with incentive programs. Performance triggers are complex and new data is entered frequently to execute calculations and payments. Employees can struggle to keep up with the high volumes of activity. When employees are overwhelmed with work and activity levels are so high, mistakes can easily be made and go unnoticed.

5. Lack of collaboration: When users are working with departmental spreadsheets, they are operating in information silos. There is no true communication or collaboration; one user does not have insight into how other users are editing or using the spreadsheet. Users might forget to email updates or might inadvertently update an older version or forget to transfer local updates to a shared location. It is impossible for a user to be 100 percent confident that he or she is using the most current and correct version -- especially when there are so many changes and modifications being made.

When these issues and errors occur in spreadsheet management, the implications directly affect accounts payable, and therefore your bottom line. These accounts payable teams pay out on incentives as determined and validated by the data within the spreadsheet. If even the smallest error is made in the spreadsheet, the chance of overpayments, duplicate payments, and underpayments increases.

These payment errors will have serious negative consequences throughout the organization -- from the state of channel partner relationships to the state of the bottom line. High-tech companies that invest so much into the quality and integrity of their products should not be suffering hits to their reputation or losing hard-earned revenues due to back-end operation problems.

In the next post in our series, we’ll take a deeper look at the negative consequences a mismanaged incentive program has throughout a business, and how much money you might actually be losing without even knowing it.

We’ll continue this discussion in our blog series, but we’ll also discuss how automating ERP incentives will benefit your business in our upcoming live webinar with Forrester on Dec. 4. Registration for that event is now open!

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