Expense Optimization Revenue Enhancement				With increasing competition from many new sectors, managers need to focus on more than expense budgets, outdated revenue source detail and the transactional decisions needed to help meet their annual plans. Financial-related management information needs to be focused on long-term performance and targeted to the business line manager. There is growing recognition of a need for profitability measurement not only for the institution as a whole, but also for particular products, customers, branches, etc. Initially, this led to a focus on reducing unit costs primarily through reducing headcount and eliminating the associated fixed costs. As the years have progressed, even these significant improvements appear insufficient. Competition has forced a further emphasis on process redesign and automation as the primary vehicle for reducing costs, as well as increased emphasis on revenue enhancement. The changing and ever competitive environment has made purposeful and strategic measurement of financial results a key element to sustained profitability. EXPENSE OPTIMIZATION THE LOBUE PERSPECTIVE  Financial models are used for more than expense control, budgeting and planning, though these certainly remain key and critical elements. The measurement of financial results has been recognized as providing the additional value of enabling management to make informed decisions about products and services that the institution will and does offer and the customers that it will and does serve. Financial results measurement is critical to the effective and efficient design and delivery of products to the defined customer base. It provides feedback about: Origination costs Payback periods Break even volumes and/or balances Average transaction volumes This is not only essential to the identification and implementation of winning products and services, but also provides valuable insight into determining the correct mixture of products, services and customers. In the new "hyper-competitive" environment, it is recognized that the old paradigm of "being all things to all customers" is no longer either effective or efficient. It is now critical to select particular products and services to serve a specific market and therefore capitalize on the firm's (as well as competitor's) competitive strengths and weaknesses. Knowledge of both customer and product profitability are essential to accurately pinpoint profitable market segments (combinations of customers and products/services). THE LOBUE APPROACH  LoBue works with clients on developing a more objective, focused and useful means of tracking and controlling expenses. The effort includes: Identifying the key expense drivers in each business line or department Developing the Critical Success Factors and Key Performance Indicators Developing and Implementing a new expense measurement and reporting mechanism REAL RESULTS  Managers are provided with superior decision making tools. Information is detailed and objective, enabling better expense management and ensuring: Departmental efforts are aligned with corporate goals Financial results are maximized Cost structures accurately reflect the current operational environment Sustainable savings typically range from 20% to 40% of total operating expenses Revenue Enhancement REVENUE ENHANCEMENT THE LOBUE PERSPECTIVE  Once companies optimize expenses, they are often faced with the unhappy situation of persistently sluggish profitability and increasingly demanding impatient stockholders. Senior management now turns its attention to the revenue side of the ledger and looks for ways to improve performance. When one examines revenue, it is evident that a firm has two ways to approach the dilemma. The defensive approach, which focuses on improving customer retention through improved relationship management resources and techniques, and the offensive approach, which focuses on increased sales through the adding of new relationships and relationship penetration. These two approaches, though by no means mutually exclusive, warrant separate discussions as they represent two vastly different philosophies and therefore tactics. CUSTOMER RETENTION: Often, senior management talks about customer retention, but doesn't seem to be able to do anything about it. Banks, for example, are tending to ignore (albeit to a lesser extent than previously) the new "stealth" competitors such as brokerages and mutual funds and consumer finance companies. Unlike these competitors, banks traditionally lack good information technologies and infrastructures. Given this situation, what should be done? To begin with, start with the following: Target the right customers. Core customers who are the most profitable at appropriate cost levels. Cater to the end user of the product and service. Listen to customers in any way possible to ascertain their values and desires. Mass customization is essential in the new fragmented marketplace. One-to-one marketing is essential to "knowing your customer" and keeping them over time. Develop appropriate and meaningful measures to focus the management process on customer retention. Learn from customer defections by performing source/cause analysis and fixing the root problem. INCREASING REVENUE: If management is willing to make the commitment of focus and resources to be successful, there are several options for the firm seeking to increase revenues: Market effectiveness that matches market opportunities to the firm's capabilities through segmentation and focused targeting of products and services and structures the sales effort to this end. Sales rationalization that maximizes sales productivity and minimizes acquisition costs. A strategy of differentiation that allows premium pricing as well as increased sales volume to particular unique micro markets. Complementary products (bundling) and cross-subsidization that supports differentiation and enhances revenues. Revenue management that customizes price according to customer value in small unique segments of the market place. THE LOBUE APPROACH  LoBue works with clients to develop a more objective, focused and useful means of measuring and enhancing revenues. The effort includes: Identification and analysis of revenue sources in each business line or department Identification of critical success factors and key performance indicators, as well as benchmarks for each. Enhancement or development of revenue measurement, tracking and reporting mechanisms Enhancement or development of strategies for both customer retention and sales management appropriate to each business line or department Implementation of the new revenue structure and mechanisms REAL RESULTS   Senior and department level management is provided with superior decision making tools and information in detailed and objective terms that enable them to address current revenue opportunities ensuring that: Departmental efforts are aligned with corporate goals. Revenue structures accurately and completely reflect the current operational environment. All sources of revenue appropriate to the firms competitive strengths are targeted. Revenue increase ranges from 20%-40%. Sales productivity is optimized (typical range is a sustainable 25%-50% increase in roll rate) and customer retention is maximized. Revenue information is timely, accurate and focused for maximum relevance and usefulness. Cost of sales improvement ranges from 20% to 40%. RELATED SERVICES Expense Optimization Report Analysis Forms Analysis Vendor Selection Purchasing Revenue Enhancement Sales Management RELATED SUCCESS STORIES Finance company Credit card & information processing System design for retail operations For more information on methods to optimize profitability, contact Marketing.
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