Quicker, better, more actionable: the benefits of strong profitability management
A robust but nimble profitability management framework provides transparency into bottom-line performance, as well as insights into the business levers that can be adjusted to impact future profitability results. Analytic outputs from the profitability framework support diverse end-user needs across pricing, margin analysis, customer segmentation, and more. The framework also delivers information to meet both enterprise reporting use cases and the needs of the business lines, including performance drill-downs into business segments, regions, products and clients.
Finance and business leaders are seeking better, faster and more actionable profitability insights to:
- Better understand product pricing and offset current margin pressures
- Balance the trade-off between acquiring market share and defending profitability
- Drive product optimization by understanding cost dynamics, cost behaviors and other factors to capture the true cost of a product
- Generate product campaigns and calculate the impact on enterprise profitability (e.g., better optimize existing infrastructure capacity)
- Create opportunities to cross-sell clients into more profitable product offerings
- Create additional transparency for costs incurred at a corporate level and, based upon an agreed taxonomy, generate a cost narrative to foster better engagement and dialogue within the enterprise
- With strong profitability management capabilities, FIs can quickly move among the agendas of growth, cost containment and crisis management according to market demands.
Pathways to better cost and profitability management
Technology and data quality are often ascribed as the culprits in underperforming profitability mechanisms. However, successful profitability management requires more than just technology. FIs should focus on:
- Strategic outcomes — ground the modernization of profitability capabilities with a clear understanding of what decisions need to be enabled. The entire transformation must focus scope and priority on where it adds value.
- The right tools — adopt transformative technologies, such as cloud-based tools and data virtualization, and create the right technology architecture rather than forcing a one-size-fits-all tool to execute the end-to-end process.
- Simplified methodologies — utilize the “strategic outcome” test to drive significant simplification of the end-to-end process. Often, unnecessary granularity are generated for the sake of creating data or to support outdated/discontinued requests. Establishing a clear link between data/insights produced and the strategic outcome they drive is critical.
- Traceable and trusted data — build trust in reporting profitability analytics based on the ability to trace cost and revenue data from profit and loss statements back to the general ledger, as well as through a structured master data management program.
- Self-service insights on demand — focus on creating standing profitability performance packs for leadership that are consistent across the enterprise, available early in the month, and based on standing, business-as-usual use cases. In addition, enable finance and business users to access curated and certified data sets to allow for analysis on demand and generate customized self-service insights.
- Training and adoption — embed profitability insights within key finance processes and workflows so they are used to support day-to-day management, rather than consulted only sporadically.
Profitability management is most valuable when it applies a consistent lens across the enterprise, while also integrating data from various functions and lines of business. This avoids redundancies in reporting, supports informed decision-making and better tracking of the outcomes.