outsourced vs. in-house incentive program management · in-house incentive program management...

Incentive Industry White Paper

Outsourced Vs. In-House Incentive Program Management

Decision Factors, Programs and Service Types

DEVELOPED B:

SUMMER, 2006

Copyright 2006, Online Incentive Council


Outsourced Vs. In-House Incentive Program Management Decision Factors, Programs and Service Types The Online Incentive Council (OIC) of the Incentive Marketing Association and Wichita State University researcher Dr. Victoria Shaffer, Ph.D., conducted a study designed to discover how incentive programs run in-house or outsourced compare in these key dimensions:

Functionality -- Is there a difference in the functionality of incentive programs built in-house vs. outsourced?

Solution Elements – How do in-house vs. outsourced programs utilize such components as print communications, emails, online progress reports and reporting, award point tracking, and participant surveys?

Awards & Rewards – What are the key differences in award and reward types administered through in-house vs. outsourced programs?

Frequency – How do the number of communications, reporting instances, and award updates compare for in-house vs. outsourced programs?

Decision-making – What are the key drivers for or against outsourcing a typical company’s incentive program(s)? Findings from this study are provided in the following white paper.

Methodology In April of 2006, the OIC e-mailed a survey to 20,000 subscribers of VNU Publications; information received from 255 individuals, representing companies ranging in size from less than 100 employees to 50,000+ was assessed. Companies represented were from a wide industrial cross-section that included manufacturing, pharmaceutical, healthcare, gaming, business services, retail, financial and more. Respondents were just as varied, with more than half (56.3%) identifying themselves as “decision influencers,” 46.4% as actual decision makers, and 34.7% as program administrators. Note that respondents could check all such roles, so many respondents performed multiple tasks within their incentive programs. In some instances, values do not total 100%. This is because respondents could check more than one response.

1 All rights reserved Online Incentive Council, 2006 Page


Differences At A Glance The choice to run an incentive program in-house or to outsource it involves a variety of considerations that vary based on the size of the company, the type of program being implemented, the number of participants, the types of awards/rewards being offered, and more. Current or most recent incentive programs sponsored by the companies were run predominantly in-house (81%).

Outsourced Programs In-House Programs

In General … Overall higher degree of complexity (design, communications, and award offerings).

Simpler in structure, less frequent communications and greater reliance on cash or gift cards.

Audiences More often target indirect audiences such as dealers and distributors

More often target direct audience programs (direct sales and employees other than sales)

Communications Integrated communications (email, print and website)

High frequency of initial and ongoing communications

Greater reliance on in-person interactions

Award/Reward Choices High degree of award/reward choices including travel and brand-name merchandise

Heavy reliance on cash awards, symbolic awards, gift cards and certificates

Company Size Large companies (5,000+ employee companies)

Smaller companies (fewer than 5,000 employees)

Industries Manufacturing industry twice as likely to outsource

Less likely to be deployed in manufacturing industry

Types of Programs Direct sales – 45.2% Dealer or distributor – 45.2% Employees other than sales – 45.2%

Direct sales – 58.3% Employees other than sales – 55.0%

Sponsoring Departments Marketing departments -- 35.7% Marketing departments -- 16.7%



Key Decision Factors

Of the companies surveyed …

69% have always managed their programs in-house 6.8% outsource to incentive program companies exclusively 23.4% alternate between in-house and outsource management

Decision To Outsource

Companies that have managed incentive programs by an outsourced provider and have also run programs themselves were of particular interest, because they can better judge the contrast. Factors having the greatest influence on their decision to outsource (in order of importance) were:

Have Outsourced And % Respondents … Run Programs In-House

Reduced Burden on Staff (through Outsourcing) 67.3% Superior Management and Administration 51.9%

Superior Job Structuring the Program 34.6% Lack of Appropriate Internal Expertise 32.7%

Superior Award Options 28.8% Costs 23.0%

Decision To Run Program In-House

Companies who run their programs exclusively on an in-house basis as compared to those who have alternated between outsourcing and in-house management indicated the following factors (in order of importance) as most influential in their decision to run their programs in-house:

Have Outsourced and % Respondents … Run Programs In-House Run In-House Programs

Exclusively Greater Control Over Program Design 46.2% 65.8%

Greater Control Over Program Implementation 40.4% 56.8% Costs 55.8% 45.8%

Enjoyment of Designing and Running A Program 23.1% 27.1% Additional survey options included company policy to stay in-house, lack of knowledge about what an outsourced program could

provide, lack of knowledge of outsourced programs that fulfilled the company’s needs, security of information, and “other.” None of these options had a major impact on the decision.



Desire for control over program design and implementation is more pronounced for companies who have only run their programs in-house than for those who have outsourced and run programs in the past. This may indicate that companies who have only run in-house programs may be overestimating the potential negative impact of giving up control to an outsource provider.

Primary Goals Respondents were asked to report the primary goal of their incentive programs:

In-House Programs Appear to target revenue at a somewhat lower rate

than do outsourced programs.

