Article: Measuring and Managing Customer Profitability
Author: Gary Cokins
Publication: Strategic Finance, 2015
As companies shift from a product-centric focus to a customer-centric focus, a myth that almost all current customers are profitable needs to be replaced with the truth. Some high demanding customers may indeed be unprofitable! Unfortunately, many companies’ managerial accounting systems aren’t able to report customer profitability information to support analysis for how to rationalize which types of customers to retain, grow, or win back and which types of new customers to acquire. With this shift in attention from products to customers, managers are increasingly seeking granular nonproduct-associated costs to serve customer related information as well as information about intangibles, such as customer loyalty and social media messaging about their company and its competitors. Today in many companies there’s a wide gap between the CFO’s function and the marketing and sales function. That gap needs to be closed!
Activity-based costing (ABC) is the method that will economically and accurately trace the consumption of an organization’s resource expenses (e.g., salaries, supplies) to products and to the types and kinds of channels and customer segments that place varying degrees of workload demand on the company. It should no longer be acceptable not to have a rational system of assigning so-called nontraceable costs to their sources of origin. ABC is that system. Yet many companies still don’t use it.
Successful performance management initiatives involve more than purchasing and implementing software. Despite good intentions, there’s a high probability that you’re not getting everything you should from your system.
by Craig Schiff
As with most corporate initiatives, the intended goal of performance management and what it actually ends up achieving are often quite different. Many companies aren’t even aware of the real purpose of performance management. But it doesn’t have to be that way. To understand what kind of performance a performance management system is meant to manage and how to implement an effective performance management program, it’s helpful to start with a definition: Business performance management is a set of integrated, closed-loop management and analytics processes that address financial as well as operational activities. Done properly, it enables businesses to define strategic goals and then measure and manage performance against those goals.
Ultimately, what is being managed is a company’s performance in achieving its goals. That’s the intent, at least—but far too often not the reality. Let’s look at why this is often the case.
As performance management vendors introduce new products, especially new cloud products, owners of older versions need to carefully consider their continued investment and reliance on their soon to be ‘frozen in time’ products.
by Craig Schiff
As the areas addressed by business performance management have expanded, existing performance management products have struggled to keep pace. For this reason many vendors have introduced newly architected replacements. In addition, the vendors actively involved in recent merger and acquisition activity found themselves with overlapping and redundant products. As replacements and new functionality intertwine, the byproduct is often a graveyard of dead products. While vendor strategy and user reaction will vary, we can identify good approaches and those less so.
Let’s look at the vendors first. At some point in time, every vendor needs to take a leap to a new product. This is different than the normal release process that is largely about bug fixes and new enhancements. Dramatic technology changes, major new areas of functionality or acquisitions often create the need for redesign and replacement. While this is usually the right thing to do to stay competitive in the marketplace, it’s not without its major challenges.
Link to full article: https://www.bpmpartners.com/wp-content/uploads/2018/11/FrozeninTime.pdf
As organizations demand greater performance functionality, BPM software applications are increasingly part of a suite of offerings that continues to rapidly evolve to meet underserved areas of the enterprise.
by Craig Schiff
During this past year, business performance management (BPM) became a core offering of the world’s largest software vendors. IBM, Oracle, and SAP all now have market-leading products in this area. These solutions are not primarily homegrown but instead are the result of prior acquisitions. This group of companies, along with Infor, SAS, and several others, essentially forms the top tier of BPM vendors. Their offerings tend to be comprehensive, combining BPM with business intelligence (BI) and in some cases ERP.
The next group of solution providers is focused on what we define as financial performance management suites. This consists of budgeting, planning, forecasting, consolidation, and reporting, as well as scorecards and dashboards. While this group has been shrinking over the years due to acquisitions by BI or ERP vendors, it is now rebounding and is more robust than ever. Some vendors that had been overshadowed in the past, such as Longview and Clarity, are now coming into their own. In addition, some products developed outside of the U.S.
Link to full article: https://www.bpmpartners.com/wp-content/uploads/2018/10/BPM-Goes-Mainstream.pdf
Many companies have achieved great results by rolling out performance management software. But to emulate those successes, today’s implementers need to take proactive steps to learn from early adopters’ experience.
by Craig Schiff
Business Performance Management (BPM) has been around long enough that it is often viewed as a proven discipline. Companies of all sizes, and in many industries, have indeed gained a competitive advantage by using BPM technologies to improve decisions enterprisewide. Many additional companies, seeing those results, are now moving forward with BPM engagements. Some are risk-averse and waited to see demonstrable success before jumping in. Others were preoccupied with updating underlying transactional systems before getting started with BPM. Either way, these mainstream adopters expect to achieve results similar to the companies that went before them. Some are basing BPM decisions on erroneous assumptions — and they may be heading toward an expensive performance management failure.
The success of BPM’s forerunners gives today’s adopters a false sense of security. Many feel the companies already running performance management software have worked out the kinks with these technologies. Some are following BPM pioneers like lemmings, thinking implementation is now easy and risk-free. What they don’t realize is that early adopters did their homework, engaged experts, and learned a lot along the way. They succeeded because of the close attention they paid to potential pitfalls in the vendor selection and implementation processes.
Link to full article: https://www.bpmpartners.com/wp-content/uploads/2018/11/Watch-Your-Step.pdf
It is important to decide on the requirements for your new budgeting, planning, and forecasting system prior to looking at vendors. Making sure the team understands the differences (and similarities) of these key processes will go a long way to ensuring the right requirements are developed.
by Craig Schiff
A series of key business processes in successful business performance management (BPM) systems is planning, budgeting and forecasting. This area is well understood by people working in the Finance department, misunderstood and generally disliked by budget managers throughout the company and of little interest to everyone else. However, the team charged with identifying the ideal technology solution to support the company in this area needs a solid understanding of what’s involved.
First, there is some confusion around the terms planning, budgeting and forecasting. Although related, these terms mean distinctly different things and have different technology requirements as well. Let’s start at the top: planning. Most companies put together an annual plan that is part of the larger strategic plan of the company, usually covering three to five years. This is where the senior executives lay out their vision for the company at a high level. For example, they may show total revenues growing at ten percent per year while expenses are shrinking at five percent per year and the margins are improving accordingly. These plans usually do not show the details of where the increases or decreases are coming from. In some instances, a more detailed version of the strategic planning process can include scenario modeling and what-if analyses. The plan is a way to share the intended future path of the company with investors, board members and management.
Link to full article: https://www.bpmpartners.com/wp-content/uploads/2018/11/BudgetingRequirements.pdf
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