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Unformatted text preview: MKG 635 Case Analysis Yongxi Xue INCENTIVE PROBLEM IN A SIFTWARE COMPANY 1. Identify the most important facts surrounding the case. An England based software company, Orange Kimono, is facing problems with their current pay system, and the management of the company is considering and looking for helps to either upgrade its current system or change it into a different direction. The previous pay system is based on a simple commission structure that worked that was as follows: 1. Sales people were paid a fair basic wage 2. Sales people had a region for which they were responsible for sales; this included handling relationships with resellers and web-based purchasers of the product, even if the sales people did not actually speak to or contact them for a particular sale. 3. Sales people had a threshold target that was reasonably attainable. 4. Above that target, they earned 10% of the value of the software sold in their territory. The management strongly believes that this system is very easy to understand and to implement based on long-term consideration of the company’s development. Many experiences from others who had been using this structure for a long period of time made the management of Orange Kimono more confident about applying the structure would be beneficial in actual sales and organizational management, but it did not achieve what people expected. Then, two middle managers of Orange Kimono in sales suggested new commission structure that they believed could solve the problems. 1. Sales people would have opportunities rather than territories---the leads would be shared fairly within a team of reps. 2. All reps working the same level of opportunities would have the same targets. 3. The target would be hard to hit but you would be rewarded with $1,600 as you hit the target. 4. All web and reseller sales would be commission-less unless they had been “worked” by sales representatives. This would be fairer, reduce luck, and allow us to figure out who was good and who was not. One of their sales star reached very high sales compared with other sales people under a so-called fair competition environment, and this made the management to rethink their administration that what is the key issue that makes such a huge difference. An ex-BCG consultant was hired, new commission structure was formed, and issues like recruitment, team structure, training were considered and improved, but the sales stayed the same as they were in the last half of 2008, the time that they had not implement any new strategies. Some of the things they were seeing are: 1. All reps now spend a lot of effort making sure they have worked every lead. 2. Some reps now spend an hour or so a day looking through web and reseller- generated deals to see if they can claim any. 3. Discounting is rampant, particularly at the end of the month as are multiple emailed offers....
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This note was uploaded on 03/30/2012 for the course BUSINESS 300 taught by Professor Smith during the Spring '12 term at Aquinas.
- Spring '12