Outsourced Programs

Over half of the outsourcing respondents (compared with a third of in-house respondents) indicated that their primary goal was to Increase Revenue.

Program Success Regardless of whether the incentive program is run in-house or by an outsourced provider, respondents perceive their respective incentive programs as being successful in achieving their company’s primary goal.

In-House Programs Most indicate that their program was Very Successful

(36.7%) or Somewhat Successful (40.6%). 17.9% measured ROI.

Outsourced Programs

Perceive their programs to be Very Successful (38.1%) or Somewhat Successful (38.1%).

23.2% measured ROI.



OIC PERSPECTIVE

Best Practices for Measuring Success

This survey found that few companies in either group included ROI/Results

analysis, but many in both groups thought this analysis would be useful. This

low usage of objective program measurement may explain the general

satisfaction with program results in both groups – with no objective results

analysis, how did they know?

Whether the companies lacked the data to perform the analysis, or did not design the program to objectively measure

success can not be determined from this survey. These challenges can be overcome with proper program design and

execution. For best results, clear and measurable program objectives should be set up front, and progress against

objectives should be tracked and reviewed regularly.

Overview of Current Program Components How do programs managed on an in-house basis compare in terms of communications and other key functions?

Outsourced Programs

More likely to include mailed statements to participants and access to reports for program managers.

More likely to use mailers to communicate the program and to have online point information.

Higher frequency of brand name merchandise and travel awards.

More frequent deployment of surveys and quizzes.

In-House Programs

More likely to include Training and Progress Reporting of participant performance as compared to the goal.

Tendency to use gift cards, symbolic awards and cash.



Components Desired But Not Included Respondents indicated which programs they’d like to have but which were not included in their current incentive programs. Results show: 41.1% of in-house and 38.1% of outsourced respondents indicated that they would like to add ROI or Results Analysis to their

current incentive program. Both in-house and outsourced respondents reported that they would find Participant Surveys or Quizzes to be a useful addition

to their current programs (31.1% and 31.0% respectively). In-House Programs

Greater frequency to want Progress Reports of participant performance as compared to goal.

More than twice as likely to request Brand Name Merchandise Awards.

Three times as likely to desire Travel Awards.

Outsourced Programs

More than twice as likely to request Cash Awards.

Program Communication A closer view of communications presents the ways in which the details of incentive programs are communicated when managed in-house vs. on an outsourced basis. The responses reflect the basic differences in the structure of in-house and outsourced programs (e.g., outsourced programs are generally more complex involving multiple audiences).

In-House Programs Tend to use in-person interactions as the dominant

method of communication for in-house programs. Communications tend to take place in meetings.

Outsourced Programs

Tend to be web-based and use other remote communications such as print or email.

Greater tendency to also use print communications (i.e. posters, catalogs, flyers, mailers, etc).



OIC PERSPECTIVE

Best Practices for Communications

In–person communications being used more frequently within in-house

programs (54.4%) than for companies that use an outsourced provider

(38.1%) is tied to the type of participants (and therefore type of program)

being targeted.

In-house programs generally targeted non-channel employees, implying local access to participants for communications purposes. Outsourced programs generally targeted dealers and distributors who are geographically dispersed, making in-person communications more difficult. Whether a program was run in-house or was outsourced, respondents were generally very satisfied with program results. Respondents whose companies run in-house programs more frequently reported success when in-person communications are utilized. In addition, because in-house programs generally targeted fewer employees and have more limited resources, face-to-face communications are even more necessary.

Respondents whose companies use outsourced providers indicate higher levels of perceived success when remote forms of communication (such as online communications) are used. This reflects the fact that outsourced providers are more likely to make use of electronic communications to reach geographically dispersed distribution channel audiences.

Frequency of Communications In-House Programs Outsourced Programs

More likely than outsourced programs to receive program communication at launch and conclusion of the program only.

Frequency is slightly more closely tied to monthly updates.



OIC PERSPECTIVE

Best Practices for Communications

Frequent and attention-getting communications provide a powerful vehicle

for organizations to communicate their goals and strategies, linking

individual and team performance to those goals. For example …

An August 2004 national poll revealed that of those who

had participated in incentive programs, two thirds of those

who said they only receive communications at program

start also said they were dissatisfied with their program.

Two thirds of those who said they received

communications more frequently said they were satisfied

with their programs. In that same poll only 34% of the

people who received communications only at the program

start felt they had a chance to earn an award where 67% of

those who received weekly communications about the

program and 61% of those who received monthly program

communications believed they had a chance to earn.

Award Types In-house and outsourced programs vary significantly in the types of awards/rewards they offer program participants. In general, outsourced programs offer greater variety to include travel and brand name merchandise. In-house programs use more cash, gift cards and symbolic awards, perhaps because these award options are viewed as being easy to access and administer.

Outsourced Programs Brand Name Merchandise and Travel awards

distinguish outsourced programs.

