Continued profitability is one of the most important strategic advantages for any organisation. A company must maintain short-term and long-term profitability, especially in uncertain times. This can only be achieved through the integration of profitability across global operations. It involves integrating finance, technology and data (both operational and financial), running real-time scenarios across different levels of the organisation to generate different options. Many progressive companies are now using Extended Planning and Analysis (xP&A) in this way in their profitability management. That means their profitability management techniques are integrated, collaborative and analytical.

A long-term profitability fortress is built on four pillars: People, Process, Data and Technology. The Technology pillar is comprised of the five following essential tools, which help synergise the other three:

1. A single, integrated database

In most companies nowadays, data is scattered across different systems, making it difficult to harness and harvest information fruitfully at various levels. An enterprise-wide and real-time-based platform is essential for the Technology pillar, as it warehouses and mines the base data from different systems onto a common database. Creating such “data lakes” can provide the right source for the following four tools elaborated below for requisite modelling, allocations and other analysis required.

2. Profit and Performance Planning System (PPS)

Changes outside of an organisation often impact future profitability. The Covid crisis has undeniably created both new challenges and opportunities for companies. Many companies realise that managing complex changes, whether in a global pandemic, business competition, the evolution of market trends, or economic and political changes, is impossible with typical ERP systems. Having a dedicated profitability management solution is essential to generate and evaluate different options in terms of profitability scenarios in real-time, at different levels of an organisation and with the desired levels of granularity. 

When a proper driver-based PPS is implemented together with good processes, it allows for continuous modelling of profitability scenarios with deeper and richer analysis while helping with decision support on where to allocate capital, which markets to exit, and which new products to launch. When designing PPS, it is essential to factor in the impact of the drivers on all three critical financial parameters of performance management – Revenues, Costs and Cash flow.

3. Artificial Intelligence / Machine Learning (AI/ML) technologies

Businesses are gradually becoming more aware of the possibilities of AI/ML. Many insurance companies are currently using these technologies to better liaise with their customers, assess risks directly, and detect possible fraud claims. More and more industries are now aware of the benefits of using Predictive Analytics to generate new avenues for growing their topline and managing costs. A few promising areas include monitoring sustainability management and carbon footprint reduction initiatives and monitoring employee preferences and customer sentiments, which are significant drivers of future revenues.

4. An automated, online storytelling dashboard with access controls hosted on the cloud

These are already embedded into the system on modern planning platforms. These solutions allow for agile profitability analysis, scenario planning and dashboarding with visualisation. Having these apps on the cloud helps companies share and collaborate across geographic borders instantaneously and reduces the cost of technology ownership. Just imagine – a manager has an online dashboard of his budget spent so far and different scenarios he can exercise based on current constraints. Consequently, it can assist him in playing out and then selecting the scenario that delivers the most profitable outcome in real-time.

5. Customer Relationship Management (CRM)

Integrating Customer Profitability Analysis (CPA) with CRM data and sentiment analysis is an excellent way for optimising your pricing and promotional strategies. A holistic CPA mode should lay bare the profit-making customers vs. the loss-making ones, which will support decisions on repricing, targeted marketing, cross-selling, etc. 

Companies can approach their profitability management differently by adopting an xP&A mindset and effectively using these five elements of the Technology pillar. Are you adopting these and creating a competitive edge for your company?

This article was first published on the SAP blog.