Visionary Design Systems Are Incentives Enough? Visionary Design Systems was a systems integrator and Computer ost Aided Design (CAD) hardware and software reseller located in Sunnyvale, California. In its first three years, Visionary Design’s revenues jumped from $1. 1 million in 1990, to $5. 5 million in 1991, to $9. 8 million in 1992, to $17. 8 million in 1993, prompting local newspapers to pronounce Visionary Design Systems a Silicon Valley success story. The founders credited much of their success to the quality of their people and to their philosophy of empowerment combined with generous rewards for performance.
The company was unusual both in the degree to which employees were granted autonomy, and in the way they were rewarded. Every employee was a shareholder, and earned significant compensation through commissions and bonuses. The company’s growth record and retention rate spoke to the success of this philosophy. Most employees raved that this was the best company they had worked for: “I feel good in this environment—we laugh together, everyone is pulling toward the same goals.
It’s the people here who are special, and it starts at the top. VDS’s y or P future looked bright but for one cloud on t h e horizon.
Product Data Management, one of the promising new complements to the Computer Aided Design market, was a struggling division within VDS. Product Data Management (PDM) was a critical market for the company and VDS had hired two experts in the field. Management offered significant incentives for growing the PDM business but the PDM experts would not take the reins and drive VDS forward in this industry. Things were not progressing quickly enough and top management did not know what to try next. The CAD Industry History
Before CAD was available to mechanical engineers, designers stood at 3×4 foot drawing boards using rulers and compasses to design products. The limitation of working in two dimensions forced designers to create separate drawings for each dimension of every piece. Designing items such as car parts, vacuum cleaners, or dolls, required thousands of calculations and hours of drawing, measuring and erasing, before each piece fit correctly into the whole. Products designed in this way were extremely difficult to evaluate without physical prototypes since it was nearly impossible to visualize the end product and see how the pieces fit together.
In addition, any changes in t h e product’s design required altering large numbers of drawings. Exhibit 1 displays a 2-D product drawing. The introduction of Computer Aided Design in the early 1970s automated the measuring of lines and angles, significantly reducing the amount of time it took to draw actual objects and making alterations easier and more timely. However the necessity of huge computers, extensive technical knowledge, and $150,000 per package, kept CAD out of all but the largest organizations. CAD usage spread to smaller companies with the proliferation of personal computers in the early to mid-1980s.
But the early CAD programs did no more than computerize the manual drawing process, which continued many of the limitations of two dimensional drawing. Karin B. Monsler wrote this case under the supervision of Associate Professor George P. Baker as the basis for class Do Not Cop discussion rather than to illustrate ei ther effective or ineffective handling of an administrative situation. All names and numbers have been disguised to protect the privacy of the company. Copyright © 1994 by the President and Fellows of Harvard College. To order copies, call (617) 4956117 or write the Publishing Division, Harvard Business School, Boston, MA 02163.
No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 1 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. 495-011 Visionary Design Systems By the early 1980s CAD producers developed 3-D wire modeling programs which, when coupled with the proliferation of PCs, brought affordable wire modeling technology to the market.
-D wire modeling displayed an object’s frame on the computer screen. Designers could rotate the picture and view the product from all angles. Objects were now easier to identify because ost the relationships between the sides of a piece were displayed as they would be in the final product. However, t h e wires delineating the front were indistinguishable from the wires delineating the back, making i t difficult to accurately visualize an object from its 3-D wire drawings. Three dimensional solids design, the newest CAD technology, included many new capabilities and provided clear discernible pictures with shading and depth.
The image provided by 3-D solids modeling resembled an actual object, making it far easier to construct and evaluate product designs. Exhibit 1 demonstrates the clarity provided by 3-D solids modeling. In addition, advances in t h e machine-designer interface had made the actual drawing of parts significantly easier. For instance, i f a designer wished to change a dimension of a particular part, s/he could simply “grab” an edge and move it by the desired amount. Other features and dimensions would automatically adjust.
Using solids modeling, designers could create an object in four hours, when it would have previously taken four days to create on earlier CAD systems, and weeks to create by hand. During the 1980s, prices of CAD hardware and software dropped from $150,000 per seat (seat y or P refers to one machine and software package) to as low as $15,000 for either the 3-D wire or better 2-D systems. Prices for these systems dropped another 50% from 1989 to 1994. These price drops significantly reduced the margins for producers of low-end systems. Basic CAD software had even entered the mass market, opening CAD usage to individuals and small companies.
Solids modeling was developed for industry around 1980 but was so complicated and difficult to build and use that prices remained over $100,000 per seat in 1986. After 1988, prices for even these high-end products plummeted with the falling price of desktop workstations. In 1994, prices for solids modeling systems ranged from $20,000 to $75,000 per seat. Sophisticated 3-D solids modeling systems formed the high end of the market, capturing only 25% of the market while providing high profit margins to its producers. Prices and margins remained high because the systems were far more complicated than the simpler commodity software.
Solids modeling provided many more capabilities and required designers to learn many new funtionalities. Companies purchasing 3-D solids CAD systems usually needed a partner CAD company to explain the system, instruct the designers, and help integrate the system into the organization. Recent Developments in the Industry As CAD systems became increasingly sophisticated in their ability to help designers actually draw and visualize products, they also became the building blocks for broader applications of computer technology in the product design process.
The ideal design and manufacturing scenario involved getting all the details of design, prototyping, and production right the first time, and doing so quickly. Concurrent engineering— simultaneously designing, testing and manufacturing a product, worked toward this goal. Most developments in manufacturing technology contributed to automating one of these stages and integrating it into the rest of the product development process. Engineering Analysis Tools Engineering Analysis Tools automated the physical testing of parts created by a CAD system.
Computers could verify product designs by simulating laboratory tests t h a t previously had to be performed on physical prototypes. The effects of temperature, air flow, stress and impact on a potential product could all be determined by computer simulations. These computer tests determined whether products would break if dropped from a certain distance, or if they would crack after being shaken for extended periods. Computer simulations verified production possibilities as well, by testing whether a plastic would flow through a particular mold completely, or if it would Do Not Cop cool correctly.
Analysis tools identified weaknesses and flaws in early product designs, greatly reducing the time and cost of the testing period. Together, analysis tools and CAD dramatically shortened the length of the typical product cycle. Since a full 80% of a product’s life cycle cost was borne before the product went into production, shortening the design phase yielded high returns. 2 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. Visionary Design Systems 495-011 Exhibit 1
A product drawing in 2-D, 3-D wire, and 3-D solids modeling (Source: Company Documents) ost y or P Do Not Cop 3 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. 495-011 Visionary Design Systems Product Data Management (PDM) Product Data Management software emerged in the early 1980s to store CAD documents in an organized manner. The database, much like an electronic vault, ost stored drawings with labels and dates to make recalling a specific version or set of drawings quick and easy.
