PwC's TO THE MAX Raises Awareness of Revenue Maximization

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1 Gartner Dataquest Alert PwC's TO THE MAX Raises Awareness of Revenue Maximization Sniffing out inefficiencies in companies' back-office systems and processes needn't be a mindnumbing task relegated to propellerheads in the IT department. If done correctly, revenue maximization can be a rewarding project across functional teams and can strengthen corporate identity, advance a company's integrity and, best of all, drive profitability and shareholder value. In their timely and pragmatic study TO THE MAX, PricewaterhouseCoopers partners Randy Browning and Sameer Kumar show how information-centric companies can capture between 2 percent and 5 percent of revenues never collected for services they have delivered. Based on many years of experience in the field, their book makes for an easy and often entertaining read, free of economic jargon, but firmly rooted in the latest methods and theories of revenue maximization. Revenue maximization strategies and tools have received much attention lately as something like a panacea to help depressed companies squeeze a modicum of revenue out of their existing infrastructure without having to explore new markets or increase their customer base. But as Browning and Kumar show, revenue maximization can be more than a passing fad borne out of economic adversity. If the authors are correct, revenue maximization has the potential to become ingrained in everyday business practices and enhance a company's long-term growth, profitability and integrity long after the high-tech sector recovers from its current depression. What is Revenue Maximization? Browning and Kumar consider revenue maximization a group of strategies that encompasses people, processes and technology. More specifically, the authors define revenue maximization as follows: "It is a proactive strategy more precisely, a holistic group of strategies to grow topline revenue, increase profitability, and strengthen corporate integrity by ensuring that a company efficiently captures, in cash, all the revenue it deserves and only the revenue it deserves for the services it provides." This definition reflects the authors' conviction that revenue maximization must be a pragmatic approach, rather than a succinctly defined theory. Put differently, it is more important that companies take proactive steps to contain leakages rather than spend too much time figuring out in the minutest detail the root causes of leakage without ever taking action. Most importantly, revenue maximization should always be an exercise in identifying opportunities for increasing profitability, no matter how serious the revenue loss may be. Finger pointing and 28 March Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1

2 blaming individuals or business units for leaking revenue is likely to kill any revenue maximization initiative before it even gets started. Why Do Companies Leak Revenue? Companies leak revenue for a number of reasons, and they respond in their own idiosyncratic ways. Executives reading Browning and Kumar's study are likely to identify their organization with one of the five company phenotypes presented and pinpoint the reasons why their own company leaks revenue. The causes of revenue leakage include the following: Temporal causes including mergers and acquisitions, the rapid adoption of new technologies, accelerated product development or shifting competitive landscapes Susceptibilities including silo mentality, defensiveness, other priorities or a control mindset Proximate causes including the limitations inherent in people, processes and technologies Companies respond with five basic behavioral patterns, which the authors dubbed as follows: "The Resistant" companies that ignore leakage, deny that they have issues or dismiss its significance "The Dabblers" companies that realize the issues but fail to follow through with a consistent solution "The Stalled" companies that launched initiatives but decide to let them slip either because they are satisfied with the initial success or because they fail to see the benefits of early initiatives "The Dedicated" companies that successfully launched initiatives and continue to do so with a view toward achieving their goal "The Enthusiasts" companies for which revenue maximization has become ingrained in their day-to-day operations Key Elements of Revenue Maximization The processes and tools necessary to move from a revenue-leaking organization to a revenueresponsible organization are anything but trivial. It is here where Browning and Kumar offer their most compelling advice. The authors provide three sets of action items that companies need to accomplish on their journey toward a revenue-responsible organization. Taken in isolation, many of these points will sound familiar to practitioners of business process re-engineering or network management. However, it is the combination of these sets of action items that makes this strategy an actionable tool for a comprehensive revenue maximization strategy. Four Core Strategies Companies that want to capture a maximum of lost revenue need to implement all four core strategies depicted in Figure 1 across all business units and during every phase of the revenue maximization process. Such an endeavor can extend over many years. What makes this model appealing is that even the implementation of only one of two strategies can yield quick and tangible results. The authors classify the core strategies as follows: 28 March Gartner, Inc. and/or its Affiliates. All Rights Reserved. 2

3 Day-to-Day Processes Revenue maximization needs to be integrated within all everyday tasks, steps, rules and decisions. This strategy builds on traditional process re-engineering models. Automated Tools Such tools are often software solutions developed by independent software vendors (ISVs) and ensure data and service integrity, provide monitoring, auto-correction, automation and similar tasks. The Revenue-Responsible Organization This is the ultimate goal for every company, and implies that the entire organization be mobilized toward the goal of revenue maximization. Quantifiable Monitoring Mechanisms Metrics glue the previous three core strategies together and help companies raise awareness, focus on key issues, align employees and create synergies across various business units. Figure 1 Four Core Strategies for Revenue Maximization Quantifiable Monitoring Mechanisms Day-to-Day Processes Use of Detective Tools Use of Analytical Tools Use of Preventive Tools Constant Technological Improvement Living Part of Company Strategy Revenue Responsible Organization Executive Support Participation at All Levels Resources Formal Function Participaiton of Whole Revenue Cycle Continuous Improvement Key Automated Tools Clearly Defined Work Steps and Rules Individual Accountabilty Measureability of Results Elimination of Duplication and Gaps Integration into All Change Source: PricewaterhouseCoopers (March 2003) 28 March Gartner, Inc. and/or its Affiliates. All Rights Reserved. 3

4 The Three-Step Revenue Capture Approach The revenue capture process is the basis of the four core strategies and helps transform them into dollars and cents. Browning and Kumar choose to keep it simple and focus on three key areas: Identify leakages and opportunities for revenue maximization Quantify the amount, causes and return on investment (ROI) of leakage Capture revenue through immediate actions and by preventing root causes from reoccurring; and seek incremental revenue opportunities and efficiency gains. Success Factors The four core strategies and the three-step revenue capture approach alone won't suffice to maximize revenue unless companies adjust the way they operate. The authors identified six simple key factors, all of which are necessary preconditions for a successful revenue maximization project. In addition to mastering the technicalities of revenue capture and process re-engineering, companies have to consider the following six guidelines: "Act holistically" Companies need to address issues across all functions of the revenue cycle, link the four core strategies and integrate revenue maximization into the broad business. "See the forest and the trees" Companies need to simultaneously focus on the micro level and on the macro level of revenue maximization. "Speak in dollars and cents" Executives have to demonstrate the financial value of revenue maximization from the very beginning. "Be relentless" Revenue maximization requires a single-minded pursuit of the end goal, regardless of temporary setbacks. "Do something" Instead of analyzing a problem to death, companies need to take quick action to capture lost revenue. "Manage success" Companies should spread the word of quick wins to generate excitement, but they should be careful not to exaggerate potential successes to avoid inflated expectations. Gartner Dataquest Perspective There is nothing inherently new about revenue maximization, and the authors frankly point out related approaches such as Six Sigma, TQM, process re-engineering, cost minimization, or industry-specific variants, such as revenue assurance in telecom, revenue cycle enhancement in healthcare or revenue integrity in the airline industry. TO THE MAX is more than a rehash of existing models. It represents the only book-length study that explicitly seeks to advise companies how to contain revenue leaks to drive growth, profitability and integrity. The authors draw on their extensive experience in the field, and remain unbiased without ever trying to hawk the services of their employer. These strengths engender some of the book's limitations, because the reader inevitably craves more information. For example, how did the frequently quoted companies (AT&T, Bell Canada, Interland, Qwest, SBC, St. Vincent Health System, Verizon, etc.) use Browning and Kumar's model? Which elements of the model worked best? Which tools did they use? 28 March Gartner, Inc. and/or its Affiliates. All Rights Reserved. 4

5 The general nature of the revenue maximization model is likely to make it appealing to a wide audience, but at the same time it raises additional questions. When it comes to executing the four core strategies, companies whose network is their business (such as telcos) will require slightly different processes, tools and metrics than companies that use their network to do business (such as airlines or healthcare providers). Although an in-depth analysis of such difference would be the topic of another study, a brief summary would have been helpful. Recent Gartner research shows that Revenue Assurance has become one of the most dynamic issues for telecom providers, and that vendors are responding from a variety of vantage points, be it from a services, hardware and software perspective. For details, see "Revenue Assurance Services Providers to Rescue Ailing Telcos " (ITSV-WW-DP-0349) and "How To Set Up a Revenue Assurance Competency Center" (ITSV-WW-DP-0467). The current economic depression of telcos and information-centric organizations in general provides a unique window of opportunity for these companies to improve their revenue streams and enter the next economic growth cycle with efficient revenue maximization processes in place. Executives who are serious about maximizing profits by containing revenue leaks should memorize the advice provided in TO THE MAX. Browning and Kumar's work has the potential to elevate revenue maximization from an obscure back office initiative to a top initiative for IT executives. This in turn could facilitate the proliferation of the revenue-responsible organization that will thrive long after info-centric organizations have overcome their current recession. Reference: Randy Browning and Sameer Kumar, To The Max Revenue Maximization: Capturing The Opportunities Within. Turning the Tide On Revenue Leakage Across Info-Centric Organizations (New York: PricewaterhouseCoopers, March 2003). $ For additional information, see By Norbert Scholz 28 March Gartner, Inc. and/or its Affiliates. All Rights Reserved. 5

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