"Where the 1990s were about reengineering, the 2000s will be about velocity and accelerated change." Bill Gates, Microsoft Corporation
In the old fable of the wise tortoise and foolish hare, consistent plodding wins out over speed. In today's business environment, any smart tortoise knows he better accelerate his pace or he will lose lose revenue, lose profits, lose customers to competitors. The race in today's Internet age is won on how fast a company can perceive change and act upon it.
But winning is not just about Mr. Gates' velocity. As the hare discovered, it isn't enough to be fast. You must also put that speed to work by responding to the competition in a timely fashion. To succeed, companies must be agile and that means paying attention so that you know what to change about your business and when you should change it. In today's business environment, there's no time to take a nap like the hare did. Consider that business evolves faster with new trends, new technologies, new product mixes; and competitors shake up the playing field weekly with new companies, new mergers and acquisitions, new business alliances, new strategic partnerships.
This rapid pace of change threatens even the most stable companies. Quick decisions are unfortunately often made without the benefit of needed analysis because companies just don't have the linkage between the information that they need. That is why companies such as Cisco, Gallo, HP, Global Star and Sun Microsystems are using revenue optimization techniques to stay on top of their businesses and maintain their steady growth in a time of cataclysmic change. They know that larger companies are under constant threat from new entrants who are agile, i.e., respond to change quickly. After all, these major players were once small themselves.
What is Revenue Optimization?
According to Janet Dang, general manager of Brio Technology, "Revenue optimization is a systematic process for capturing the full potential of revenue in a company's markets." Having this information allows companies to implement a customer-centric approach to sales, marketing and product development while maximizing revenues.
If your job is to create, refine and massage data warehouses, you may be wondering: what is the connection between your data warehouse and revenue optimization? To understand the answer to that question, you need to understand that a data warehouse only has value for strategic business planning if you have tools to help analyze the data and turn it into real information that helps you take action. That's what revenue optimization does. It translates data into metrics that managers need to steer their companies in the right direction. Revenue optimization helps managers tune their product line and their sales emphasis so companies can make the most money by focusing on the customers that most need a product and who are willing to pay a premium for it. At the same time, the revenue optimization process helps managers detect weak flanks.
Revenue optimization supports a continuing process of knowledge gathering and analysis that will constantly evolve an organization. According to Brio Technology, the process involves four stages:
- Assessment. Establish where you are, i.e., current conditions with a few key metrics automatically updated in real time.
- Diagnosis. When the metrics identify a problem or opportunity, drill down into the data to understand what's happening and select he most effective course of action. Managers have this diagnostic data available in real time, so they can ask and answer questions as they arise.
- Implementation. Take the required course of action and make sure everyone is on the same page by sharing the assessment and diagnostic knowledge among all key managers and departments.
- Evolution. Learn and change by immersing managers and department in knowledge-based decision making a business feedback loop that constantly adjusts a company's way of thinking.
Companies are finding it critical to evolve and adapt their business models to respond to changing marketplace conditions. In a recent survey conducted by Qualitative Marketing, an executive from Honeywell emphasized this when she said, "Business conditions are changing very rapidly. Companies have the challenge of having to be flexible to what business trends throw at you." In other words, companies must not only be fast, but they also must be agile.
The new business environment also demands that companies foresee trends and act ahead the curve. Revenue optimization provides an early warning system to identify these trends. Companies can actively seek ways to increase revenues and stay in front of the curve and ahead of their competitors. That is a lot better than reacting too late. Cisco provides a stellar example. By analyzing and comparing its assumptions against reality in the market segments, Cisco was able to identify a way to increase revenue by up to 20 percent.
How Revenue Optimization Works
Revenue optimization supports the assessment and diagnosis process by automating the process of building metrics for decision making.
Alignment. A former CEO of DEC said that what is more important to him is not the level of detail, but the ability to link and, therefore, analyze information from different departments (sales, marketing, R&D, manufacturing, etc.). This linkage is critical. Revenue optimization supports effective interdepartmental sharing of information. It allows employees to base their strategic direction and/or tactical activities on company objectives. It also allows employ- ees to respond quickly to changes in direction.
Sweet Spot. Revenue optimization also helps companies identify what they do best. According to Tom Osborne, director of applications at Brio Technology, "Identifying your sweet spot is determining which customers are buying which products, so you can sell more with less effort." It helps companies reach the right customers with the right products at the right time for the right price.
Rules in the Head. Revenue optimization taps into the unique insights "in the heads" of top performers and makes this knowledge available throughout the organization. Others can then emulate top performer behavior.
Revenue optimization systems can help companies improve pricing, manage margins, optimize configurations, penetrate markets and transition to an e-commerce model.
I am particularly interested in revenue optimization because it creates customer- centric organizations. Revenue optimization supports the premise that different types of customers respond to different approaches and offerings. It is challenging for large companies to gain the accurate knowledge they need about what their customers truly want and act on that information. Revenue optimization is an effective way to get this customer-based information.
Every company is faced with pricing decisions. June's column will look at pricing and the components of a customer's purchase decision.
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