Profitability Solutions and Business Intelligence

The analysts are talking about the future of the Business Intelligence (BI) in the form of a) Predictive analysis b) Profitability analysis c) Benchmarking. The same is happening in the BI vendors market. The BI vendors are preparing to capture this market opportunity by consolidating their positions either by acquiring the ABM tool vendors (e.g. ABC Tech by SAS in 2002 or ALG by BO in 2006) or by having some tie up with the ABM vendors (e.g. Teradata, Cognos are having tie-ups with companies like Acorn or Hyperion etc.) The topmost measure in any Performance Management initiative of any organization is “Maximize Shareholders’ Value”, which can be achieved by increasing the profitability by acquiring and retaining profitable customer segments and improving internal productivity. The Enterprise BI is incomplete without the Customer Intelligence (CI).

Customer Intelligence

Unless one understands the Customer Profitability (read as Account level Profitability in Banking or Subscription level profitability in Telco), one cannot acquire profitable customers or retain them profitably or convert unprofitable customers into profitable ones. In short CI is incomplete without the understanding of Customer Profitability. This current profitability information then can used to calculate future potential or Customer Lifetime Value (CLV).

Organizations provide Products or Services to their customers. The profitability of a customer is dependent on the products or services she buys. At the same time it also depends on how demanding the customer is on the way in which those products or services provided to her. For maximizing profitability best customers should buy best product or services of the organization. For this one should also understand her Product or Service items’ profitability.

Operational Intelligence

For improving the organizational productivity one has to understand the internal business processes and the cost drivers for those processes. To improve the performance of the process one has to work upon the performance measures for the process. Performance Measures are generally of three types; a) Productivity b) Quality c) Time. By understanding cost drivers and managing them properly enhances the performance of the process financially.

To remove hindrances in achieving the Key Performance Indicators (KPIs) one has to understand ‘Where’ it is failing (e.g. Regions, Products, Customers, Channels etc.) and ‘Why’ it failing (e.g. Root cause analysis). The ‘Where’ part can be handled by the drill-down on the performance of the measure and ABM can help in finding the ‘Why’ part. It also gives the costs attached to the process. With the help of this information organizations now can plan the improvement initiatives in the organization.

When there are number of initiatives in the organization that can be planned, it has to prioritize them. This can be done with the help of 2x2 graphs. This is nothing but simple scatter graphs superimposed with a cross on that converting it into four quadrants. (e. g. Process chart with ‘Importance to Strategy’ v/s ‘Potential to change’ will give processes that are having high importance to strategy with high potential to change should be chosen first for improvement initiative)

To summarize Profitability Management using Activity Based Management (ABM) can help organization improve the overall performance of the organization. This information can be used by other solutions in the Enterprise BI like Customer Intelligence, Operational Intelligence and Financial Intelligence.