PDM’s capabilities expanded to include storing other product information such as marketing information or the current prices of input materials. All business divisions—management, engineering, marketing and manufacturing—could contribute to and access data in the PDM system. Since 80-90% of the information involved in the production of a product was non-CAD data, PDM presented a dramatic improvement in a company’s data management capabilities. PDM had also expanded to include a communications capability which linked its database or storage capacity, the CAD software, and t h e other computers within a company.
This enabled individuals to send product drawings along with production or market information and personal communications to other people in the company. The ability to document, communicate, and change product information on-line opened countless opportunities to restructure old design processes. Change requests and change orders could now be sent and received instantly. All affected product specifications (drawings, bills of materials, manufacturing instructions, marketing information, etc. ) of all affected products could be instantly updated.
These process changes enabled companies to re-engineer their design flow, maximizing t h e efficiency of the organization and their communications structure. Exhibit 2 diagrams this process change. Exhibit 2 Old Design Process Many iterations y or P The effect of an integrated CAD system on the design process. Concept Document Design Document Build Test Release New Design Process enabled by 3-D Solids design with PDM and Analysis Tools Simulate Prototype Concept Release Design Document Source: Company Document Like many promising new technologies, PDM was receiving lots of attention from the market.
New companies were emerging rapidly with large parent companies or venture capital firms backing their initiation. PDM firms were battling for prospective customers, each hoping to make a name for itself and establish its product as the emerging market standard. But like many new fields, no one could predict when the market would take off. Plenty of the entrants were losing their investments as customers scaled down their requirements and delayed implementing their PDM programs. Visionary Design Systems Do Not Cop VDS had eleven satellite offices spread throughout the country that were accounted for as separate profit centers.
Each office was opened by a Sales Representative and an Applications Engineer. The Sales Reps were the primary link to potential customers. They sold HP’s CAD hardware and software along with VDS’s integration services providing customized software, consulting and training. Applications Engineers were the consultants and trainers. They demonstrated the complicated systems during the sales process and provided post-sales training classes and on-site 4 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright.
[email protected] harvard. edu or 617. 783. 7860. Visionary Design Systems 495-011 consulting on how an integrated solids CAD system could work within a customer’s company. VDS also employed software engineers who wrote integration software and interfaces for the various programs used by VDS. Software engineers were beginning to write proprietary programs for VDS that increased process productivity such as an “out-of-the-box deliverable” PDM environment that accomplished 80% of what most customers needed to get started with their PDM software.
In total VDS employed 20 Sales Reps, 25 AEs, 3 software engineers, 20 ost administrative employees and 7 Specialists. Specialists were experts within a field and were hired to move VDS into that Specialist’s field of expertise. VDS had Specialists in the analysis tools area, PDM, and computers systems/networking. The company’s administrative staff either worked in the corporate office managing central functions such as accounting or human resources, or in sales support areas like marketing, communications and reception. Initial Concept and Strategy VDS was founded in June 1990, by Doug Tyson, Jerry Cohen, Gerald Stark, and Donald Conway.
Tyson, Cohen and Stark had worked together at Hewlett Packard (HP). Conway, the CFO and fourth founder, was an old college friend of Tyson’s. Tyson was HP’s number one CAD salesman in the world, but when he suggested to HP’s CAD managers that HP provide systems integration consulting along with the CAD products they suggested that he start his own company. Tyson negotiated a cooperative y or P deal with HP that guaranteed VDS a supply of HP’s products, and enabled Tyson to take a few of h i s customers and some other HP employees to the new company.
With no need for production facilities or inventory, and a supply contract with HP, VDS was able to start up with a few good salespeople and almost no outside financing. VDS sold high-end CAD products and cultivated lasting support relationships with its customers. Tyson believed that selling the product was not enough; customers needed customized software, training, and help restructuring their design process, if they wanted to use their new systems to capacity.
While VDS began as an HP reseller, the long-term goal had always been to become a Systems Integrator, by building a product line that could improve customers’ abilities to use and leverage CAD. They began by providing customers with a new interface for the CAD software so t h a t the tools were intuitive and easy for people to use. VDS also customized the software to companies’ specific design tasks. Part of this customization involved integrating new CAD extensions like engineering analysis tools and WorkManager (their Product Data Management system) into an integrated CAD package.
To help their clients use these tools, VDS provided both training and consulting. Training classes were held for groups of 10 – 15 people in the various VDS offices around the country. Consulting was done on-site by evaluating companies’ current work flow and integrating solids modeling technology and other modern design software to restructure their design process. The founders named their conception for the coming generation of mechanical engineering processes: Vision 2000TM. VDS believed that companies should focus their attention on improving t h e design process, specifically improving their use of information.
Vision 2000TM became the basis for t h e company’s corporate strategic plan—highlighting the steps necessary to bring their clients into t h e forefront of mechanical engineering processes and technology. Founding Beliefs Apart from having new ideas on how CAD systems should be sold, the founders wanted to start a company with a different style of managing employees. They envisioned a company in which management and employees respected one another and worked together as a team. Like a partnership everyone would be an owner, share in the profits, and take responsibility for making the company succeed.
As a management team they reflected those beliefs in their own interactions as well as in their interactions with the rest of the company. Employees referred to them affectionately as t h e Do Not Cop Founding Fathers. One employee commented “There is a family feeling here and a great sense of ethics and morals. If HP gives us a lower price, the Sales Reps pass the savings on to the customer. That’s the kind of people who work here, they work hard and care a lot. ” To preserve teamwork and the cooperative spirit, everyone hired into the company was interviewed by the entire regional office.
Management worked with the sales force and the engineers to specify goals and then let the offices work as independent teams to fulfill their goals. 5 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. 495-011 Visionary Design Systems Tyson, President and CEO, commented on the founding of VDS and the ideas that prompted it: I grew up around the steel mills in Ohio so I’ve seen how little management can care for their workers.
I was getting my degree in mechanical ost engineering from Purdue, which is where I met Donald Conway, and we often talked about how beaten down and unmotivated employees were, and how we would do things differently if we were in charge. I believe that people are the greatest and most wasted resource in most companies. I worked at HP for seven years and then quit for a year to go home and take care of my father who was sick. At the end of that year I was ready to start my own company so I called Gerald [Stark] and Jerry [Cohen] at HP.
