Understanding Customer
Profitability To Create Value
Bala V. Balachandran
J.L. Kellogg Distinguished Professor of
Accounting and Information Systems
The Current Business Environment
New Products
Manufacturing Excellence
Demanding Customers
Changing Workforce
Changing Technology
New Competitors
Global Competition
Decreasing Margins
© 2005 Bala V. Balachandran
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Kellogg School of Management
Levers to Maximize Profit
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Kellogg School of Management
Levers to Maximize Profit
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Bala’s 4Ms
Measure Both Revenues & Costs Correctly (ABC)
Monitor Movement of Both Revenues & Costs
To Apply 50% Rule
For Benchmarking
Rule-I and Cashew nut Rule-II
& continuous Improvement
Manage For Action Plan
Yield Management / Revenue Management
Thru-put Management
Activity-Based Management
Process Value Analysis So That We Can:
Maximize Profitability
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Strategic Process Management
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Strategic Process Management
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Kellogg School of Management
Strategic Process Management
Product Innovation/Excellence
•Nike
•Merck
•Sony
Latest Products
Activity Based
Management
Customer
Intimacy
Operational Excellence
•FedEx
•Wal-Mart
•Costco
Operational Excellence
Personal Touch and Feel
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Strategic Profitability Management
“Constancy of Purpose”
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© 2005 Bala V. Balachandran
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Revenue Management
“Revenue management” is the art and science of
predicting real-time consumer demand at the
micromarket level and optimizing the price and
availability of products." R. G. Cross
Keenly Observe Buying Behavior of Customers
Objective of RM is to Sell
The Right Product to the Right Customer at the Right
Time for the Right Price
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Kellogg School of Management
C.M.:
”The relentless pursuit to eliminate Non-value added
activities and optimize resource utilization effectively
and efficiently."
RM - CM:
Ensures that companies will sell the right product to the
right customer at the right time for the right price with the
right cost.
An integrated set of business processes and activities that bring together people,
systems, knowledge and information with the goal of understand-ing the
market, anticipating customer behavior, responding quickly to exploit
opportunities effectively and efficiently with company's resources, products
and services.
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Value Chain Perspective of Business Functions
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Cost Management
KANTHAL
Bala
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Cost Management
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Value Chain Perspective
Supplier
Value Chain
Supplier
Channel
Value Chain
Firm
Value Chain
Buyer
Channel
Value Chain
Buyer
Value Chain
The End Buyer Pays for Margins Throughout the System
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Strategic Cost Management
Balanced Scorecard
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Building Blocks of the e-Corporation
Direct Material
Suppliers
ERP Backbone
Data Mining,
Knowledge
Mgmt. Apps.
Enterprise
Applications
Integration
eProcurement
Applications
Intranet
Applications
Supply Chain Management
Applications
Customer Relationship Management
Applications
Customers, Resellers
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