Revenue Management: Beyond Smoke and Mirrors

by Lora Cecere on March 18, 2011 · 0 comments

Improving revenue management –which includes the management of multi-party trade settlement (sometimes dubbed bifurcated trade management) — is an equal opportunity for all supply chains.  No matter whether you are in a consumer, high tech, life sciences, or chemical supply chain it is a major source of cost, waste and frustration.  Executives often will ask, “Why can’t we get this right?”  I laugh and empathize.  What seems so simple is very complex.    

The revenue management process varies by industry.  Each value network shapes demand a bit differently and the contract terms are VERY industry specific. For example, consumer products companies lean heavily on trade promotions, high tech supply chains focus on new product introductions, life sciences on rebates and value-based outcomes and the chemical industry on price.  Despite the differences there are commonalities:

  • Traditional CRM is not the answer.  The historic footprint of CRM is sales pipeline management, customer service and call center execution and business development.  This footprint lacks the data model for either decision support (Revenue Management Optimization (RMO)) or execution (Revenue Management Execution (RME).  This CRM data model is fundamentally flawed—focused on a pipeline data model for sales effectiveness versus a product/services data model that looks at the process workflows of bifurcated trade, the inter-relationships of the demand shaping levers (price, promotion, incentives, buzz from the social web, trade and brand marketing and new product launch) and the visibility of a clear baseline forecast. As a result, the industry is forced to nurture and evolve small, industry-specific providers to augment and redefine front-office functionality.
  • Complex Workflows with Substantial Opportunity.  For the corporate fiscal year ending in 2010, the size of the prize is large. The average consumer products company spent 22% of revenue on trade promotion management (source Symphony/IRI and AMR Research/Gartner) and for the average life sciences company, rebates represented 18% of revenues (source IMS). For either industry segment this can quickly add up to over a billion dollars annually.  Yet, no company that I have interviewed in either industry (over 150 companies) believes that their processes are under control.  Uniformly, companies see revenue management as an opportunity, but do not know how to seize the opportunity.  There is no easy answer.  To understand why, read on.
  • Industry-specific Workflows.  Each industry shapes demand differently, has different contracting processes with their downstream trading partners (buy-side), and uses substantially different language/terminology to describe what they do. (Can you imagine if you substituted the acronym BOGO (Buy one Get one Free) from Consumer Products (CPG) sales cycle for Averaged Managed Price (AMP) for life sciences sales cycle?) These processes are VERY industry specific.

This leads to a problem.  When buying a solution, where do companies turn?  Who can they trust?  There is no perfect solution.  Why? Traditional Customer Relationship Management (CRM) technologies are insufficient to solve the problem.  In sales cycles, the battle lines in sales cycles quickly form.  Information Technology departments want one throat to choke and believe that this type of functionality can be sourced from a CRM or ERP provider.  Lines of Business (LOB) leaders believe that they need industry-specific functionality from industry-specific suppliers.  They are both right, they are just not good at drawing the battle lines.    Companies need traditional CRM functionality for business development and contact management, but industry-specific functionality for predictive analytics, base-line forecasting and bi-furcated trade management.  The decision on Business Intelligence needs to be based on the total IT portfolio.

  • Changing Processes.    These are not enterprise, but are inter-enterprise workflows, driven largely by the nature of the relationships in the extended value chain.  As a result, they need to be designed from the outside-in not the inside-out.   It is not easy.  The technologies lack an inter-enterprise system of record and standards.   Given the recent shifts in power and the increasing compliance/regulations of these industries, the industry processes are in flux and the need is greater with even more dollars on the table.
  • Opportunity Abounds in both Planning and Execution.  While revenue management should be a horizontal process focused on demand orchestration, the applications in the market are largely piecemeal serving organizational silos not end-to-end supply chain processes. There are no complete solutions. The choice is fraught with risk, but I have seen greater success when companies chose industry-specific best of breed providers than try to adapt the data model through custom development that is required with an ERP solution.  In short, while people want it there is no effective end-to-end solution for any industry for revenue management.

Split the Baby?

While it would be great if there was an industry roll-up strategy to consolidate the small vendors that abound in the area of revenue management to deliver an end-to end solution? The list of names is long:  Accenture/CAS Systems, Adesso, Biztech, DemandTec, MEI, Model N, ProMax, Oracle, Symphony/IRI, SAS, Synectics, Vendavo, Zilliant… 

 I fear that the end-to-end solution is a long way off.  Change is slow.  Until then, users will have to split the baby by layering industry-specific revenue management software over industry agnostic CRM. 

However, last week, there were a series of announcements that I feel are deserving of a mention. The industry is changing, albeit slowly. 

Model N with its Feet on the Ground and its Head in the Clouds.  Last week, as I sat in the packed audience at the Model N user conference, named Rainmaker, you could feel the energy.  As a company, ModelN is now nine years old with 350 employees and a global presence.  It primarily serves two industries:  life sciences and high tech.  The company has moved to an agile release schedule allowing them to move quickly against the changing requirements of life sciences and Hi Tech.  Last year, they successfully released five major and two minor releases.  The good news for me was the successful launch of their cloud service.   Buyer preference in revenue management is clearly moving to Software as a Service (SaaS), and Model N can now answer this challenge.  

Model N is clearly a company that is beyond Smoke and Mirrors.  They have a strong product heritage, and pride themselves in serving their customers.  I have wondered on many occasions how more successful Model N could be if they improved their sales and marketing.  They lack name recognition, and have not differentiated themselves in the market, although the solution is clearly differentiated and reliable.  When the smoke clears, I feel that Model N will stay be a player.

M-Factor Acquired by DemandTec.  On Thursday last week, DemandTec announced the acquisition of M-Factor.  The M-Factor solution was a unique, niche solution that was launched before its time.  The solution enabled the optimization of all marketing spend in consumer products –advertising with a multi-year lift and trade promotion spending with single period lift—to determine the right mix of demand shaping activities.  The visionary founder died tragically seven months ago, and although the company had raised venture funds in tough market conditions, like many small enterprise software companies, scaling growth is expensive and takes time compared to the consumer plays that Silicon Valley currently favors.  Despite the depth of the optimization solution—one of the strongest technologies in the market to determine baseline forecasting—and a good number of tier one customers— the purchase price was a good deal for DemandTec. 

While the DemandTec press releases on the acquisition are bullish, and the companies share a common heritage, the merging of these two SaaS offerings does not yield a complete solution for consumer products.  While a strong offering for trade promotion management in the sales account teams, the DemandTec solution still lacks the core functionality for headquarters trade promotion management.  However, it is a nice complement to an ERP solution like Oracle.  The press release was a bit too much of smoke and mirrors for this old analyst gal.

ProMax: A New Contender.  A new contender in consumer products trade promotions from down under –Australian heritage—entered the North American and European markets in 2010.  Last week, they announced selection by Kimberly Clark.  ProMax is attacking the CAS (reference blog article Accenture buys CAS, user base.  With successful implementations at Biersdorf, Dial and Henkel, the team is inching forward touting a simpler, easier best of breed solution.  I will keep my eyes on their references to see if they deliver.  This is a case of where there is smoke there may be fire.  Too early to tell, but promising.

Three announcements in a confused market full of smoke a d mirrors.   While we are inching down the path, we are still a long way from a perfect end-to end process solution for revenue management.  Next week, I will be at SAP Insider and the Logility User Conference.  Look for updates from me from Orlando. Also look for my post on the Rise of Social Commerce and the many interactions that I am having with retailers on Monday.  Lots of progress in that space….

My Take: Accenture Buys CAS

by Lora Cecere on November 24, 2010 · 0 comments

Last week, Accenture announced the purchase of CAS, a trade promotion technology provider in consumer products, for 1X revenue.  CAS, a German company, is a niche solution vendor for the consumer products manufacturing market.  The company’s solution has two distinct product sets: trade promotion management (TPM) and mobility for retail execution.  The CAS solution has limited functionality for Trade Promotion Optimization (TPO).  To get the scoop, we spoke to Accenture, CAS clients and implementation partners.  Here we explore the why, what and so what of the purchase.

