Case Story: The only constant is change
Even the best run business can have problems working out which are its most profitable customers and why. When overall profitability is strong, it's still worth asking questions about margins on individual contracts to provide insight into the nature and quality of its earnings
As part of an ongoing strategic review, a B2B supplier to the transport industry was looking for just that: ways to raise overall levels of profitability. It brought in a team from Peter Charles — which had experience in a similar sector before — because it wanted advice and practical help in both assessing the financial and management information systems that produce numbers, and an analysis of profitability of individual customers.
Although the company possessed great business systems, they could not provide the kind of customer profitability analysis which directors and managers felt they needed. The Peter Charles team gathers much of its information by listening to a wide variety of a company's staff — including, naturally, many in the finance department — at all levels. One of the team's great strengths is its experience at looking at financial and management systems. This is more than system analysis. The secret is to look for clues among the problems which people believe they have — often, these perceptions can be indicators of different, underlying problems that need to be addressed first.
Even at the early stages of an investigation it can become clear that the 'rules of thumb', that the directors and managers have developed to run the business may have to be revisited. Many companies have unwittingly accumulated a set of unwritten rules and conventions. Sometimes these 'rules' over complicate the business, at other times they over simplify it. After only a few days the real problem became clear. The Peter Charles team had been asked to compare the profitability of each individual customer using existing management reporting systems but in reality, the nature of the business had subtly changed over the last few years and the development of performance reporting had not kept pace. A new understanding of the problem enabled a new understanding of the business drivers — with customers at the heart — and established new approaches that could garner more profit per customer. The first step was to ensure that all customer related activity was properly billed in accordance with the contract, or that contracts be re-negotiated.
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