You are currently browsing the category archive for the ‘Cloud Computing’ category.

Ventana Research recently released the results of our Next-Generation Business Planning benchmark research. Business planning encompasses all of the forward-looking activities in which companies routinely engage. The research examined 11 of the most common types of enterprise planning: capital, demand, marketing, project, sales and operations, strategic, supply chain and workforce planning, as well as sales forecasting and corporate and IT budgeting. We also aggregated the results to draw general conclusions.

Planning is the process of creating a detailed formulation of a program of action designed to achieve objectives. People and businesses plan to determine how to succeed in achieving those objectives. Planning also serves to structure the discussion about those objectives and the resources and tactics needed to achieve them. A well-managed planning process should be structured in that it sets measurable objectives and quantifies resources required to achieve them. Budgeting is a type of planning but somewhat different in that is financially focused and is done to impose controls that prevent a company from overspending and therefore failing financially. So while planning and budgeting are similar (and budgeting involves planning), they have different aims. Unlike budgeting, planning emphasizes the things that the various parts of the business focus on, such as units sold, sales calls made, the number and types of employees required or customers served.

Integrating the various business planning activities across a company benefits the senior leadership team, as I have written by enabling them to understand both the operational vr_NGBP_02_integrated_planning_works_betterand the financial consequences of their actions. There are multiple planning efforts under way at any time in a company. These plans typically are stand-alone efforts only indirectly linked to others. To be most effective, however, an individual business unit plan requires direct inputs from other planning efforts. A decade ago I coined the term “integrated business planning” to emphasize the need to use technology to better coordinate the multiple planning efforts of the individual parts of the company. There are good reasons to do this, one of which is accuracy. Our new research reveals that to be accurate, most (77%) planning processes depend to some degree on having access to accurate and timely data from other parts of the organization. For this reason, integrating the various planning processes produces business benefits: In our research two-thirds of companies in which plans are directly linked said that their planning process works well or very well. This compares favorably to 40 percent in those that copy planning data from individual plans to an integrated plan (such as the company budget) and just 25 percent of those that have little or no connection between plans.

Technology has been a major barrier preventing companies from integrating their planning efforts. Until relatively recently, joining the individual detailed plans of various departments and functions into an overall view was difficult because the available software, data and network capabilities were not sufficient to make it feasible and attractive to take this approach. To be sure, over the past decades there has been steady progress in making enterprise systems more accessible to ordinary users., but while dedicated planning software has become easier to use, evidently it’s still not easy enough. The research reveals that across the spectrum of corporate planning activities, three-fourths of organizations use spreadsheets to manage the process. We expect this to change over the next several years as the evolution in information technologies makes dedicated planning software a more compelling choice. One factor will be enhanced ease of use, which will be evident in at least two respects. Software vendors are recognizing that a better user experience can differentiate their product in a market where features and functions are a commodity. Ease of use also will extend to analytics and reporting, making it easier for business users to harness the power of advanced analytics and providing self-service reporting, including support for mobile devices. The other factor will be the ability to make the planning process far more interactive by utilizing in-memory processing to speed calculations. When even complex planning models with large data sets can be run in seconds or less, senior executives and managers will be able to quickly assess the impact of alternative courses of action in terms of their impact on key operating metrics, not just revenue and income. Having the means to engage in a structured conversation with direct reports will help executives be more effective in implementing strategy and managing their organization.

vr_NGBP_03_collaboration_is_important_for_planningTechnology is not the only barrier to better planning. The research demonstrates the importance of management in the process, correlating how well a planning process is managed with its accuracy. The large majority (80%) of companies that manage a planning process well or very well wind up with a plan that is accurate or very accurate. By contrast, just one-fourth of companies that do an adequate job achieve that degree of accuracy and almost none (5%) of those that do it poorly have accurate or very accurate results. Additionally, managing a planning process well requires clear communications. More than three-fourths (76%) of companies in which strategy and objectives related to plans are communicated very well have a process that works very well, while more than half (53%) with poor executive communication wind up with a planning process that performs poorly. And collaboration is essential to a well-functioning planning process. Most (85%) companies that collaborate effectively or very effectively said that their planning process is managed well, while just 11 percent of companies that collaborate only somewhat effectively expressed that opinion.

Collaboration is essential because the process of planning in corporations ought to get everyone onto the same page to ensure that activities are coordinated. Companies have multiple objectives for their planning processes. Chief among these is accuracy. But since things don’t always go to plan, companies need to have agility in responding to changes in a timely and coordinated fashion. In a small business, planning can be informal because of the ease of communications between all members and the ease with which plans can be modified in response to changing conditions In larger organizations the planning process becomes increasingly difficult because communications become compartmentalized locally and diffused across the entire enterprise. Setting and to a greater degree changing the company’s course requires coordination to ensure that the actions of one part of the organization complement (or at least don’t impede) the actions of others. Coordination enables understanding of the impact of policies and actions in one part of the company on the rest. Yet only 14 percent of companies are able to accurately measure that impact, and fewer than half (47%) have even a general idea. Integrated business planning address that issue.

In most organizations budgeting and operational planning efforts are only loosely connected. In contrast, next-generation business planning closely integrates unit-level operational plans with financial planning. At the corporate level, it shifts the emphasis from financial budgeting to planning and to performance reviews that integrate operational and financial measures. It uses available information technology to help companies plan faster with less effort while achieving greater accuracy and agility.

For companies to improve competitiveness, their business planning must acquire four characteristics. First, planning must focus on performance, measuring results against both business and financial objectives. Second, it must help executives and managers quickly and intelligently assess all relevant contingencies and trade-offs to support their decisions. Third, it must enable each individual business planning group to work in one central system; this simplifies the integration of their plans into a single view of the company and makes it easy for planners in one part of the business to see what others are projecting. Fourth, it must be efficient in its use of people’s time. Success in business stems more from doing than planning. Efficient use of time enables agility, especially in larger organizations.

Today’s business planning doesn’t completely lack these features, but in practice it falls short – often considerably. Senior executives ought to demand more from the considerable amount of time their organization devotes to creating, reviewing and revising plans. They should have easy access to the full range of plans in their company. They must be able to engage in a structured dialog with direct reports about business plans, contingency plans and business unit performance. Information technology alone will not improve the effectiveness of business planning, but it can facilitate their efforts to realize more value from their planning.

Regards,

Robert Kugel – SVP Research

Recurring revenue is a term applied to business models that involve three types of selling and billing structures: a one-time transaction plus a periodic service charge; subscription-based services involving periodic charges; or a contractual relationship that charges periodically for goods and services. VentanaResearch_RR_BenchmarkResearchTelecommunications was the first major industry to use it, but recently the model has gained popularity in others. It is a major trend in information technology as an increasing number of companies offer software and hardware technology accessed as a service through cloud computing. Recurring revenue also has been transforming the entertainment business, as customers subscribe to rent movies, music and other creative digital products instead of owning them; this is part of the so-called “sharing economy” whose social impacts are wide-ranging.

The increasing importance of the recurring revenue model reflects a shift in buying preferences for both businesses and consumers. For them, renting assets may be easier and less expensive than buying them. For providers, recurring revenue is attractive because it establishes a regular, predictable income stream as long as the customer continues to use the service. To ensure that, though, they must build an ongoing relationship in which they handle interactions smoothly and maintain customer engagement throughout the life cycle.

Ventana Research recently completed benchmark research into recurring revenue. The research shows that companies vr_Recurring_Revenue_01_why_companies_use_recurring_revenueadopt the model to create strategic business opportunities. They like it for generating more income immediately, but they also see potential to sustain a long-term income stream by offering services of ongoing value to their customers. The most commonly cited business drivers for using a recurring revenue business model are increasing the top line (selected by 51%), enhancing the customer experience (also 51%) and increasing customer loyalty (46%). The model provides companies with an ongoing opportunity for satisfying customer interactions that drive customer loyalty. However, they had better be sure to follow through on it; companies that fail to provide competitive services or fall short in service delivery will lose customers with little hope of ever getting them back.