Mission, Goals, Tactics & Objectives After the first three years of surprisingly rapid growth, Conway suggested that the founding four come together and outline the company’s priorities and strategies for the future. The final document was distributed internally, binding management to an agreed upon set of goals and conveying those goals to their employees. Doug Tyson discussed the document and the process: We needed a strategy plan, so we embarked on a company-wide strategic planning process to create the y or P Missions, Goals, Tactics & Objectives document.
It was a very painful process. Every word in the document was a blood battle; every word is precise; every word is deliberate. To make sure there were no misunderstandings, we defined every important word and included the definitions in the document itself. It took us eight months to carve out who we are, but we wanted to make sure that all the employees were involved. Now everyone knows who we are as a company, what we stand for, and where we are going. Everyone in this company is a partner, it’s at the foundation of our values. We put ur core beliefs on paper so that everyone would understand them, and so that these beliefs would be sustained through our growth and hopefully keep us focused. The document lays out our mission. We wanted our existing people and new employees to understand why we made certain decisions, and to see that the decisions were in line with our stated objectives, or so we hope. It’s also a guide for our employees. We want to give them decision rights but we want their decisions to be consistent with the overall goals of the company. They make lots of decisions, our Sales Reps have a lot of discretion over the resources that they use to make a sale.
They can call in Specialists or AEs any time they feel that it is warranted. They also have some discretion over pricing, within our standard discounting policy. We like that and want to continue empowering them. Last night I was holding a meeting for the New Jersey office. I read the mission statement to them and asked each person to talk about what the statement meant to him or her. Then we went through each goal and I asked each one what they were doing to make it happen. We had good discussions at each point, it was very productive.
Each of the founders served in a distinct role at VDS, so having a thorough understanding of their common goals was necessary to coordinate their decisions. Gerald Stark, Director of Engineering, found that the consensus-building was the most useful aspect of the process, because it had enabled them to move forward independently and still know that they were heading in the same direction. Stark commented: A lot of the value of the strategic plan came from the struggle we went through to create it. It’s amazing, given how close the four of us are and how much work we do Do Not Cop together, how different our thinking was.
We all thought we had similar ideas. But in fact if you had asked each of us the same question in four different rooms you would have received four different answers. It took weeks of fighting, but we are now in agreement as to where we’re going and we have an action plan for each goal. Each category within the document (Customer Goal, Employee Goal, Financial Goal, and Technology Goal), was discussed in three sections: Goals, Tactics, and Objectives. The Goals section 6 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 83. 7860. Visionary Design Systems 495-011 laid out the primary goal in each category.
Laid out below were the “Tactics” which the company hoped to use to achieve each goal. And in the final section the company noted specific “Objectives” that would yield the fulfillment of each goal. Management then developed an action plan for each point in the Tactics and Objectives sections. Each action plan had a manager’s name attached to i t , which designated accountability for the completion of that task. Managers signed ost their names to appropriate tasks and then used the plans to aid them in directing and motivating their subordinates.
Within the Financial Goals – Tactics section the bullet point: Transition revenue toward value added software and services at the rate of 2. 5% per year was broken down into action items. Jerry Cohen, Midwest Sales Manager, had signed his name to two of these items, agreeing to a specific quarterly target for selling Premier VDS contracts (contracts which include all of VDS’s services) and increasing the number of new Service contracts. The Missions, Goals, Tactics & Objectives document laid out a five year strategy plan, but they made annual adjustments to the action plans to keep on top of project completion and industry movements.
Empowerment Empower – Developing a knowledge base in each employee of company, mission, goals, tactics, and plans that enables them to take action and make decisions consistent with the company’s strategy and values. (As defined in the Missions, Goals, Tactics & Objectives document) The founders believed in empowering their y or P employees and went to great efforts to do so. Management wanted decisions to be made by the people who were closest to, and most knowledgeable about, the issues involved in the decision. By not creating large decision-making hierarchies, management also hoped to stay closer to the customer.
Finally, management wanted happy employees, which for many meant increasing their autonomy and ability to control their situation. In order to let employees make substantive decisions, management tried to align employee interests with those of the firm. First, management made everyone owners by giving stock to each full-time employee and by providing additional stock options through the bonus plans. Management expected ownership to motivate employees to make the right decisions for VDS. Second, management used commissions and bonuses to link cash rewards directly to desired performance goals.
Finally, they established an atmosphere of friendliness and respect, hoping that people would work to build and maintain a workplace they enjoyed. One of the engineers summed it up when she said “This is t h e best company I’ve ever worked for and I’ll work to keep it alive and make it succeed. ” Thus t h e founders handed over a substantial amount of decision-making autonomy, trusting the incentives and equity stakes to ensure that employee decisions would be profitable for the firm. To ensure that employees had sufficient information to make the “right” decisions, management provided training and education to all employees.
All new employees were trained in business fundamentals such as how to read balance sheets and income statements. The founders thought it was important to have all employees knowledgeable about what their product was and how i t worked, as well as how the business worked, how the company was doing, and where the industry was going. Training on these issues continued through educational lectures and group discussions in week-long sessions three times a year. All employees came to one of the sessions each year, while Sales Reps and Applications Engineers (60% of the company) met for two additional training sessions on specific product topics.
Tyson felt that this information was essential to enable employees to make decisions that would be profitable for VDS. But he also knew that he was making his employees much more marketable than when they arrived; he considered it his role to make sure they didn’t want to leave. Tyson discussed decision making within the company and his expectations: Every office has its own budget which the people in that office helped to create and are expected to stay within. Everyone is sent a financial report for their office and the company and they are expected to know what’s going on and to make decisions ccordingly. For example, if they want to buy a refrigerator for the office, that’s their Do Not Cop decision.
They have all the information to know the trade-off they will be making between cold sodas and office profits and personal bonuses. We keep information open and decision rights as decentralized as possible because we don’t want layers of management creating a distance between us and our customers. 7 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright. [email protected] harvard. du or 617. 783. 7860. 495-011 Visionary Design Systems Donald Conway discussed the difficulty of sticking to their empowerment theories when employees did not produce the expected results: As management we believe in empowerment but it’s easy to slip ost back into traditional roles and tell them what to do when they are wandering, or pound on them when they make mistakes. It’s so easy to abandon empowerment and say “I need you to do it this way. ” But we know that only by not stepping in when they make mistakes will they learn and become better decision makers.
The Compensation System VDS had a guiding philosophy that people should earn according to what they produced; so the pay scale was based on output rather than position or seniority. Every full-time employee at VDS received a base salary, a commission, and an annual bonus. Commissions and bonuses were a significant portion of total compensation so base salaries were lower than the industry’s average. In bad years employees at VDS made less than their peers but in good years they made significantly more.
