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In our benchmark research at least half of participants that use spreadsheets to support a business process routinely say that these tools make it difficult for them to do their job. Yet spreadsheets continue to dominate in a range of business functions and processes. For example, our recent next-generation business planning research finds that this is the most common software used for performing 11 of the most common types of planning. At the heart of the problem is a disconnect between what spreadsheets vr_NGBP_09_spreadsheets_dominant_in_planning_softwarewere originally designed to do and how they are actually used today in corporations. Desktop spreadsheets were intended to be a personal productivity tool used, for example, for prototyping models, creating ad hoc reports and performing one-off analyses using simple models and storing small amounts of data. They were not built for collaborative, repetitive enterprise-wide tasks, and this is the root cause of most of the issues that organizations encounter when they use them in such business processes. Software vendors and IT departments have been trying – mainly in vain – to get users to switch from spreadsheets to a variety of dedicated applications. They’ve failed to make much of a dent because, although these applications have substantial advantages over spreadsheets when used in repetitive collaborative enterprise tasks, these advantages are mainly realized after the model, process or report is put to use in the “production” phase (to borrow an IT term). To date most dedicated applications have been far more difficult than spreadsheets for the average business user to use in the design and test phases. To convince people to switch to their dedicated application, a vendor must offer an alternative that lets users model, create reports, collect data and create dedicated data stores as easily as they can do it in a desktop spreadsheet. Spreadsheets are seductive for most business users because, even with a minimum amount of training and experience, it’s possible to create a useful model, do analysis and create reports. Individuals can immediately translate what they know about their business or how to present their ideas into a form and format that makes sense to them. They can update and modify it whenever they wish, and the change will occur instantly. For these business users ease of use and control trump putting up with the issues that routinely occur when spreadsheets are used in collaborative enterprise processes. Moreover, it’s hard to persuade “spreadsheet jockeys” who have strong command of spreadsheet features and functions that they should start over and learn how to use a new application. Those who have spent their careers working with spreadsheets often find it difficult to work with formal applications because those applications work in ways that aren’t intuitive. Personally these diehards may resist because not having control over analyses and data would diminish their standing in the organization. Nevertheless, there are compelling reasons for vendors to keep trying to devise dedicated software that an average vr_ss21_spreadsheet_maintenance_is_a_burdenbusiness user would find as easy and intuitive as a desktop spreadsheet in the design, test and update phases. Such an application would eliminate the single most important obstacle that keeps organizations from switching. The disadvantages of using spreadsheets are clear and measurable. One of the most significant is that spreadsheets can waste large amounts of time when used inappropriately. After more than a few people become involved and a file is used and reused, issues begin to mount such as errors in data or formulas, broken links and inconsistencies. Changes to even moderately complex models are time-consuming. Soon, much of the time spent with the file is devoted to finding the sources of errors and discrepancies and fixing the mistakes. Our research confirms this. When it comes to important spreadsheets that people use over and over again to collaborate with colleagues, on average people spend about 12 hours per month consolidating, modifying and correcting the spreadsheets. That’s about a day and a half per month – or five to 10 percent of their time – just maintaining these spreadsheets. Business applications vendors started to address business users’ reluctance to use their software more than a decade ago when they began to use Microsoft Excel as the user interface (UI). This provides a familiar environment for those who mainly need to enter data or want to do some “sandbox” modeling and analysis. Since the software behind the UI is a program that uses some sort of database, companies avoid the issues that almost arise when spreadsheets are used in enterprise applications. There also are products that address some of the inherent issues with such as the difficulty of consolidating data from multiple individual spreadsheets as well as keeping data consistent. Visualization software, a relatively new category, greatly simplifies the process of collecting data from one or more enterprise data sources and creating reports and dashboards. As the enterprise software applications business evolves to meet the needs of a new generation of users, as I mentioned recently, it’s imperative that vendors find a way to provide users with software that is a real alternative to desktop spreadsheets. By this I mean enterprise software that provides business users with the same ability to model, create reports and work with data the way they do in a desktop spreadsheet as well as update and modify these by themselves without any IT resources. At the same time, this software has to eliminate all of the problems that are inevitable when spreadsheets are used. Only at that point will a dedicated application become a real alternative to using a spreadsheet for a key business process. 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

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