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Semiconductor Companies Bloated by Unhealthy Business App Diet

As a child I recall my mother telling me to take care of the pennies and the dollars would take care of themselves. That was, and still is, good advice. Having spent over 20 years in business application industry, I have also witnessed how many semiconductor and component manufacturers are very focused on watching those pennies while the dollars slip away.

Too often have I seen companies triumphantly “save” $150,000 on system investments but lose a business opportunity worth $1,000,000 or more. These decisions happen for a variety of reasons and are mostly due to either not believing the potential return on the investment, viewing all software offerings as a commodity or are the result of internal politics between various departments.

This has been especially true for revenue management investments. Unlike, human resources or supply chain and product lifecycle management (PLM) investments where the scope of the solution is well defined and the list of vendors is finite, revenue management is still the last bastion of homegrown solutions, Excel spreadsheets, and silos of tools and process.

When thinking about revenue management, the key processes that touch the top line, including pricing, quoting, contracts, channel data, and incentives — most companies do not think of a single process. The solutions for managing point of sale data, registrations, quoting, special price approvals, contracts, rebates, and other related processes are not viewed as a single process.

The requirements and tools are developed over time, by different people in different departments and as a result an IT landscape evolves to five and as many as 20 homegrown tools, ERP extensions and manual processes to manage these functions. Here is something I learned from my wife (clearly the women in my life are a dominant force) — when buying food at a store if it has more than two to there lines of ingredients, it can't be healthy for you. If your revenue management landscape consists of more than three systems your business application “diet” may need some help.

The large number of tools and processes and the disconnects between them are exactly where the money is left on the table. In 75% of semiconductor companies' point of sale (POS), ship and debit, global pricing, quoting, and design registrations are separate processes, with separate tools that require manual work to connect the dots. At first glance that may appear OK, after all POS data and ship and debit are financial processes, while registration tracking is channel sales function and quoting is a sales operations and sales process.

However, this is a perfect example of where companies leave copious amounts of money on the table. A channel posting POS transactions expects the associated registration to be extended, that registration in turn provides the channel with a certain level of pricing that should be enforced at the time of quoting. Now, the linkage is clear and not having it means incorrect transactions will be executed.

Another example would be the accurate reward for demand generation vs. fulfillment.  If we take a $1 billion company, with $500 million of revenue executed through the channel as an example. Then assume, the channel gets paid 10% for fulfillment and 25% for demand generation we are now talking about the difference between paying $50 million or $125 million — a 5% error on this $75 million gap equals $3.75M annually. In this context saving even $1 million on three separate software solutions, that provide no linkage between the processes without significant custom development work, seems less of an ideal path and yet it is surprising how many companies still go down that path.

In analyst reports by Gartner, Yankee Group, and Accenture, as well as in public case studies, it has been repeatedly demonstrated that the silos of software and processes associated with Revenue management leave as much as 2% to 5% of top line revenue on the table every year. A case study published by Gartner with STMicroelectronics showed how consolidating 19 home grown tools and extensions on their ERP system to a single Revenue management system by Model N delivered millions in value within the first year.

So how do companies still think that having their bloated “diet” of five or 10 systems mixing homegrown tools and customized packaged software can truly deliver the same value and that the perceived “savings” are worth it. It goes back to either politics or not believing the ROI. While the former is much harder to address the latter is surprisingly easy to demonstrate. Poor tools and processes in revenue management leave a clear fingerprint on business performance.

Transactional data can be analyzed by examining for example consistency of price execution, discounting controls, volume compliance, channel incentive payments and show in a clear and quantitative way how much money the company is actually leaving on the table annually. Model N offers workshops to help companies identify and quantify those buckets of value.

By removing the unhealthy ingredients from their Revenue management landscape and managing these processes as a single connected continuum semiconductor and component manufacturers can manage their pennies and capture the dollars.

3 comments on “Semiconductor Companies Bloated by Unhealthy Business App Diet

  1. _hm
    November 22, 2014

    Removing the unhealthy ingredients – will it come free? How much an organization to invest to get rid of old tools, get new tools, train all man power?

    How much time will it take? Will it have other fall-out? These are tricky circumstances and each organization may needs to tread it very carefully.

    I agrree final goal should be what you described. But it is painful and expensive too. 

  2. Chanan Greenberg
    December 17, 2014

    I agree that the process can require an investment which may well entail not just captial investment but also change management which sometimes can cost more than just tools

    That said, I have seen Supply Chain investments that cost more and offer lower returns get approved simply becuase they are better understood or even expected and not becuase they carry a better ROI. 

    My point is, I am not saying every company should just move forward, I think the best approach is each compamy should invest a little time (a few weeks of 2-3 people either internally or extenrally) to evaluate their current state and determine the value – based on that assesment they can understand the true cost, estimate the value and priortize such an investment compared to other projects.

    In my expeirence this process helps uncover the true impact and value lost. In an industry where the average company expects 2-5% organic growth in 2015, finding there could be another 2-5% that is left on the table can mean a huge difference allowing them to outperform the market and reep the rewards in their stock value. 

  3. Hailey Lynne McKeefry
    December 18, 2014

    @Channan, htey call it “penny wise, dollar foolish” for  a reason. Too often, i think the stuff that goes through is the stuff that has a vehement champion in the organization, someone willing to fight for the program.

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