Applied in high-opportunity areas, these two levers can not only make a short-term contribution to earnings but also build a foundation for future performance. Two cases illustrate this approach.
Revenue and pricing discipline
Maximizing revenues is always important, but even more so during a downturn-particularly when revenues can be increased without raising prices. For many companies, especially those with complex pricing in business-to-business transactions, poor pricing discipline is endemic. Since most pricing regimes depend on IT systems for the process and the workflow, these systems can play a central role by capturing lost revenues.
A telecommunications company has started to attack such issues by building high-value but inexpensive links between multiple silos of information.
Contracts databases, sales funnels, compensation systems, CRM data warehouses, and other siloed systems formerly spanned a range of the company's business-focused products. Just centralizing this information in one accessible repository was a big step forward: it facilitated analyses that uncovered opportunities to improve revenues by controlling unnecessary discounts and by harmonizing inconsistent pricing policies across different products and regions. The value came from integrating information flows at key points, not from creating new systems.
Introducing this degree of transparency also increased the team's credibility with the sales force. Better information flows made it clearer which practices resulted from uncontrollable market forces and which of them the sales reps could truly control, allowing the company to evaluate them on a comparable basis.
The telco began closing the pricing gaps first by developing and testing new procedures and then by scaling up new metrics, as well as new performance-management and compensation systems. These linked the new procedures all the way from frontline salespeople up to the president of sales.
Technology played a critical role. The project team consolidated information from various product systems into a unified reporting database and developed simple pricing scorecards to make information more transparent and visible across groups. Tools linked the compensation of the sales reps to their performance on pricing by comparing their discounting and pricing records with comparable averages. Simple dashboards managed the performance of the sales force at each level, cascading up to the president of sales.
These policy and IT changes helped the telco to reduce its price leakage and to increase its revenue on new contracts by 3 to 5 percent, which translated into a margin expansion of 15 to 20 percent or more.