The research also identified the most significant challenges companiesvr_Recurring_Revenue_03_recurring_revenue_challenges encounter when they adopt recurring revenue strategies. These mainly concern customer retention.

  • The most common, cited by 55 percent, is maintaining customer engagement. Having ongoing positive interactions can be an important determinant of renewal rates. Renewals in turn are a key driver of profitability in these businesses because of the relatively high cost of adding a customer. Along those lines, customer retention was cited as an impediment by 39 percent of participants. Moreover, since a company’s costs related to its recurring revenue business are relatively fixed in the short term, almost all the impact of lost revenue drops to the bottom line, depressing profits.
  • Nearly half (46%) said cross-selling and up-selling are difficult. This may be because they can’t engage effectively with existing customers. There may be multiple internal factors at play such as a poorly designed marketing program for existing customers, a lack of people or incentives for performing ongoing interactions, or technology limitations that prevent a company from creating or executing an effective customer nurturing program. Finding it difficult to up-sell or cross-sell also may be a reflection that the primary service is of limited importance to customers who don’t want to consider a more expensive, deluxe version or add-ons. Understanding which customers fall into this category is important so that up-sell and cross-sell efforts are focused on those who are most receptive.
  • More than one-third (35%) of research participants said creating new accounts is problematic. Often the source of this issue is inadequate technology, either using inappropriate software or struggling to acquire and integrate the data necessary for this function.

None of these impediments is impossible to address. However, companies planning to enter or expand a recurring revenue business must anticipate or focus on addressing them to ensure successful execution.

Overcoming difficulties in engaging customers positively and profitably usually involves having capable systems, processes and people to sustain ongoing interactions with the right customers at multiple touch points within the organization. Having multiple touch points is common: Four out of five (79%) companies reported that three or more business units interact proactively with customers; the three that do so most often are Sales (84%), Customer Service (77%) and Marketing (63%). vr_Recurring_Revenue_05_multiple_departments_interact_with_customersOne-fourth (26%) said that five or more business units work directly with customers. Because there must be multiple touch points with customers, it’s essential to maintain a single authoritative source of information accessible by all business units. This helps to prevent annoyances when, for example, customers have to provide information to one group that they already provided to another, or when a company representative at one touch point tries to sell the customer a service he or she already has.

Sustaining mutually satisfactory interactions with customers has become a bigger challenge for recurring revenue businesses because, in addition to multiple touch points, there has been a proliferation of communications channels that people routinely expect to use for interactions with businesses. Some companies have been successful in engaging with customers seamlessly across multiple communications channels, and this raises expectations for others. Our research quantified the magnitude of this challenge. Companies on average use 6.4 separate channels to engage with customers; one-third employ eight or more. Supporting multiple channels seamlessly is another important technology issue, affecting more than half (57%) of participants. Today, customers expect to be able to contact a company using whatever communication channel suits their specific circumstances, needs and preferences at any given moment. Beyond having the means to manage multiple channels, having uniform, accurate and timely information at each point of contact is essential for sustaining customer satisfaction.

The recurring revenue model is an increasingly attractive choice for consumer and industrial businesses, offering many potential benefits for companies and their customers. Done well it can increase revenue, decrease costs, stabilize cash flow and ultimately enhance profitability. However, businesses that adopt this model are likely to find that it requires a different approach to selling, billing and support. In particular, we recommend that they adopt dedicated systems necessary to support the recurring revenue model and institute training that is often required to make the most of this opportunity.

Regards,

Robert Kugel

SVP Research

Twitter Updates

Stats

  • 87,760 hits
Follow

Get every new post delivered to your Inbox.

Join 71 other followers

%d bloggers like this: