My last article treated the topic of customer
profitability—but this is just one dimension of
profitability. There are other dimensions too, such as product,
channel or geographical. These dimensions can be combined in
multiple ways to respond mainly to the questions of What
product is sold? To whom is it sold? And how is it sold?
However... did you know that, globally, only:
45% of professionals know how
profitable their customers are?
32% know how profitable their sales
Why is multidimensional profitability relevant?
Today's increasingly tough business environment demands the
adoption of a value-based management approach that's capable of
providing the various functions of the company with the ability to
plan and act based on insightful information:
Finance function: Can I
further optimise financial resources and support my budgeting
Investment function: Which
project is the right one to invest in?
Commercial function: Should
I reduce prices of the product or rather invest in a few key
clients to increase growth?
Operational functions: How
can I work more efficiently and at the same time keep my high
Legal and Regulatory: Is the
new EU directive affecting my business and thus the current cost
Existing methodologies do not coherently align strategic intent,
value and profitability in a holistic manner for most
organisations. With a multidimensional profitability model in hand,
organisations should be able to efficiently and effectively analyse
business costs as well as income and profitability at multiple
levels to make informed business decisions.
What are the key challenges of a multidimensional profitability
The multidimensional profitability model faces the following key
Complex business operating
models: choosing the adequate dimensions to support key
business decisions without creating too much complexity, which
requires an optimised approach
End-to-end margin / profitability
capability: development of a methodology which links costs to
associated revenues through the analysis and documentation of an
organisation-specific value chain against defined dimensions
Development of high quality data
and IT solutions: quality and consistent data for defined
drivers of activities associated with shared costs / revenue
elements and an IT solution capable of delivering a profitability
Sustainable business change:
working at all levels of the business to ensure stakeholders are
suitably informed and engaged in the change process, and developing
a performance management framework that makes change
What are the benefits of a multidimensional profitability
Multidimensional profitability helps the business deliver margin
improvements and leads to the following key benefits:
How can you implement a multidimensional profitability
Here are the six steps of the multidimensional profitability
methodology, by the end of which a fully operational model should
have been produced for the implementation to go forward:
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about your specific circumstances.
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