This was the case from 1990 to 1993—the performance based system paid out commissions and bonuses t h a t raised most employees’ total compensation well above y or P the industry average. In 1994 when sales were down, most VDS employees earned less than the industry average. One of the managers commented that “the average person here may be earning less, but the average person at HP is being laid off. ” Table 1 gives a breakdown of how salaries, commissions, and bonuses were expected to contribute to total incomes for various positions. Table 1.
Estimated Income Components by Job Type Base Salary Commission Bonus Sales Representatives 40% 50% 10% Applications Engineers 60 30 10 Specialists 65 25 10 Administration 85 5 10 Base Salaries Everyone within a job type earned almost the same base salary; exceptions were made for significant differences in experience. VDS preferred to alter compensation via commissions and bonus adjustments. Salaries at VDS had not been raised for the past four years for anyone but administrative people. But again, total compensation had been above industry averages most of t h e time.
Doug Tyson commented on their decision to weight compensation towards commissions and bonuses rather than on base salaries: Sales Reps get offered and paid the same salary. The difference is up to them according to what they contribute, so we rarely have to negotiate on salaries. It’s a philosophy we go by: people make as they produce. Tough times could be a problem i f we lost good people because they could possibly make more elsewhere. If that happened we might compensate to cover that period, but it hasn’t happened so far. Even though our total compensation is high and competitive, it’s an issue that we Do Not Cop pay lower base salaries.
We may miss out on some people, but most often those aren’t t h e entrepreneurial people who are going to grow the company. We look for people who believe that if they produce more they should get paid more. We want people who expect to profit under such a system. 8 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. Visionary Design Systems 495-011 Commissions Every full time employee at VDS earned commissions as part of his or her compensation.
Management thought it was important to include everyone in the rewards for making a sale or providing excellent service. Therefore the total commission payment on any sale ost was spread across a number of job types, giving each person involved in the process the incentive to contribute wherever h e or she could. As indicated in Table 1, the actual portion of total income contributed from commissions varied by job category. Since payments within each category varied according to performance and were never capped, these numbers were solely goals or estimates. Management set ayment estimates to aid them in establishing commission schedules and not as promises or commitments to the employees.
Management customized commission schedules for each job type, linking commissions to whichever revenue flows an employee worked with, and his or her daily tasks. Sales Representatives Sales Representatives received a percentage of the revenue they brought in from their sales. When a salesperson’s sales revenue or total bookings increased beyond a set benchmark, the commission rate increased as well. Tables 2 and 3 show the 1993 and 1994 commission plans for Sales Reps.
As can be seen in the 1993 plan, as a Sales Rep’s revenues increase, his or her commission rate increased up to a maximum of 10%. In both 1993 and 1994, if the gross margin on a sale was below 25%, the Sales Rep recieved half of the specified commission. The new plan in 1994 broke commission y or P payments into three categories: total bookings, hardware sales and software sales. The change was made to encourage Sales Reps to focus on higher margin business. However, the total revenue benchmarks for commission rate increases did not change.
VDS made a conscious choice to structure their commission plan without repeating the patterns they had dealt with at HP. There, benchmarks were routinely bumped up as performance improved. As a consequence, HP sales people were discouraged from increasing their own productivity, as their success only begat higher goals. Also unlike HP, commissions payments were never capped. Visionary Design’s founders believed that people should be paid more if they sold more, no matter how much they sold or how long they sustained their pace.
Sales Reps also received commissions for selling the consulting and training time put in by AEs and Specialists. AEs and Specialists relied on Sales to sell their services, so Reps received 4% of t h e total training and consulting revenue from their office. This was a fixed percentage and did not show up on their commission plans. Table 2. 1993 Commission Plan for Sales Representatives’ Personal Sales Sales Revenue Commission Rate Commission Paid Cumulative Commissions 0 -1. 0 M 2. 0% $20,000 $20,000 1. 0 – 1. 5 M 3. 0% $15,000 $35,000 1. 5 – 2. 0 M 4. 5% $22,500 $57,500 2. – 2. 5 M 6. 0% $30,000 $87,500 > 2. 5 M 10. 0%* 6. 0%** * Individual gross margin is greater than 40% ** Individual gross margin is less than 40% Do Not Cop 9 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860.
495-011 Visionary Design Systems Table 3. 1994 Commission Plan for Sales Representatives’ Personal Sales Total Commission Hardware Commission Software Commission Bookings Rate Revenues Rate Revenues ost Rate 0. 0 – 1. 0 M 1. 00% 0 – 600 K 0. 0% 0 – 400 K 1. 75% 1. 0 – 1. 5 M 1. 50% 600 – 900 K 0. 50% 400 – 600 K 3. 00% 1. 5 – 2. 0 M 2. 25% 900 – 1200 K 1. 00% 600 – 800 K 4. 25% 2. 0 – 2. 5 M 3. 00% 1200 – 1500 K 1. 00% 800 – 1000 K 6. 50% > 2. 5 M 3. 00% > 1500 K 3. 00%* > 1000 K 9. 00%* 1. 00%** 6. 00%** Note: Total commission paid is the sum of commissions for Total Bookings, Hardware, and Software revenues. * Individual gross margin is greater than 40% ** Individual gross margin is less than 40% Applications Engineers The AEs received 8% of the revenue they brought in from consulting and training.
AEs also received from 1 to 4% of total office hardware and software sales, with t h e commission rate increasing on a total revenues scale y or P much like the Sales Reps’ 1994 plan. Since t h e AEs were needed to demonstrate the product to potential customers, and their training sessions were often the foothold for future sales, management wanted to encourage AE contributions in those areas. The AE’s in the company’s home office in Sunnyvale decided, on their own, to pool the commissions on hardware and software sales and split them evenly.
They made this decision in order to foster teamwork and take advantage of their own specialized skills: they were concerned that if they each received commissions on particular sales that they would compete for clients and be less likely to help each other in a sale. This pattern of commission splitting was being copied in other offices. Administrative Employees All corporate and administrative employees earned commissions according to how they supported the company and contributed to sales. If there was an identifiable link between a person’s role and incoming revenue, a commission was generally paid on that transaction.
Thus commissions were paid on revenue flows which the individual was most likely to effect. Two examples follow. Contracts: Kate Cassal worked coordinating VDS’s contracts with customers and suppliers. Every time a customer bought a VDS system, it not only bought hardware and software (which were onetime purchases) but also hardware maintenance and software support, which customers had t h e option of renewing on a regular basis. She coordinated the contracts with the various suppliers, arranging for product licensing, maintenance, and support.
