In the last column, we discussed lead management as essential to effective CRM and how to create an effective lead management program that generates revenue and increases sales. Additional factors contributing to a company's growth and profitability include: new business paradigms (e-business), new channels (the Internet), mergers, acquisitions, new markets and new products. How does a company instill a level of predictability assuring growth and profitability in the face of constant change?
The demand on a company to make its numbers for the year can quickly shift the focus from growth and opportunity to cost-cutting measures. Managing the bottom line (budgets, costs) is often easier than managing the top line (growth, opportunities, revenues). Because its projections were not met, one Fortune 100 company laid off most of its customer care department to meet its profit numbers for the year. As a result, the company has high-paid account executives handling the customer service job, which further compounds their challenge to meet projections.
The level of complexity involved with multiple products as well as different business units and different customers makes it very difficult to predict growth accurately. If objectives aren't met, executives are left with little choice but to cut costs.
It is no surprise that in a recent survey conducted of senior executives in Fortune 500 companies, Qualitative Marketing found "uncertainty and unpredictability" are what keep executives up at night. In this same survey, executives complained that their current systems do not allow them to use the data in a meaningful way to manage growth, i.e., determine which products to offer to which markets through which channels. All of the executives interviewed said they get the reports but that the reports lack the critical information needed to make better decisions. Following are some statistics that highlight the problem with existing reporting systems:
- Forty percent said their reports do not give them the capability to spot and respond proactively to revenue generating issues.
- One hundred percent said their reports do not give them the capability to pursue their best opportunities and negotiate the best deals. They estimated that they leave 2 - 30 percent on the table because of missed opportunities.
A former CEO of Digital Equipment Corporation said, "As a CEO, you have the entire picture. The revenue management system allowed us to drill down to some very specific information. However, what I feel we lacked was the ability to link the different pictures. For example, you have different charts for sales, manufacturing, stocks and cash flow."
The "window of opportunity" is shrinking. Complex and changing external and internal factors shorter product life cycles, investment already made, limited capacity and shortened lead times to produce continue to compress decision-making cycles and exert even more pressure on cost containment.
The need to make the right decisions quickly is crucial to success. The following quote from John Chambers, president of Cisco, exemplifies why uncertainty keeps executives up at night. "The big won't beat the small the fast will beat the slow."
What if companies had tools to manage the top line that were just as effective as the tools available to manage the bottom line?
In the hotel and airline industries, leading companies such as Marriott Hotel and Lufthansa Airlines are using a method to manage the top line called revenue management. These industries deal with goods and services that expire over time. So if a hotel room or airline seat is not sold, the revenue opportunity is lost. They found that they could vary prices based on an analysis of historical supply and demand, and thereby maximize revenue. Revenue management is credited for resuscitating the airline and hotel industries by helping companies systematically manage the top line for the first time.
Until recently, this practice of managing top-line growth was not available to manufacturing companies. Brio Technology, based in Palo Alto, has coined the term revenue optimization to describe its pioneering of this practice for manufacturing companies.
Revenue optimization is emerging as a new category to allow executives who have profit and loss responsibility to manage their top line as well as their bottom line. For example, Gary Mattevi, a vice president and general manager with Cisco, said that "through the use of Impact (Brio's revenue optimization application), we have improved our ability to analyze market and product activity at a level not previously available. The information allows management information customized to our business."
New technologies and methodologies are giving executives critical decision- making information and analysis previously not available to them. May's column will cover the value of revenue optimization and how to apply it.
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