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Build Scalable and Modular Incentives and Commissions System using SAP’s FS-ICM

Marketing, Sales and Distribution undoubtedly are the most dynamic operations of any industry.  Very frequently new marketing strategies are devised and new schemes are launched, new distribution channels are launched and existing ones are reorganized.  Add to that the effect of Mergers and Acquisitions, Expansion to New territories and Tie Up’s.

All of these activities directly impact how your Sales Team is compensated and incentivized. To reflect these changing business requirements, compensation analysts are always under pressure to launch new compensation plans,  make changes to existing ones, design new bonus schemes, change commission rules etc.

These requirements can be easily addressed if your ICM solution is built and implemented on the principles of Rule Based Modularization (can also be termed as Object Oriented Approach).

Let’s understand what we mean by Rule Based Modularization and how can this help business to rapidly respond to changing business needs:-

Compensation Plans for sales agents are not a single entity in itself, instead they are built using variety of rules like

– On which transactions commission is paid?

– Who gets the commission?

– How is commission rate determined?

– What happens in scenarios like cancellations, reductions?

– On what Basis Incentives are calculated and paid?

– How Targets and Quotas are maintained?

– What is frequency of Calculation for Incentive?

– What’s the frequency of payment?

Now if there is a system which allows business and IT to set up complex compensation plans by creating first Individual Rules like the one mentioned above and then later clubbing them together in desired manner, then one can quickly respond to business needs by making a change to only that portion which is affected. Also launching a new plan will be much easier as you can reuse existing rule-set and only create the new ones which are required.

SAP FS-ICM (Incentives and Commission Management) solution imbibes this concept as its core principle and is totally built on Object Oriented Approach. 

Let’s discuss 3 main building blocks of FS-ICM solution:

Rules (Types): This means all the individual entities of compensation plan are first created in system in form of Reusable Rules (Remuneration Types, Activity Types, Participation Roles, Settlement Rules, and Scheduling Rules etc.).

Some examples:

Activity Types: New Business, Cancellation, Change etc.

Participation Roles: Direct Agent, Overriding Agent, Consulting Agent

Remuneration Types: Direct Sales Commission, Service Commission,   SPIFF’s etc.

Settlement Type: Monthly Payment, Annual Payment, Agent Payments

Rule-Sets (Agreements): These rules are then grouped together at multiple levels into Agreements (Participation Agreement, Activity Agreement, Remuneration Agreement, Settlement Agreement, and Scheduling Agreement). Now the beauty about agreements is that you can group existing rules\types in different combinations and create Agreements for various roles\ channels etc.

For ex. With 2 Commission Types – Direct Commission, Overriding Commission you can create various sets of agreements based on Business Requirements:

a)      Junior Agent Commissions Agreement –  only Direct Commissions

b)      Manager Commissions Agreement–only Overriding Commission

c)      Senior Agent Commissions Agreement – comprises both Direct and Overriding Commission

Templates (Standard Contract, Package, Compensation Plan etc.): When someone joins the company, he doesn’t get a custom made employment contract (unless he is some C-level executive ;)), instead his contract is copied from a template with some strict boundaries of individualization. To simplify and speed up the process of onboarding every company has its own sets of templates per job level, job functions etc. This helps in standardisation and logical grouping of rules.

Similar concept is also followed in FS-ICM where one can create Standard Contracts. Standard Contracts is logical grouping of Agreements and Rules. Templates are also synonymous to your Compensation Plans.

When an agent joins, he always inherits agreements and rules of mentioned Standard Contract. Business has the capability to select desired rules available from template and also individualize the rules to a certain extent.

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FS-ICM: Rule Based Modularization

With FS-ICM, changes in business can easily be reflected in a non-disruptive way as it involves just changing that particular rule which is affected or creating a new rule and adding it to existing or new agreement.

You can also scale up your application scope quickly to cover new channels, agent roles etc. by quickly configuring New Agreements and Standard Contracts by reusing existing Rules.

With these 3 principles of Rule Based Modularization, SAP FS-ICM leverages Object Oriented Approach of software design to the fullest and helps in implementing Modular and hence a Scalable Solution.

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