Since Cassal’s performance in coordinating these contracts was important to customer satisfaction, she received $10 for every contract that a customer subsequently renewed. Cassal was also involved in VDS’s support hotline, a service for which VDS charged customers. Cassal received a percentage of the revenues from the Support Hotline. Office Administrators: Office Administrators played an important role in the customer’s experience with the company as a whole, and in making other VDS employees productive.
To encourage receptionists to be as helpful as possible they were paid a commission of . % of office revenue. Cynthia Jones, VDS’s first receptionist commented that receiving part of the commission from a sale was a great motivating factor and made her feel like part of the team. Many customers h a d mentioned to management that VDS had the friendliest and most helpful receptionists in the field. Specialists Specialists had customized commission plans which they established at the beginning of Do Not Cop the year at a meeting with Tyson. Specialists earned commissions for reaching benchmarks in their own field of expertise, most commonly for moving VDS forward in that field.
Specialist’s compensation plans were designed by top management; input from the Specialists themselves was requested although not always heeded. The 1994 commissions plan for the PDM Specialists is presented in Table 4. 10 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. Visionary Design Systems 495-011 Commissions for PDM Specialists had previously been paid for PDM software sales, in order to encourage pre-sales work.
But clients repeatedly bought the software and never installed or learned how to use their systems. The customers’ hesitance to implement PDM cost VDS significant potential profits since consulting and training provided profit margins around 80%. In order to encourage consulting and training, the commission schedule for the PDM Specialists was changed ost to reward only those activities. Table 4. 1994 Commission Plan for PDM Specialists Commissions: 10. 0% of personal consulting revenue 3. 5% of consulting delivered by all other AEs in Specialist’s region 8. 0% of 1/2 of total training revenue 8. % of non-PDM training personally delivered Bonuses All employees were also eligible for a bonus.
The bonus typically contributed about 10% of an individual’s income, but the actual amount depended on office, company and personal performance during the year. While the targeted amounts for bonuses were all roughly the same proportion of y or P compensation, the determination of bonuses varied substantially according to whether they were based on formula or supervisory discretion (for example, Sales Reps received bonuses determined by a formula, whereas administrative staff bonuses were subject to supervisory discretion).
Bonuses were paid out at three different time periods: monthly, quarterly and annually. Monthly bonus plans Sales Representatives The monthly bonus plan for Sales Reps guaranteed that 150 options were distributed each month and that the top selling Sales Reps had growing investments in the firm. This reduced the chances of VDS losing their best Sales Reps, particularly because until the firm went public, people who left were required to sell their options back to the company at book value. Bonuses for “great ideas” were under management’s discretion and were not necessarily awarded every month.
The bonuses encouraged people to think about improving the company and established management’s receptiveness to employees’ ideas. 100 Share options to the Sales Rep who books the most business each month 50 Share options to the Sales Rep who books the most New Business (over 50K) 50 Share options for “Great Ideas” or suggestions that will save VDS money or make VDS more profitable. Applications Engineers The monthly bonus plan for AEs was nearly identical to that for Sales Reps, and had similar intent.
100 Share options to the AE who books the most business each month. 0 Share options to the AE who delivers the most Consulting. 50 Share options for “Great Ideas” or suggestions that will save VDS money or make VDS more profitable. Specialists and Administration The monthly bonus for all Specialists and administrative employees rewarded their ideas and contributions toward firm profitability. Monthly bonuses also ensured t h a t stock options were available to people at every level of the organization. Do Not Cop 50 Share options for significant advancements in an individual’s area of expertise or “Great Ideas” that will save VDS money or make VDS more profitable. 11
This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. 495-011 Visionary Design Systems Quarterly bonus plans Sales Representatives and Applications Engineers Quarterly bonuses were only available to AEs and Sales Reps. Previously, these employees had revenue quotas and were rewarded ost with quarterly bonuses when they exceeded their quotas. But management felt that these bonuses had little motivational impact, since the yearly bonuses and commissions already provided strong incentives for generating revenue.
In 1994, management decided to use quarterly bonuses to encourage sales in specific areas of strategic importance, like new service contracts. The “strategic area” to be rewarded would be changed quarterly and announced at the beginning of every quarter. Specialists and Administration Specialists and Administrative people were not paid quarterly bonuses. Annual bonus plans Annual bonuses were more customized than the other bonus plans and were awarded in cash. The criteria on these plans tended to be more subjective than either commissions or monthly bonuses, particularly for Specialists and Administrative employees.
Each job type had a different annual bonus plan, examples of which are provided in Appendix A. Sales Representatives Annual bonuses were awarded y or P for surpassing performance benchmarks set by management at the beginning of each year. Management worked with Sales Reps and Applications Engineers to establish quotas for total sales (bookings) and for the amount of consulting and training dollars which the Sales Reps were expected to sell. Management also set profit goals for the company and office to keep people focused on overall profits and to balance the individual incentives.
Everyone received bonuses when the company or office surpassed its goals. Individual bonus quotas varied among Reps according to the sales opportunity in their territory and their experience in the company. Applications Engineers Annual bonus plans for AEs were very similar to those for Sales Reps. Like the people in Sales, AEs were rewarded for generating new business above and beyond a specified quota. Applications Engineers worked together on many of the consulting and training projects and therefore chose to be measured as a group.
The bonus plans for AEs set office quotas which equalled the sum of the quotas for the Sales Reps’ within that office. When the quotas were reached, each AE received a bonus payment. The quotas could vary according to location. AEs in the Sunnyvale office each received $750 if the office obtained over 12 new business accounts, and $500 each if the office signed up 25 new customers for a VDS support contract. Management thought it was important to have Sales and AEs contribute to setting quotas so that they felt like part of the process and were comfortable with the results.
AEs also received bonuses when the company surpassed its company and office profit goals. Specialists and Administration In contrast to the annual bonus plans for Sales Reps and AEs, t h e annual bonus plans for Specialists and Administrative employees had to be customized according to each individual’s duties, goals and upcoming tasks. In setting up reward categories, managers frequently referred to the Missions, Goals, Tactics and Objectives document and evaluated how each person could contribute toward those goals and objectives.
Managers reviewed their plans with upper management to ensure that incentives were equitable across the company. At year end managers calculated or evaluated whether the various performance goals had been fulfilled. This was frequently a highly subjective and judgment-filled process. Donald Conway discussed Dan Maxwell’s annual bonus plan [See Appendix A for Maxwell’s plan] and the process of setting and evaluating these plans: If you look at Dan’s plan you will see “Smooth Transition Through Growth—$500” That addresses one of our major concerns which is getting people to work together.
