Revenue management can help maximize digital transformation investments

A recent state of revenue survey from Model N links revenue management to digital transformation success.

Revenue management can help ensure digital transformation success

As I pointed out in my last post, digital transformation is currently the hottest topic with CIOs and business leaders. A reasonable question to ask is whether digital transformation alone will propel a company into market leadership.

To better understand digital trends and how they impact revenue, Model N recently commissioned ReRez Research to field a survey of 300 C-level executives across pharmaceutical, medical technology, semiconductor manufacturers, and high-tech companies to understand the state of revenue. The report was an interesting look at how companies are managing revenue, what organizations are doing to modernize revenue management, and the pitfalls to avoid.

Revenue management needs modernizing

The most significant high-level finding is that revenue management is in a state of flux because of digital technology, artificial intelligence (AI), and a generational change in the workforce. Much of the focus of digital transformation has been customer experience improvement, but most organizations have yet to use AI and other technologies to transform operations. Modernized systems with automated and intelligent integration throughout the revenue management process can ensure compliance and avoid issues that cause revenue leakage. Businesses need to operate with speed and design systems around the user.

Drilling down a level, the survey identified three revenue management goals: improving profit margins, reducing revenue leakage, and boosting top-line revenue. A whopping 88% cited improving profit margins as a near-term focus. In some ways, the three focus areas are related, as reducing revenue leakage plays a role in both improving profit margins and growing revenue.

Top challenges to achieving revenue goals

Looking at impediments to improving operations, the top three challenges respondents face are controlling revenue leakage, managing global pricing, and maintaining regulatory compliance. Managing revenue leakage is the most urgent issue. The process of doing this has gotten significantly more complex because there are many more touchpoints throughout the revenue process and contract lifecycle. Attention has to be paid to the very first engagement through contract fulfillment and tracking regulatory compliance. This requires a systematic and end-to-end process to manage revenues. The increased visibility this provides is the best way to find and prevent revenue leakage.

Maintaining global pricing was also cited as a top challenge. Large, global countries that span hundreds of countries need to understand the economic nuances of each region. This makes it extremely difficult to manage pricing holistically to maintain consistency. Downward pricing pressures in one country can lead to pressures in other regions, causing a ripple effect across the organization. In the past, some organizations have done this manually using spreadsheets, but things change so fast that mistakes are likely to happen, which can have a big impact on top-line growth and profitability.

Regulatory compliance also scored high as a growing issue and a roadblock in achieving revenue goals. Life sciences and pharmaceutical companies, in particular, face a constantly changing regulatory environment and increased scrutiny. High-tech companies have been impacted by government tariffs and regulations that are hard to predict and plan for. This underscores the importance of agility to make changes without disrupting the flow of revenue.

Model N did some segmentation of the respondent base in which they grouped companies as top tier (top 33%), middle tier (mid 33%), and bottom tier (lower 33%) to compare the impact of revenue management. The study found that companies in the top tier of revenue management are 79% more likely to be doing well with stock price and 57% more likely to be reducing revenue leakage.

Top 3 habits of top-tier companies

  • Manage the sales process and contracts using systems
  • Manage channels and third parties using systems and data
  • Proactively set strategies and systems to manage regulatory requirements and gain visibility into revenue at all stages

The end of the report provides some recommendations for CIOs and business leaders to improve their ability to maximize profitable revenue. 

Revenue management lessons learned from the top-tier companies

To improve revenue managment, organizations should apply the following lessons:

  • Implement software that bridges the gap between CRM and ERP systems. Every top-tier company is using technology that sits between CRM and ERP to reduces errors, increase efficiency, and boost profit margins. As an example, top-tier companies can match channel sales data with rebate information to eliminate overpayments.
  • Automate data collection and accurately track, evaluate, and automate rebate programs. The top organizations are able to automation data collection and enhancement, enabling them to detect market changes faster and make them more responsive than competitors. They are also able to access channel inventory data faster and roll out incentive programs on the fly.
  • Modernize and integrate across the revenue execution lifecycle. Modernization requires the entire revenue lifecycle to be integrated. This includes quoting, contracting, incentive management, inventory management, pricing, and channel data. The integration across the lifecycle lets top-tier companies improve margins and virtually eliminate revenue leakage.

Digital transformation has been, and will continue to be, a hot topic. Improvements in customer experience have much of the media sizzle today, but going down that path without improving revenue management can limit the benefits companies are looking to achieve.

This story, "Revenue management can help maximize digital transformation investments " was originally published by CIO.