understanding customer profitability to create value bala v. balachandran j.l. kellogg distinguished...
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Understanding Customer Profitability To Create Value
Bala V. Balachandran
J.L. Kellogg Distinguished Professor of Accounting and Information Systems
© 2005 Bala V. Balachandran
Kellogg School of Management2
The Current Business Environment
New Products
Changing Workforce
New Competitors
Manufacturing Excellence
Demanding Customers
Changing Technology
Global CompetitionDecreasing Margins
© 2005 Bala V. Balachandran
Kellogg School of Management3
Levers to Maximize Profit
© 2005 Bala V. Balachandran
Kellogg School of Management4
Levers to Maximize Profit
© 2005 Bala V. Balachandran
Kellogg School of Management5
Bala’s 4Ms
Measure Both Revenues & Costs Correctly (ABC)
Monitor Movement of Both Revenues & CostsTo Apply 50% Rule For Benchmarking Rule-I and Cashew nut Rule-II& continuous Improvement
Manage For Action PlanYield Management / Revenue ManagementThru-put ManagementActivity-Based ManagementProcess Value Analysis So That We Can:
Maximize Profitability
© 2005 Bala V. Balachandran
Kellogg School of Management6
Strategic Process Management
© 2005 Bala V. Balachandran
Kellogg School of Management7
Strategic Process Management
© 2005 Bala V. Balachandran
Kellogg School of Management8
Strategic Process Management
CustomerIntimacy
Activity BasedManagement
Product Innovation/Excellence
•Nike•Merck•Sony
Operational Excellence
•FedEx•Wal-Mart•Costco
Latest Products
Operational Excellence Personal Touch and Feel
© 2005 Bala V. Balachandran
Kellogg School of Management9
Strategic Profitability Management
“Constancy of Purpose”
© 2005 Bala V. Balachandran
Kellogg School of Management10
Revenue Management
Keenly Observe Buying Behavior of Customers
Objective of RM is to Sell
The Right Product to the Right Customer at the Right Time for the Right Price
“Revenue management” is the art and science of predicting real-time consumer demand at the
micromarket level and optimizing the price and availability of products." R. G. Cross
© 2005 Bala V. Balachandran
Kellogg School of Management11
C.M.: ”The relentless pursuit to eliminate Non-value added activities and optimize resource utilization
effectively and efficiently."
RM - CM: Ensures that companies will sell the right product to the right customer at the right time for the right price with the
right cost.
An integrated set of business processes and activities that bring together people, systems, knowledge and information with the goal of understand-ing the market, anticipating customer behavior, responding quickly to exploit opportunities effectively and efficiently with company's resources, products and services.
© 2005 Bala V. Balachandran
Kellogg School of Management12
Value Chain Perspective of Business Functions
© 2005 Bala V. Balachandran
Kellogg School of Management13
Cost ManagementKANTHAL
Bala
© 2005 Bala V. Balachandran
Kellogg School of Management14
Cost Management
© 2005 Bala V. Balachandran
Kellogg School of Management15
Value Chain Perspective
The End Buyer Pays for Margins Throughout the System
Supplier Value Chain
Supplier Channel
Value Chain
Firm Value Chain
BuyerChannel
Value Chain
BuyerValue Chain
© 2005 Bala V. Balachandran
Kellogg School of Management16
Strategic Cost ManagementBalanced Scorecard
© 2005 Bala V. Balachandran
Kellogg School of Management17
Building Blocks of the e-Corporation
ERP Backbone
Supply Chain ManagementApplications
Direct MaterialSuppliers
Data Mining,Knowledge
Mgmt. Apps.
EnterpriseApplicationsIntegration
Customers, Resellers
Customer Relationship ManagementApplications
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