As we Do Not Cop grow from a $10 million to a $30 million dollar firm, running things will be drastically different and the employees will be determining how they get along and how t h e processes will adjust during that time. We want to encourage them to get along and work together, so we made it in their best interest to do so. I’m not in charge of any Sales or AE people so I set the individual-specific targets for most of the administrative and corporate people, which is much more difficult. 12 This document is authorized for use only by Maxwell Pak until January 2013.
Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. Visionary Design Systems 495-011 Evaluating them and their plans is often not black and white. I’ll do partial bonuses if I think the person has made efforts but didn’t get all the way. For instance, Dan may get three or four of his goals in the “Project Work—$2100” category. But everyone, from Sales Reps to Administrative people, receives bonuses on company profits so that they keep corporate performance in mind and stay focused on the big picture. Stock Ownership
VDS was a closely held company with most of its equity held by ost management and t h e employees. Every employee owned equity in the company. In the beginning new Sales Reps received significant stock allocations. Later allocations to new employees were smaller but that fit with management’s desire to reward those who were willing to take the risk of joining an unknown. Management wanted everyone to have a substantial amount of stock because they relied on employees’ sense of ownership when giving individuals significant decision rights like allowing Sales Reps to structure deals, or offices to buy amenities like a refrigerator.
Additional stock was distributed through the annual and monthly bonus plans—most often to the top selling Sales Reps and AEs. At yearend those people selected to the President’s Club (the top performing Sales Reps and AEs) received 1000 shares of stock and went on a three day retreat and sales meeting. Almost 100% of t h e employees earned additional options each year. Management believed that equity was an effective motivator that would inspire employees to work together toward a common goal. However, how y or P much employees actually understood their stock shares and options was questionable.
Most employees greatly underestimated the worth of their shares, often giving the option exercise price when asked what they thought their shares were worth. Jerry Cohen commented on management’s recent talk with the employees: We’ve talked to the management teams of some other companies in the industry and the Silicon Valley area and we’ve found that the average employee at VDS owns about ten times the amount of stock that employees in similar firms own. We want our employees to have a lot of stock so that they feel like owners, but we started to realize that they didn’t really understand what the stock was about or what it was worth.
W e had always downplayed the value of stock because we did not want to set unrealistic expectations and we were already paying our employees at or above the market. Stock was intended to be an additional long term benefit. To give employees a better idea about the value of their shares we brought them together and told them how many shares there were overall so that they knew what percentage of the firm they held. Then we went through an example, comparing ourselves to similar companies that h a d recently gone public. These examples suggested a stock price between $20 and $40 per share.
We don’t know whether the employees see this value in their stock but it was a big potential increase from the 75¢ per share that is the option’s exercise price but t h a t many believed to be the value of a share. Performance Reviews While employee performance greatly affected total compensation, the performance reviews were deliberately separated from the compensation system. Performance reviews were used actively a t VDS to help employees improve their performance and increase their compensation. Reviews were done annually for every employee on the anniversary of his or her start date.
Both the manager and the employee filled out a seven page questionnaire that discussed both general skills and product knowledge. The document also listed the employee’s performance highlights, and established objectives for the coming year. Jerry Cohen discussed the employee review process: The purpose of reviews is purely educational, we don’t give total ranks or tie any rewards or incentives to it. They are solely meant to open communication and provide Do Not Cop feedback on how people are doing their jobs. I think people are more honest and willing to talk and receive feedback because it’s not tied to salary.
It’s part of how we work, people get paid on what they produce. The evaluations are part of the process in helping them figure out how to produce more. At other companies your rank determines your salary raise. The goal is always to get the highest rank possible in order to get t h e highest salary increase. That isn’t necessarily bad except that there is very little real or helpful com-munication transferred during the review process. We don’t give raises; 1 3 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright.
[email protected] harvard. edu or 617. 783. 7860. 495-011 Visionary Design Systems our compensation system is set so that if your performance is good you are paid well and performance numbers don’t lie. We’ve discussed changing things, but decided that we need a time and place to give and receive feedback that is meant specifically for learning, and enables people to do their jobs better. PDM: A Test of VDS’s Philosophy Top management had spent a significant amount of time thinking ost about how to structure compensation and incentive plans to align employee’s interests with those of the firm.
Management expected people to do more than just fulfill their roles, they expected employees to take t h e initiative in making changes and improving the company. They wanted the employees to act like owners and they were frustrated when that didn’t happen within the PDM program. While CAD sales had surpassed their expectations almost every year, PDM couldn’t seem to get off the ground. The incentives for the PDM Specialists were all there: both their commissions and bonuses were tied to the development of a profitable program.
Yet the empowerment and incentives didn’t seem to be working —progress in PDM was slow and management was playing too great a role. The PDM group was supposed to be building VDS into a leader in the PDM field but so far it had been unable to support itself profitably. PDM was central to the Vision 2000TM program, and VDS had to develop Product Data Management capabilities if it was to become a successful systems integration firm. Both management and the PDM Specialists y or P were frustrated as VDS failed to capitalize on t h e opportunities in this area. Product Data Management
Manufacturing experts predicted that PDM tools would provide a critical advantage to engineering firms which had and knew how to use the technology. The PDM industry’s forecasts backed those predictions— in 1993 the PDM market grew 25% to $352 million. Market experts expected 30% annual growth over the next few years and a 1998 market reaching $1. 2 billion, while most other manufacturing software segments like CAD and Computer Aided Manufacturing expected single digit or flat growth. The rosy predictions for PDM had not fallen on deaf ears; firms were getting involved from all sides of the process.
Platform suppliers like HP, IBM, and Digital had begun designing PDM software through their CAD programs. Systems integrators like Anderson Consulting and EDS h a d private suppliers of PDM, whose programs they supplied with their own systems implementations. But the majority of PDM technology had come from CAD vendors that began writing PDM software to accompany their CAD products, and independent PDM suppliers which had burgeoned under t h e growing demand. VDS recognized the importance of this field three years ago and hired Fred Bulatao to lead VDS into the market.
Bulatao had established himself at HP as the “database guy,” an early specialist in PDM whose reputation was growing in the industry. Excited about moving to a smaller organization and focusing on his true interest, Fred joined VDS to head-up their PDM program. At VDS, Bulatao aquired significant decision making autonomy, and was rewarded through h i s commission and bonus plans. When he started, Bulatao’s commission plan consisted of: 10% of PDM consulting revenues, 8% of training revenues, and 1. 5% of PDM software sales. See Table 4 for Bulatao’s current 1994 commissions schedule and Appendix A for Bulatao’s 1994 bonus plan.
