Having diversified its product range over the last two decades, Ferguson wanted to ensure that its approach to commission remained effective at driving higher revenues and staff retention.
Ferguson enabled greater control, insight and flexibility around incentive compensation management with IBM solutions, helping to drive higher revenues by creating plans aligned with product strategy.
Up to 75%faster calculations of commission payments
Drivesgreater revenues by focusing sales efforts on higher-margin products
Contributesto greater staff retention by recognizing and rewarding good performance
Business challenge story
Staying on top
When you dominate an industry, it can be easy to get complacent. But even much smaller competitors—if there are lots of them—can eat away at hard-won market share.
Ferguson, which leads the plumbing supplies industry in the US and has been a chief player in other markets for many years, wanted to safeguard its enviable market position. As a sales-driven enterprise, it knew that incentive compensation plans can make a significant difference to performance. But when such plans are crudely applied, do they work?
Russell Scott, Director of Compensation at Ferguson, takes up the story: “Conventional wisdom says that commission plans should be aligned to your product strategy and updated every three years—minimum. Previously, we had a single plan across all our business units that had been in place for 16 years. And a lot had changed in that time!”
Namely, Ferguson had developed and expanded its distribution centers, evolved its showroom strategy and significantly diversified its product portfolio. Over time, these factors had made the company’s existing compensation plan increasingly ineffective.
“Previously, there was less analysis of our commission program performance so there wasn’t nearly as much insight into its impact on company performance,” says Scott. “When we reviewed our approach, we found that, unsurprisingly, our one-size-fits-all plan was not effective. We lacked the ability to focus sales efforts on the higher-margin products, for example, and our new lines of business were modifying plans ad hoc to fit their margin profiles.
“At Ferguson, sales are what we do, so motivating our associates and showing them that we value their performance is a key priority for us. It was time for a major change.”
Embarking on a learning process
Ferguson transformed its approach to employee remuneration by building a range of plans within IBM® Incentive Compensation Management, tailored by business segment.
“With IBM Incentive Compensation Management, we were able to very quickly create specific plans that addressed variability in the margin profiles, selling cycles and product strategy that each of our business groups identified,” explains Scott. “In just five months, we had rolled out our new commission plans.”
In the first few months after the deployment, Ferguson discovered that it had not sufficiently cleansed the data used by the plans, resulting in calculation errors. Inevitably, the company faced dissatisfaction from the payees: its associates. Scott recalls: “We realized that we had rushed the implementation, and hadn’t devoted enough resources to the project. Bad data accounted for 90 percent of our commission calculation errors, but our associates blamed the new technology. We had to get them back on side.”
The IBM team helped Ferguson rectify the compensation plans. Shortly after, the company decided to rebuild the system from the ground up to simplify and meet new reporting requirements.
“The rebuild gave us the opportunity to make the most of the lessons we’d learned along the way,” elaborates Scott. “We asked that the same person who had helped us create our first set of plans assist with this latest iteration, and IBM obliged. With his help, we peeled off layers of complexity to increase the transparency of our compensation framework. We developed test scripts to enhance user acceptance, and designed a solution built for long-term sustainability.”
The updated solution succeeded in winning back the trust of Ferguson’s associates, who were soon impressed by the stability of the system and accuracy of the results. Adoption by associates and managers increased. The company now offers employees dashboards and reporting around incentive compensation.
“Our associates and sales managers use the dashboards to gain real-time insight into stats such as sales, commission payments, gross profits per month and more,” remarks Scott. “They can drill down and find invoices very easily. And because the data we are using is so much more robust than before, they can have confidence in these figures. Our managers can look at historical trends to examine how our plans are affecting sales performance, enabling more data-driven decisions.”
Translating strategy into reality
Today, Ferguson’s compensation team has the tools to work more efficiently, shifting their focus from crunching the numbers to analyzing them.
“Before, it would take us up to 24 hours to calculate compensation payments,” recalls Scott. “Our current version of IBM Incentive Compensation Management enables us to do it in just six to eight hours, an improvement of 75 percent. This, combined with the greater transparency afforded by the solution, frees up our compensation team from putting out fires to value-added analysis.
“We now have the insight, time and control to optimize our commission schemes, rather than crossing our fingers and hoping they work. Soon, we will roll out automation of vendor SPIF [sales performance incentive fund] payments too, which will introduce another huge efficiency gain.”
By enabling Ferguson to align incentive compensation plans with product strategy, the IBM solution is helping the company boost profits.
“Supported by IBM technology, it is easy for us to build and adjust plans so that they encourage sales of higher-margin products, for example,” says Scott. “With flexible incentive compensation, managers can quickly and clearly communicate their priorities to associates, so they can focus their energy where it will have the biggest pay-off for Ferguson—and them.”
With its associates on-side with its incentive compensation program, Ferguson is succeeding in one of its key goals: making its sales teams feel valued.
Scott concludes: “The quality of our associates is what enables us to stay ahead of competitors. By recognizing and rewarding them when they do well with help from the IBM solution, we retain the best salespeople, and create an atmosphere where they can excel. With a lot of hard work from us and IBM, we won back our associates’ trust in our new approach to compensation management, giving us the solid foundation we need to stay at the top of our game.”
Ferguson Enterprises, Inc. (Ferguson) is the largest distributor of commercial and residential plumbing supplies, and pipe, valves and fittings in the US. It is the second largest distributor of waterworks products, and third largest of industrial and HVAC/R products. Employing 23,000 associates, Ferguson has 1,400 locations, serves customers throughout the US, Caribbean, Puerto Rico and Mexico, and reports annual revenues of USD 13.8 billion.
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Take the next step
IBM Incentive Compensation Management helps organizations improve sales performance and gain operational efficiencies with better management of incentive compensation plans, and smarter administration of sales territories and quotas. Visit us at ibm.com/spm to learn more about how IBM Incentive Compensation Management can help you improve the effectiveness of sales teams and support your organization’s growth objectives. Additionally, get the latest sales performance management insights by following us on Twitter at @IBMSPM and join the conversation #IBMSPM.