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Are Spreadsheets Wreaking Havoc on Your Profit?

The iPhone. Google Glass. OLED TVs. The technology industry is constantly pushing the boundaries of its products and capabilities while creating new ways to do business. But for all their wizardry, many of these same technology companies are managing their revenue as if they’re back in the 1990s.

Efficient and effective agreement and promotional programs are key to driving sales in the technology industry, where creative, intricate, and complex pricing incentive programs and promotions can help companies maintain a competitive edge by motivating distribution networks to move more product. But despite the importance of such promotions, many businesses manage them through spreadsheets, which are a costly mistake.

Some companies turn to spreadsheets because ordinary ERP systems, while great for basic financial management, can’t execute the complex calculations triggered by the performance of channel partners — anything from membership in a group purchasing organization to sales volume to percent of floor space. But worse, spreadsheets also expose your company to a number of risks. Here are four:

1. Risk of error: You can’t ensure that all changes to a spreadsheet are tracked, so changes to calculations or values can be made by one user without being noticed by others. When the change includes an error in a calculation or an entered value, it creates a ripple effect: Every outcome determined by the spreadsheet could potentially be invalid. With stakes that high, businesses need to know what changes are made and who’s making them.

2. Risk of miscommunication: Multiple users working with departmental spreadsheets are often operating in information silos. No one can see how the others are editing or using the spreadsheet. Users can never be certain that they’re using the most current and correct version of the document since their colleagues might forget to email updates, inadvertently update an older version, or forget to transfer local updates to a shared location.

3. Risk of unwieldy spreadsheets: The complexity and size of spreadsheets can explode given complex incentive programs, a high number of channel partners, a growing volume of goods sold, and the revenue dollars represented. Larger spreadsheets slow productivity as they become more difficult to navigate and manage. Additionally, as the size of a spreadsheet grows, the risk of miscalculations increases. When it takes longer to accomplish tasks, users facing time crunches will often have to rush to complete their work, creating greater potential for error.

4. Risk of delays: Activity is nonstop when dealing with incentive programs. Performance triggers are complex and new data is entered frequently to execute calculations and payments. Employees can struggle to keep up with the high volume of activity. When employees are overwhelmed with work and activity levels are so high, mistakes can easily be made and go unnoticed. Such mistakes can be especially damaging when payments to channel partners are inaccurate or late. Keeping partner satisfaction high within the channel is of vital importance to high-tech companies, as indirect sales can account for up to 50 percent of total gross revenue.

The spreadsheet data prompts payments to fulfill incentives, meaning these risks can chip away at your bottom line. Even a small error can have big consequences, such as overpayment, underpayment, or duplicate payments. Such errors can slash margins, upset channel partner relationships, and drain a business’s bottom line. According to both PricewaterhouseCoopers and KPMG, more than 90 percent of corporate spreadsheets contain material errors, which can cost businesses an estimated $10,000 to $100,000 per error per month.

If your business uses spreadsheets to track and manage promotions and incentives, it’s time to automate and fill the gap left by existing ERP systems. Look for a solution that automatically tracks milestones and executes payments. Such solutions serve as a single repository that’s always up to date and tracks changes, eliminating the possibility of miscommunication. As technology companies advance nearly every aspect of our lives, it’s time for them to advance their own systems with automated revenue management, moving beyond spreadsheets to a solution that reduces risk and shores up the bottom line.

2 comments on “Are Spreadsheets Wreaking Havoc on Your Profit?

  1. Barbara Jorgensen
    January 9, 2013

    I've managed for most of my career to avoid spreadsheet use. The few times I tried, I made input errors and dozens of other mistakes. They are definitely not user friendly, and it's scary to think so much business is conducted that way.

  2. t.alex
    January 9, 2013

    Sometimes I have seen spreadsheets with macros and stuff so complicated that the company needs to have some IT guy to maintain it. They should have invested in a proper system in the first place.

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