9-911-058

REV: JUNE 27, 2011

IAN LARKIN

Arcck Systtems (C
C)
Bryan Mynor reealized that sa alespeople were “giving aaway the farmm” by offeringg large discou
unts to
custommers when th he salesperso
on was on a high
h acceleraator. A 10% reduction in price would cut a
salesp
person’s comm mission by 10%. But sellling a deal in n a quarter w
where the saleesperson wass on a
“highh” acceleratorr could increaase his commmission by u up to 600%. “It’s clear w why these disscount
spikess are happeniing,” Mynor thought.
t “Wee’re paying ouur salespeoplee to game the system!”

Myynor decidedd to increase managemen nt scrutiny onn deals withh large discouunts. He fellt that
salesp
people and th
heir immedia ate managers at the districct and regionnal level (who
o were also p paid a
commmission on theeir subordinates’ sales) weere influenced
d too strongly
y by the incen
ntive to cut prrice in
order to bunch salees and take ad
dvantage of thhe commissioon acceleratorrs.

Too increase scru

utiny on disco
ounts, Mynorr reduced thee proposed diiscount level aat which man nagers
wouldd need to app prove a deal. These changges are shown n in Figure 1.. For examplle, a proposed d deal
with a 35% discoun nt had to be approved
a by the regional ssales manageer in the old ssystem. In thee new
system
m, Sharon Estteves, the U.S
S. sales manag
ger, would haave to approvve this propossed deal.

Myynor was co
onfident that increased atttention to biig discounts would redu
uce the amou
unt of
reven
nue Arck/Lux
x Software left on the table due to ramp ant discountiing.

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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.
ntended to serve ass endorsements, sources of primary d

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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.
911-058 Arck Systems (C)

Figure 1 Lux Software’s new discount approval system

Employee approving deal Largest discount Largest discount

possible in old system possible in new system

Salesperson 20% 10%

District manager 30% 20%

Regional manager 40% 25%

Country manager (Sharon Esteves) 50% 35%

EVP of Sales (Bryan Mynor) 60% 50%

CEO approval (Robbie Chatterji) Any deal above 60% Any deal above 50%

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.