Customers were more than satisfied with the quality of Bulatao’s work, but the quantity of sales had been disappointing to VDS. During the first threee years, PDM revenues fell below quota by 40%, and failed to cover PDM costs. Nor was VDS recognized throughout the field as a PDM supplier. In a recent trade journal article, VDS had not been mentioned as one of the top six or seven PDM suppliers in any of the PDM supplier categories. Top management was getting concerned. Gerald Stark commented on the PDM situation: Do Not Cop Fred has been here for three years.
He’s a Specialist in PDM which is a field that is exploding and very important to our industry. We gave him the admittedly difficult task of making PDM a significant part of our business, both financially and in customer perceptions. We gave him a great deal of autonomy to attack this as he saw fit, with the caveat that as a company we want to grow conservatively. This autonomy was given in large part because of our management philosophy as well as the reality 1 4 This document is authorized for use only by Maxwell Pak until January 2013.
Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. Visionary Design Systems 495-011 that the management team did not have the bandwidth or the expertise to direct t h e tactical strategy. Fred knows a great deal about the CAD segment of the PDM market, and so we wanted him to run with it and tell us what he and the company should be ost doing to grow this business. Actually, more than telling us what to do, we wanted him to just do i t .
But he seemed to need to ask permission or get consensus too much of the time. After two years, management felt that they were too involved and that not enough progress had been made, so they hired another Specialist, Bill Braxton. Braxton was an expert in PDM with degrees in both mechanical engineering and computer science. He had written PDM software for h i s previous employers before there was either an industry or a name for PDM. Braxton had also led a process similar to the program desired by VDS for another company, and was known as a leader in t h e field.
Gerald Stark discussed the situation: We brought in a new person, Bill, who has impressive credentials in this field. He is a very strategic thinker, which is a great complement to Fred, who is technically focused. We split the country into two regions and had Fred cover the East Coast region while Bill covered the West Coast region. We set up compensation plans that provided major incentives to make this business generate revenue for VDS both in products and services. Bill is concerned about our compensation plan because in the past his bonus was y or P tied to completing specific tasks.
That seems very undesirable to me since no single task is very useful, nor do I know which tasks will make this business grow; and I certainly don’t want to encourage them to work on something that may be a waste of time. Donald Conway summed up his view of the problem: Responsibility is the sticking point. We want to give it to them but it’s a struggle to get them to take it. We’ve told them repeatedly that it’s their ball and they should just run with it. But they keep bringing it back to us, looking for directions, asking for the permission we’ve already given them. We expect empowerment to mean that we don’t have to manage it.
They hear the empowerment message, but don’t take us up on it. Fred Bulatao Bill and I are the only PDM resources in the company both currently available and fully trained. Every office sells all of the products but those offices without a PDM Specialist have difficulty getting enough PDM pre-sales support to close deals effectively. And selling PDM is difficult. It requires it’s own language which many people at VDS are unfamiliar with, so they often don’t go looking for those deals. I spend lots of my time flying to, and conference calling with, prospective clients from other offices.
Increasing Sales with Zero Credit or Commission: The PDM program has been under-resourced for awhile now and we can’t hire more people until our consulting revenues justify the costs. The PDM program is becoming a profit center based on consulting rather than software or deals leveraged on PDM capabilities. Under t h a t measurement scale we’re not bringing in enough revenue to cover our own costs let alone bring more PDM people on board. Also they’ve changed the compensation structure so that we are only getting commissions on our consulting hours, and not on PDM software.
I think we should be compensated for deals that were leveraged based on our presence. I t used to be about 15-20% of all deals included PDM, now about 70% of the deals have PDM in the proposal. PDM helps win many deals because customers want VDS to supply PDM so that they can grow into it and buy compatible software in the future. I spend hours explaining things to customers who aren’t going to buy any PDM software for 2 years. VDS’s largest deal ever wouldn’t have been made without PDM but I got minimal Do Not Cop credit.
The deal was $2. million and they bought lots of PDM software—but only three days of consulting time. Consulting gets Cut: Very little of PDM is standardized. The software is expensive to start with and it inherently needs to be customized, which is also expensive, as is the training that companies need to learn to use the system. The products VDS sells often cost more than the customer wants to pay, so they look for 15 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. 495-011
Visionary Design Systems things to cut. Sales Reps do what it takes to make the deals happen. They will cut t h e number of consulting days if it’s needed to make a sale. They are in charge of selling consulting hours, so I asked Doug to add PDM consulting to their quota and he said he’d talk to the sales force about the need to sell more PDM consulting. These are ost encouraging words, but there’s still no financial incentive. I really believe that VDS can make a significant contribution to this market by developing a software program that would allow customers to get started with minimal consulting costs.
And we are in a position to dominate this field because of our experience in simplifying processes for the customer. I have had verbal support from our management on this, but no commitment when it comes to allocating resources from our software development department. I believe that PDM should be treated like a business which requires a critical level of investment to start the ball moving. We in the PDM group are asked to make decisions that will produce success, yet we cannot put many of these into action because we don’t control our resources.
I’m being asked to get things going, but the sales force doesn’t understand our product well enough to lead consultations in the sales process with potential customers. We’ve tried to educate the Sales Reps on how PDM improves the design process and why consulting and training are important, so that they can sell them better. But we’ve had to train them one-on-one which is y or P completely inefficient. Until this year, PDM hasn’t been allocated much time on the agenda for the sales training sessions. W e couldn’t get in front of them to start the education process, so Sales Reps kept cutting consulting to save costs.
This cannot be only my priority. We submit what we want and hear back “sorry, there’s no time for PDM. ” If I can’t get in front of the Sales Reps, we can’t be expected to meet our goals. Bill Braxton Both selling and implementing PDM are extremely difficult. The major failure of PDM is not the technology but the customer’s failure to make the organizational changes necessary to take advantage of their new capabilities. Over the last ten years only a handful of companies have successfully implemented their PDM; but you don’t want to tell people that in a sales meeting.
So customers don’t understand how difficult this is going to be, and that if they just buy software without the integration and consulting their PDM implementation is likely to fail. Early versions of our PDM supplier’s offering did not provide user-ready integration capabilities. Their data management tools were not integrated with their CAD software. They don’t really want to do the integration, which sets up a great opportunity for us. PDM customers need the customization and consulting to make t h e system work, but aside from Fred and I we don’t have access to the software experts who can write the integrations.
We don’t have the staff or manpower to properly support customers if sales grow. We agreed that we needed a business plan, but the meeting to discuss it only lasted 45 minutes. They asked me for the three things that we could do to start bringing in revenue; I tried to explain that it didn’t work that way, that this wasn’t a simple A then B then C problem, that we need to establish an infrastructure of capabilities before we can provide what we are claiming to sell. But I don’t think they understood, they just said fine, go do it. I made one big mistake.