In-House Programs

Reported more instances of offering cash, gift cards and symbolic awards.



OIC PERSPECTIVE

Value of Tangible Awards Over Cash

How can the value of an award increase over and above its actual monetary

value? The answer lies in four psychological processes that work together to

increase the perceived value of an award.

Dr. Scott Jeffrey, Ph.D., developed a watershed research study (funded by the SITE Foundation in 2003) which

explains how four psychological processes affect an award earner’s perception of tangible awards. This research

demonstrates that tangible awards are more effective motivators than cash.

I. EvaluabilityNon-cash awards are more difficult to attach a

monetary value to. Therefore, when participants focus their thoughts on the positive attributes

associated with the award, it is ascribed a higher value.

III. SeparabilityCash incentives tend to be aggregated with overall compensation. Non-cash incentives tend to be kept separate from compensation, thus standing out as

rewards for performance.

II. Justifiability

When a non-cash award is something that a participant would not purchase with cash on his or

her own, the participant can justify the award. Being able to justify the award means it has greater power

to be motivational.

IV. Social Reinforcement Non-cash incentives have trophy value and are more

likely to be acknowledged than would be the case if the award were in cash. There are also social taboos

associated with discussing cash. Thus, cash lacks the trophy value and social reinforcement attributes which

increase the perceived value of the award over cash.

§

Point Tracking Systems Participants reported how their companies track the points earned within their current incentive programs. Results of the survey are shown here:

% Respondents … Outsourced Programs In-House Programs Online points tracking 54.8% 32.2%

Manual (paper-based) system 28.6% 40.0% Do not have points tracking 16.7% 27.8%

Like the communications used by in-house administrators, point tracking used by in-house programs tends to be more manual and informal. 27.8% of the in-house programs surveyed do not track points at all, whereas only 16.7% of the outsourced programs report no system for tracking points. Furthermore, 40.0% of in-house respondents indicate that they use a manual, paper-based points tracking system, while only 28.6% of outsourced respondents track their points manually. By contrast, the outsourced programs are characterized by a more formal, electronically-based approach to incentive management. 54.8% of outsourced respondents track their points online, whereas 32.2% of in-house respondents report using an online points tracking system.



Report Management Respondents indicated how their incentive programs were reported and managed: print, email, online, other:

% Respondents … Outsourced Programs In-House Programs Utilize Print Reports 26.2% 40.6%

Utilize Email Reports 33.3% 35.0% Use Online Reporting Tools 35.7% 15.0%

Use Other Management Methods 4.8% 9.4% Following the general trend of these analyses, in-house respondents were most likely to utilize print reports (40.6%) and email reports (35.0%). They were less likely to use online reporting tools (15.0%) and other methods of management (9.4%). Conversely, outsourced respondents relied primarily on online reporting tools (35.7%) and email reports (33.3%). A smaller proportion used print reports (26.2%), and very few used other methods of management (4.8%). Again, these findings are consistent with in-house programs as more informal operations and outsourced programs as more electronically driven operations.

Participant Feedback In-house and outsourced programs were similar in their methods of obtaining participant feedback. Feedback was most commonly obtained online, although outsourced programs were more likely to use this method than in-house programs (45.2% versus 34.4% respectively). However, a large percentage of both types of programs reported that they did not obtain participant feedback. The least frequently occurring forms of participant feedback for all programs were in print, in person, via email, and other methods.

In-House Programs Outsourced Programs

Show less feedback provided online.

In-person feedback is shown to be twice as frequent over in-person feedback provided through outsourced programs.

30% reported not providing any feedback at all.

More likely to use online feedback than in-house programs.



Time Spent by Program Administrators Time reported by program administrators for outsourced programs was indicated as being more than the time required for in-house programs. Shown below are responses of survey participants who were asked what % of their average work week was spent on “incentive program-related tasks.”

In-House Program Administration Time Outsourced Program Administration Time

OIC PERSPECTIVE

Administration Time

This data is not surprising once you consider that in-house programs appear

to be less complicated and are generally centered on internal audiences,

rather than external audiences such as channel partners.

As demonstrated through this study, outsourced programs involve more web-based communications, online reporting

tools, brand name merchandise and travel awards, and are primarily concerned with dealer or distributor programs –

which entail much greater amounts of design and administrative tasks.



Appendix

ACKNOWLEDGEMENT We’d like to thank Melissa Marks of Ohio State University for her invaluable support in helping

with this important study.

OIC MISSION The Online Incentive Council is a Strategic Interest Group of the Incentive Marketing

Association. Its goal is to create a greater understanding of how technology applications and

best practices can be leveraged to maximize incentive and motivational program success. Our

primary focus is to conduct, participate in, and share the results of studies and surveys

containing enlightening information that will prove beneficial to the incentive industry and

corporate America.

CONTACT US

801 North Mill Street, Suite R

Naperville, IL 60563

Phone: 630.369.7780

Fax: 630.369.3773

Email -- [email protected]

www.useonlineincentives.org


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