Challenges of Merging Sales Teams: Arck Systems & Lux Software

This paper will explore the history and background of Arck Systems and its merger with Lux Software, examining the details of the merger and discussing the challenges that arose from having different compensation packages for each company’s sales team. The analysis will cover both planned and unforeseen outcomes of incentive compensation plans and provide suggestions for Arck Systems. Background Arck Systems: Arck Systems was a medium-sized manufacturer of network computers utilized by numerous corporations for data management purposes.

Customers utilized the services provided by Arck to operate software that aided in the management of finances, compensation & benefits, and customer accounts, which was essential for the corporation's success.

Arck also developed an operating system along with its servers, while software applications were supplied by third party companies. To enhance its software business, Rob Chatterji strategically chose to acquire Lux Software, Inc. as part of Arck Systems' merger.

Lux Software, Inc was a prominent provider of middleware, which serves as an intermediary between various software applications.

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The increasing complexity of enterprise software applications has led to a growing demand for middleware. Arck's acquisition of Middleware Purchasing Lux was a strategic decision that will boost the software aspect of their company and complement their hardware operating system.

Arck swiftly acquired Lux Software, Inc. in a way that wouldn't interrupt operations. The merger came with incentives to retain engineers and software developers at Arck for at least three years, guaranteeing the preservation of talent and expertise. Unfortunately, no measures were implemented to secure the long-term commitment of the Lux Software sales team.

Shortly following the merger, Lux's executive vice president of sales declared his departure from Lux Sales, along with the sales management team.

Fortunately, no key sales people left. Arck’s CEO Chatterji was not concerned. Similarities in Sales Management However, Arck’s Executive Vice President of Sales, Bryan Mynor, seemed concerned about having to manage Lux’s sales team. Although Mynor had successfully managed Arck’s sales team and doubled the company’s sales since becoming vice president, he was unsure about the most effective way for managing Lux’s sales team. Lux and Arck operate their sales force under different methods, targeting different decision makers within a company.

Arck salespeople usually focused on targeting the CIO or CTO, as they were interested in the server performance specifications. On the other hand, Lux salespeople typically targeted the finance or administrative divisions, as well as those interested in software implementation. As a result, Mynor is accustomed to managing a sales team that is highly technical. In order to avoid disrupting normal business operations, Mynor chose to keep the two sales teams separate until he could determine how to integrate them seamlessly.

After speaking with Synder, who was previously the EVP of sales for Lux, Mynor learned that both Arck and Lux had similar approaches to sales management. These similarities included: salespeople being assigned to territories based on geography and industry, having the same levels of organization (district & regional managers, head of sales, and EVP of sales), allowing salespeople to set discounts at their own discretion, and having similar sales dynamics (with an average sale of approximately $350,000 for both). However, Synder noted that Lux's compensation plan was considered "aggressive" and "standard for the industry."

Mynor prioritized developing a strong rapport with Sharon Esteves, the top sales executive remaining at the company post-merger, over concerns about compensation. However, when Mynor examined the sales compensation structure for Lux salespeople, he discovered managing the Lux sales team might prove to be more difficult. The Lux Sales compensation package differed greatly from Arck's, as it featured accelerators that boosted a salesperson's commission percentage based on quarterly sales performance.

Arck Systems offers a compensation package with a potential 24% commission for salespeople. This includes a standard 9% base commission paid after the quota is met, as well as a $50,000 bonus if the $6 million sales cap is reached. The critical issue facing Arck Systems is determining the best way to manage the Lux sales team. Mynor observed that top performers at Lux earn significantly more than average salespeople, while the best sellers at Arck only make 4 or 5 times more than the average salesperson.

He acknowledges the importance of shifting the compensation plan to reflect a more personalized sales strategy, as opposed to Arck's emphasis on technical aspects. It can be difficult to predict how salespeople will react to changes in their compensation packages. These incentive programs are created with the goal of attracting and keeping valuable employees, particularly those in crucial positions.

Careful planning is essential for incentive programs to maintain employee motivation through acknowledgment of their hard work and accomplishments. Despite the tradeoffs associated with incentive compensation plans, they can serve as effective motivators for individuals to excel and drive the company's financial prosperity. Additionally, these packages provide a concrete means of showing appreciation and justly rewarding employees for their commitment and effort. It is important to recognize that these incentive schemes may not always yield desired results.

Incentive programs motivate employees to exceed their usual job responsibilities, rather than simply rewarding outstanding performance in daily tasks. Although these schemes can inspire employees to boost their earnings, they may also result in employees manipulating the system to reach specific goals. At Arck's Systems, Mynor noticed a disparity between Lux's pay and productivity levels, indicating that the compensation did not correspond with the amount of work being completed.

At Lux, the top sellers earn 30 times more than the average salesperson and are only 14 times as productive. On the other hand, at Arck, the top sellers make four or five times more than average and are equally productive. This discrepancy in compensation plans between Lux and Arck led Mynor to find Lux's plan impractical. Mynor struggles to understand Lux's compensation plan because he is accustomed to managing a sales team that sells technical hardware, a straightforward process requiring product knowledge.

The success of enterprise server sales hinges on product design rather than a charismatic sales team. On the other hand, selling enterprise software calls for a more subtle sales approach, convincing clients that their software is the top choice available. These distinct product requirements inevitably call for different sales compensation packages. As Arck Systems and Lux Software, Inc. operate as separate entities, potential conflicts are unlikely to arise.

However, conflicts will arise in the long run with Arck and Lux sales teams operating under one executive manager. Keeping the teams separate for the time being is a wise decision, as it allows Mynor to brainstorm, develop, and implement fair compensation packages for both teams. He requires time to create a system to merge the teams without losing talent from either side and to execute these changes smoothly, considering the complexity of tweaking compensation plans.