I knew the company was financially conservative so when I presented my business plan I didn’t push the need to build an infrastructure and now i t is a constant battle. They want me bringing in revenue without this infrastructure. It’s like they are asking me to start a new football team but don’t want to invest unless t h e Do Not Cop team is winning so they’ve given me three players and said that when those three players start beating the other teams then they will invest in other players. When they started VDS they already had a product, clients, suppliers, and trained people.
Now they want me to have the same zero investment growth only I have none of the above. VDS has hired some great PDM people, but since our PDM is not profitable yet, they are working on other things. The two best technical PDM people are in t h e 16 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. Visionary Design Systems 495-011 software group but I don’t have access to them. They’re there, they want to be doing PDM, but I can’t use them to generate revenue or get them started building products.
Management says they are committed to allocate these resources, but not for another twelve months. If you started a new company in this area you would have to have investment capital. You would hire the best people, build your team, ost grow your skills, and create market awareness of your capabilities. And I feel like my competitors are making this investment. It will take four months to train the internal people and get them up to speed on PDM and they aren’t going to be profitable during that time. When I sold my own consulting time for five weeks, I brought in good revenue, but I couldn’t work on growing the business.
I fell behind in my pre-sales work and I couldn’t train anyone else. So it’s really a problem, if I bring in revenue then I don’t have time to invest in the future, but if I don’t bring in revenue, then I can’t get the resources to invest. When I first came and said let’s do sales training, they resisted. I don’t know why; my guess is that it was resistance to something new. Finally this year I get one day in front of the Sales Reps every six months, which is not enough to educate them sufficiently. And I can’t have a Sales Rep dedicated to PDM until revenues justify it.
A new Sales Rep probably wouldn’t generate profit for a year and Doug Tyson’s plan requires breaking even on day one. I don’t feel like management has embraced PDM as part of VDS. Since I’ve been here I’ve only had two meetings with management and none with all four founders. I have no budget, no support, and a culture that is y or P totally focused on CAD. I need to get mind-share with top management. I’ll know I have concurrence when I don’t have to drive it, when they’re driving it as part of the team. Do Not Cop 17 This document is authorized for use only by Maxwell Pak until January 2013.
Copying or posting is an infringement of copyright. [email protected] harvard. edu or 617. 783. 7860. 495-011 Visionary Design Systems Appendix A. Sample Annual Bonus Plans in 1994 Jason Waggoner was a Sales Representative in the Sunnyvale Office. He ost sold CAD hardware and software as well as the additional programs like the Rasna engineering analysis tools and t h e WorkManager Product Data Management tools. Sales Reps also worked to get customers to attend training sessions held by the AEs and Vision 2000 seminars where management and AEs demonstrated modern mechanical engineering and design capabilities.
Annual Bonus Plan: Jason Waggoner, Sales Representative Q uot a: Bookings $1,946,000 Consulting & Training 165,000 Bookings 120% Quota at 40% Gross Margin (individual) $750 Bookings 160% Quota at 40% Gross margin (individual) $1000 Consulting & Training 120% Quota $750 Consulting & Training 160% Quota $500 Office Profit Before Tax Exceeds 14% $1500 3 Rasna & 3 WorkManager Software Deals $750 VDS Profit Before Tax Exceeds 120% of plan y or P$750 120 Companies to Attend Vision 2000 Seminars $750 Deliver 2 Audits (minimum 20K total) $750 200 Shares to each person on the local team whose office exceeds 12% profit before tax. minimum 1994 office net revenues of $2,000,000) Dana Walton was an Applications Engineer, one of three in the Sunnyvale office.
They demonstrated the product to potential customers, provided training seminars on new developments in the industry, provided audits for those companies which wanted to learn how an integrated CAD system could improve their design process, and consulted for companies that had recently bought t h e product. Annual Bonus Plan: Dana Walton, Applications Engineer (AE) Q uot a: Bookings (office) $5,930,000 Consulting (office) $ 215,000 Training (office) $ 264,000 Bookings 120% Quota at 40% Gross Margin (office) 500 Bookings 160% Quota at 40% Gross margin (office) $1000 Consulting 120% Quota $500 Consulting 160% Quota $1000 Training 120% Quota $1000 Office Profit Before Tax Exceeds 14% $1000 25 New Customers on VDS Support (office) $500 VDS Profit Before Tax Exceeds 120% of plan $500 12 New Business Accounts (office) $750 Deliver 2 Audits (minimum 20K total) $750 Do Not Cop 200 Shares to each person on the local team whose office exceeds 12% profit before tax. (minimum 1994 office net revenues of $2,000,000) 18 This document is authorized for use only by Maxwell Pak until January 2013. Copying or posting is an infringement of copyright.
[email protected] harvard. edu or 617. 783. 7860. Visionary Design Systems 495-011 Appendix A. Sample Annual Bonus Plans in 1994 (cont. ) Dan Maxwell was a young ambitious accountant who moved from Coopers & ost Lybrand to be t h e Accounting Manager at VDS. He was responsible for managing all aspects of the company’s accounting systems, including the Sunnyvale office’s Accounts Payable and Accounts Receivable department, keeping the company books, generating internal management reports, and preparing for the annual audit. He was also a major player in determining how to adapt their accounting system to VDS’s growth.
Annual Bonus Plan: Dan Maxwell, Accounting Manager VDS Total Net Revenues Exceed 30 M $500 6 of 12 Months – A/R Days 45 or less $500 9 or 12 Months – A/R Days 45 or less $750 VDS Profit Before Tax Exceeds 120% of plan $750 Smooth Transition Through Growth $500 Project Work : y or P$2100 A. COS Report Improvement B. Commission Reports C. Other Custom Reports D. 1995 Plan Process E. Continued Update of Platinum F. Implement Hiring Plan and Build Accounting / OP Team Kate Cassal organized the supply and service contracts between VDS, their customers, HP, and other suppliers.
She helped Sales Reps write contract requests which she then put through to t h e suppliers. She tracked the status of each contract, informing Sales Reps as each contract was fulfilled. She also processed contract renewals, worked on the VDS Support Hotline, and generated invoices for sales. Annual Bonus Plan: Kate Cassal, Contracts Quota: Support Revenue $2,626,000 Exceed 1,450,000 in Support Revenue $500 Exceed 200 Support Contracts $500 Exceed 1,600,000 Support Revenues $500 VDS Profit Before Tax Exceeds 120% of plan $500 Smooth Transition Through Growth $500 1994 Renewal Percent – 95% $500 June and Year End Support Reconciliation
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