9-911-057

REV: JUNE 27, 2011

IAN LARKIN

Arcck Systtems (B
B)
Deespite his co oncern aboutt Lux Software’s compen nsation plan n, particularlyy with regaard to
acceleerators, Bryan
n Mynor decid
ded to keep th
he plan the saame for at leaast two quarteers.

Six
x months aftter the mergeer closed, My ynor sat dowwn to review w sales of Lux x Software, w
which
remaiined strong. However,
H an analyst in Arrck’s Financee section poin
nted out somee concerning p
points
aboutt Lux Softwarre’s sales patteerns, shown in
i Figure 1.

Thhe report brokke down Lux x Software’s sales

s by week ncial quarter; week 1 is the first
k in the finan
week in the quarteer, while week k 13 is the lasst week. As nnoted by the bars in the ch hart, nearly 770% of
Lux Software’s
S salles occurred in
i the last weeek of the qu uarter. Theree was also a n noticeable spike of
deals occurring veery early in th
he quarter. In nterestingly, b
both spikes wwere correlateed with largee price
cuts. The average discounts on n deals closinng early and llate in the quuarter (shown n by the line oon the
chart)) was around 40%, comparred to discoun nts of 30% or less in the miiddle of the q
quarter.

My ynor stared at
a the sales and
a discountt figures. Att Arck, many y more sales closed late iin the
quarteer than early in the quarteer, but 70% off sales closing
g in a single w gure1.
week seemed a startling fig
And Mynor
M wondeered why discounts seemeed to be so mu uch larger at both the begiinning and th
he end
of thee financial qua
arter. “Why do
d discounts follow a U-sh hape?” Mynorr wondered.

1 Recen
nt research has documented
d that, for at least one enterprise softw
ware vendor, threee-quarters of traansactions occurr on the
last day
y of the financia
al quarter. See Ian Larkin, “The Cost of High-P
Powered Incentiv
ves: Salespersonn Gaming in Entterprise
Software,” Harvard Business School Wo orking Paper.
______________________ __________________________________________________________________________________________________

Professo
or Ian Larkin prepa ared this case. The companies mentiooned in the case aree fictional. HBS casses are developed ssolely as the basis for class
discussiion. Cases are not in data, or illustrationss of effective or ineffective managemeent.
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911-057 Arck Systems (B)

Figure 1 Lux Software sales and average discount by quarter in first 2 quarters after merger

% of sales and average discount by week (First Quarter after merger)

70% 50%

45%
60%

40%

50%
35%

average discount (line)

30%
% of sales (bar)

40%

25%

30%
20%

15%
20%

10%

10%
5%

0% 0%
1 2 3 4 5 6 7 8 9 10 11 12 13
week in quarter

Source: Casewriter.

This document is authorized for use only in Prof. Agrata Pandey's HRM. at Indian Institute of Management - Rohtak from May 2020 to Nov 2020.