The True Cost of Formula-Building Applications

Automation plays a pivotal role in driving growth, efficiency, and competitive advantage across various industries. From streamlining operations to enhancing customer experiences, organizations are capitalizing on innovative technologies to stay ahead of the curve.

However, one critical aspect often gets overlooked: the need to modernize business functions. One area that frequently falls behind is incentive compensation, where the acceptance of legacy formula-building applications impedes progress and limits potential. 

Below, we will explore the true cost of formula-building applications in the world of incentive compensation, uncovering the hidden drawbacks and missed opportunities that can impact an organization's overall success. By shedding light on this issue, we aim to ignite a conversation that challenges the status quo and empowers businesses to embrace transformation for optimal outcomes.

Challenges of Outdated Formula-Building Applications

First, it is important to level-set on what we mean when we discuss a "formula-building application." 

Think about the process you would take to set up an incentive plan. The legacy approach typically plays out as follows: the business (typically a collaboration across several stakeholder groups) defines a compensation plan in plain text with the goal of driving sales behavior towards key business outcomes.

Then, a separate team translates these plans from plain text into an incentive compensation tool, enabling administration. While we won’t delve into the intricacies of each aspect of setting up an incentive comp tool (which is too much to cover in this post), it won’t be long before you encounter a "formula-building application" with a formula bar.

As the system admin, your task is then to write the logic that converts the business language from the plan into a formula that the tool can utilize for calculating commissions. The specific format of these formulas can vary from one tool to another, ranging from completely free-form programming requiring coding expertise to tool-specific formulas and functions that users can employ to execute their desired logic. No matter the format, formula-building applications provide a platform for the comp administration team to develop the right logic to ensure their incentive plans function as expected. 

Although this approach can work, it also carries inherent risks. Incentive plans are often complicated, and managing the complex rules and formulas that support them within a tool can often turn into a tangled, error-prone web. In the world of commissions where absolute precision is a must, having to update a payout metric formula with about 30 nested "if...then" statements is far from ideal and drives a hidden cost of maintaining one of these solutions. 

These legacy formula-building applications place an immense burden on system administrators to be experts in the tool and all its technical details. This results in either forcing someone to own a tool that is outside their expertise or hiring someone with a very specific skillset (which is typically a difficult exercise in and of itself). Moreover, if the model expert leaves, a host of new problems arise. Someone new must come on board and spend countless hours familiarizing themselves with the tangled web that now holds your comp processes hostage, inheriting all the technical debt that comes along with it, driving Total Cost of Ownership (TCO) even higher.

Suffice it to say, models built and managed in this formula-building environment may be sufficient on Day 1 after implementation, but over time, they become far from optimal (or even usable).

The Future of Incentive Compensation

But what is the alternative? Forma.ai alleviates the administrative burden of model management by automating all repeatable pieces of the Incentive Compensation Management (ICM) process, such as quota changes, rate changes, terminations and new hires, etc. through repeatable workflows. Further, rule building is abstracted such that managing complex code is a thing of the past. 

In the Forma.ai world, updating a rule or building a completely new plan altogether would use the flow shown below:

In this world, the admin user becomes the owner of the business process but is no longer responsible for the administrative translation of this logic to a formula bar. 

The implications of such a mindset shift are twofold. As previously discussed, it reduces the risk of errors by taking formula management away from the business team. But going back to the title of this post: the true cost of a traditional formula-building application is an opportunity cost. By relieving the comp admin team from the task of managing formulas and fixing complex issues, you enable them to provide greater value to the business. Instead of dealing with formulas, resolving conflicts, and verifying inconsistent outputs, they can use their time for activities like plan design and analysis with sales stakeholders to improve their overall comp experience.

Your Next Steps

We hear this type of feedback from our enterprise customers all the time. With our incentive compensation solution, they can contribute in ways they could never have imagined when they were buried under the administrative tasks of old. Not only are they adding more value to the business, but they also find their job more engaging and rewarding. 

Do your comp admins and your business a favor and stop making them work in the archaic world of formula management.