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Busting Common Channel Incentive Management Myths, Part 2

For high-tech companies, revenue management techniques are vital to protect revenue at risk and shore up profit margins. Yet many companies rely on ineffective or outdated revenue management systems and surrender revenue in the process.

In my last article, I discussed three myths of revenue management affecting many high-tech companies. First, some companies think that their revenue management processes are effective, and that there's no leakage problem — yet this rarely is the case. Second, many companies know their revenue management process is ineffective, but they consider leakage a necessary cost of doing business — yet leakage is avoidable with the right system. Finally, many companies rely on spreadsheets to manage revenue — yet spreadsheets are error prone and ineffective.

Now it's time to dive into the final two myths of revenue management.

Myth 4: The ERP system will do it
Enterprise resource planning (ERP) system vendors say their platforms can perform revenue management functions with ease, yet this is not an accurate picture. ERP systems are incredible for many tasks, OK at some, and inept at others.

Take agreement management. Most ERP systems have a module that handles the authoring and approval of contracts and agreements. However, many of these applications can't handle complex, tiered agreements and related subcontractor flowdowns. Finally, many rely on proprietary authoring tools instead of industry-standard tools, such as Microsoft Word.

ERP systems also struggle with incentive validation. The applications can handle basic incentives and discounts, but most high-tech companies require much more than these basic incentive structures. They often craft elaborate incentives to drive specific marketing goals.

Bottom line: High-tech companies seeking to optimize channel relationships and create differentiated, higher-impact offers and incentive strategies quickly realize the limitations of their ERP platforms. This forces many companies to rely on the same old incentives, which leave money on the table and put partner relationships at risk. The alternative is to implement a custom ERP application, but these add-on systems create endless short-term and long-term issues with requirement management, application development priorities and backlog, bug fixes, platform support and migrations, data protection, and backups. The list goes on and on.

Myth 5: It's just too complicated to solve
Finally, there's the throw-in-the-towel myth about revenue management. Since revenue management cuts across finance, operations, sales, and marketing, many companies view it as a problem too large to solve. Revenue management is a cross-functional challenge, but it can be tackled successfully using the following approach.

  1. Visibility: Evaluate your revenue management baseline at the departmental or divisional level to establish a baseline and view of the current state of data. Then compile, categorize, tag, and store that data in a singular location. This will allow all divisions to access data, review assets, and draw analytics.
  2. Control: Implementing process changes and new systems and tools can help you leverage the information in the repository for prioritization, scheduling, and more advanced reporting. This is the first major step in achieving automated, data-driven revenue management.
  3. Insight: Process optimization and advanced tools take revenue management to the phase of achieving true insight. Companies can compile statistically valid data about the performance of their contracts and incentives, as well as transaction-level details about rebates, discounts, and chargeback claims. This insight enables companies to answer crucial business questions and begin running their businesses differently.
  4. Competitive advantage: A truly optimized revenue management system can be the basis for a sustainable competitive advantage by strengthening partner relationships, better anticipating customer needs, reducing internal costs, and improving overall corporate performance.

Bottom line: High-tech companies need to realize that, even though revenue management can be cross-functionally challenging, it is manageable by evaluating contract, incentive, and pricing systems at the divisional or departmental level. By gaining visibility into revenue data, compiling that data into easy access stores, and adding advanced tools, companies can gain full control over revenue management.

Most high-tech companies seek to improve supply chain operations, identify new growth markets, and increase new product success rates, but many are not even attempting to improve their approach to revenue management.

A siloed approach supported by manual and spreadsheet-based processes leaves 1-5% of total channel revenue at risk. High-tech companies that adopt an integrated revenue management solution for sales contracts, post-sales incentives, and compliance management can:

  • Improve overall price realization
  • Optimize channel sales performance while gaining more control and insight into trading partner relationships
  • Use post-sales incentive programs as a strategic business lever
  • Introduce higher-impact incentives faster than their competitors
  • Reduce revenue exposure and margin erosion

The five myths of revenue management are no more. It's time for companies to accept the flaws within their systems and implement an integrated revenue management solution to reduce revenue leakage and improve the bottom line.

7 comments on “Busting Common Channel Incentive Management Myths, Part 2

  1. SP
    May 22, 2014

    Companies ttry many options whether its a big ERP system or simple excel sheets but there is always revenue leakages and its very difficult to control. And then the only option is cost cutting in daily operations of the organization.

  2. Anand
    May 26, 2014

    Thank you for the article Michael. ERP systems cannot function properly in many revenue management fields, for example, off shoring contracts to the parent company is not handled well, because revenue systems change, and the HR directly has to get involved in managing the revenue systems with the ERP based on the people in the market, and the cost to company involved. Moreover, ERP cannot negate insurance frauds until they have already handed out the contracts and do not get response from the receiving party.

  3. Anand
    May 26, 2014

    @SP: Nice idea, but cutting operational costs would have to mean replacement of either employees, or existing technologies in office areas. For example, if records are handled digitally, then the carbon footprint in the office reduces, as there is less paperwork. This reduction also increases the revenue. 

  4. Michael Kerman
    May 27, 2014

     

    Anandvy,

    Your examples of where ERP systems struggle are extremely important but often overlooked or unanticipated.  Many companies believe that their ERP systems can handle all forms of revenue, incentive and contract management just as they handle Accounts Receivable and Payable.  As you've noted, this is frequently not the case.

    It often takes some major fiasco in terms of missed contract milestones, payment errors, drop in partner satisfaction or revenue/earnings miss to make the problem evident.

     

     

  5. Hailey Lynne McKeefry
    May 27, 2014

    @Michael, that is sad but true…This closing the barn door after the horse excapes. Hopefully, our discussions here will help shift the conversation before the terrible catastrophe occurs.

  6. Michael Kerman
    May 27, 2014

    Hailey,

    The hope is that Finance and Sales executives will start transforming their channel strategies… not too cut costs, but rather to optimize the mix of contracts, incentives, products and partners.  At Revitas, we believe that channel-driven organizations can achieve a sustainable advantage by integrating contract and incentive management, combined with powerful pricing analytics solutions.  This drives revenue, partner profitability and satisfaction while also protecting the bottom line.  

  7. Michael Kerman
    May 27, 2014

    Hailey,

    The hope is that Finance and Sales executives will start transforming their channel strategies… not too cut costs, but rather to optimize the mix of contracts, incentives, products and partners.  At Revitas, we believe that channel-driven organizations can achieve a sustainable advantage by integrating contract and incentive management, combined with powerful pricing analytics solutions.  This drives revenue, partner profitability and satisfaction while also protecting the bottom line.  

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