The Why

A year ago, and unknown to many, Accenture started a software practice.  While we associate the selling and development of software to IBM, it is not a normal association for the Accenture brand. Yet, Accenture has 2000 employees focused on the development and selling of industry software solutions.  However, being a software for the consumer products industry with the acqusition of CAS  is new.  In conversations with Accenture, their goal is to combine the assets of CAS with Accenture Analytics to launch a Business Process Outsourcing (BPO) offering for the front office within the next year.  The belief is that the global reach of Accenture will allow the global scale of the CAS assets that was not previously possible.  Accenture is especially bullish about business opportunities in Latin and South America regions.  They hinted that this may be the first of many acquisitions to meet this larger goal.  I agree with the goal.

The purchase of CAS is not all roses for Accenture.  (Hence, the sale for 1X revenues.)  There are several deep issues with the CAS purchase including customer satisfaction and management of the North American office.  Last year, the company launched a new release–CAS8– to improve usability.  While the product is easier to use, the change in platform is difficult for many CAS customers.  Why?  It is not a maintenance upgrade.  It is a new installation. This worries CAS TPM clients.   Historically, CAS implementations have been difficult to install (6-8X license costs) and CAS consulting/implementation resources have been unequal to the task.  This coupled with the closure of the North American office and firing of the North American CAS president for the fourth time, North American customers have lost confidence in CAS.  To be successful, Accenture will need to make the upgrade easier, stabilize and improve CAS consulting resources and bolster global presence.

The What

It will be some time before we understand what impact, if any, the acquisition will have on the TPM market. The market is complex and is not served very well by existing offerings. However, to accomplish their goal, Accenture faces four major challenges:

  • How to serve the market?  Inherent in the market, there is a conundrum. The processes have changed, and the requirements have become more complex. Implementations require deep and specialized resources.  As consumer products manufacturers consolidated through M&A and become more global,  the addressable market has become smaller and more diffcult to penetrate.  As a result, it is harder for a niche vendor like CAS to serve the market.  Due to the need for industry-specific requirements in a niche market, it has also been difficult for large software companies like Oracle and SAP to provide the talent to be successful.  And while the Oracle solution is deeper and a better solution fit, the majority of the customers in the consumer products industry are strong SAP shops that have been trying to work through the issues of the multiple SAP TPM release with limited success.  The costs for SAP  TPM are high and the implementations are risky. …a sticky conundrum.
  • How to provide a complete solution?  A complete solution also requires working with multiple parties.  This includes traditional customer relationship management providers like Oracle and, syndicated data providers like IRI and Nielsen, downstream data providers like Retail Solutions, RSI, Shiloh and Vision Chain; analytics providers like IBM (Cognos), Microsoft, Microstrategy, Netezza, Qlikview, and Teradata; market-mix optimization vendors like M-Factor, optimization vendors like DemandTec, Promax and Synectics, and deduction solutions like Adesso and MEI.  The existing implementations are very regional, and the global consumer manufacturers have at least three TPM solution providers.
  • How to build a BPO practice?  Recent buying preferences have been for Software as a Service (SAAS) solutions like DemandTec and M-Factor. The BPO market for trade analytics or mobility is a new concept and will need time to incubate. It is a new market.  The most successful BPO offering that I have seen in consumer products is Cap Gemini’s work on deduction management. (One success among many.)  This is not a slam dunk.
  • How to build the bench strength to be successful?  While Accenture has deep analytics capabilities, their understanding of trade promotion processes and their ratio of successful projects is lower than its competitors of Booz orDeloitte.  Booz is the leading CAS integrator.  To be successful, Accenture will need to invest in deeper consulting skills, and partner with Booz, Oracle and SAP.  At the same time, they will need to right the ship with current clients and hone their software selling skills in a turbulent market.  This will not be easy.

The So What

I have long believed that the answer to the needs in the front office of consumer products manufacturing is an ecosystem play– the coalescing of over 50 vendors– for a complete industry solution. However, there has been no one willing to step-up to the plate to make it happen.  Accenture has that chance, and they also have the breadth and scale to be successful; however, the challenges are many.

I like Accenture’s vision of providing a BPO offering. I agree that Accenture has the global presence and the understanding of the BPO market to make this successful. The vision is right.  The question in my mind is does Accenture have the stomach and expertise to work through the many short-term execution issues of this software provider to make this successful?  We will know in 6-9 months.  Meanwhile, it is my recommendation that customers of CAS proceed with caution and that buyers of TPM solutions delay purchases until the market stabilizes. 

For more on the trade promotion management market, reference these articles: