At the end of the third business quarter, Sten Lepp, the chief audit executive at NorthStar Energy Corp., received an email from the head of sales, Henry Klassen:
"Foryour information, on the 8th of July, we discovered that a salesperson, Andy Pine, used standard consumption graphs for certain customers instead of the customers' actual consumption history. Thus, sales to those clients were made with wrong assumptions. As soon as we discovered the manipulation, I had Pine write an explanatory letter and sent him home. We are processing termination documents, and I intend to deduct sales bonuses from his last paycheck to recoup monies. I am truly sorry for the incident. As a manager, it is difficult when a team member breaches trust. "
After reading the email, Lepp wanted to better understand exactly how the salesperson manipulated sales. How had such a standardized business process become so trust-based? The email looked like an attempt to sweep the matter under the rug as quickly as possible, so Lepp initiated an internal investigation.
The pricing strategy for each customer was based on the customer's profile. One of the inputs that shaped the profile was the customer's historical energy consumption data, which was used to project future consumption patterns. The pricing model then calculated the minimum selling price, allowing the salesperson to add a margin to that price while maintaining customer relations. This margin was shared between the salesperson and the company, and the salesperson's bonus was a percentage of the added margin.
In the previous year, energy market prices increased, resulting in a higher precalculated base selling price. Most of the sales team was struggling to add every cent to the sales margin without customers complaining about the cost increases. Pine, however, completed contracts and bragged about his bonuses. His colleagues grew curious, but no one dared to ask Klassen because of his close friendship with Pine. Their chance came when Klassen left for a scheduled vacation and Helina Saar, a recent hire, came in as his temporary replacement.
When the other salespeople approached Saar about the discrepancies in bonuses, she accessed Pine's portfolio in the sales system and found that he used creative solutions to ensure his bonuses while his co-workers struggled. Specifically, he changed the presumably unchangeable--the customer's profile. He manually changed inputs to the pricing model in the sales system...