Align Cost with Revenue for Profitable Growth in Diversified Industries
By tobyehatch-Oracle on Sep 03, 2013
According to Ralph, diversified industries – which includes global manufacturing – has had a roller coaster ride in terms of profitability over the last 20 years. Post 2008, many experienced slowed, stalled or even reversed growth so much so that companies had to focus on how to stop the bleeding and reduce/control costs rather than focusing on increasing revenue. Growth for growth’s sake was no longer sustainable so companies had to adopt what KPMG calls ‘profitable growth’. This is growth with a lens or focus on serving many market segments and many demands on product, supply chain, and customer satisfaction.
So what became clear was, in this economy, profitability is no longer as simple as subtracting cost from revenue!
Once we were clear on the issues, I asked Ralph to tell us more about how Oracle Hyperion Profitability and Cost Management and KPMG can help organizations with profitable growth. Ralph told our listeners, “Our point of view starts with revenue and not cost. We help customers understand how they want to measure their growth and then help them design their cost information ‘content’ to make sure we can answer the profitable growth question. In most cases this means reconstructing a cost view that matches up to the profitable growth questions. This is where the functionality of Hyperion Profitability and Cost management is leveraged to not only support the reconstruction, but also keep cost and revenue aligned and reportable”.
I asked Bart if he could talk about some Oracle Customers that are practicing profitable growth and he specifically mentioned Leggett and Platt (invented the bed spring in 1885) who are now quantifying the cost of delivering special services to their customers, assessing the value of those services, improving product portfolio management, attacking cost reduction opportunities and streamlining operations (to mention a few objectives). Bart told our listeners that Leggett and Platt are using a combination of Oracle Hyperion Planning and Hyperion Profitability and Cost Management to push GL costs to align them with revenues by pooling the costs, moving them to activities where they are consumed by the various products, customers and customer segments, and then driving them down based on product consumption characteristics. Leggett and Platt are using some of the costs derived by Oracle Hyperion Profitability and Cost Management to perform driver based planning in Hyperion Planning - the power of the two working together are simply unmatched.
To help the listeners understand how Hyperion Profitability and Cost Management specifically helps with profitable growth, Bart and Ralph emphasized some key features used for this purpose. There are many of them, but their favorites are:
+ Any costing method or combination of methods that represent an organization well can be used. Nothing is prescribed but practicality is recommended
+The traceability map enables you to understand where costs come from, how they are consumed and where they go. This is important to help all members of the value chain understand what is going on
+The pre-configured ability to deal with excess capacity (Provides fully loaded view and incremental views of cost to help support current and future decision making)
There is much more to the interview, but it was certainly clear that many kinds of diversified and product-focused industries can benefit from using this method of growing profitably, and Ralph and Bart provided very interesting insight into the practicalities of growing profitably by aligning cost with revenue.
To listen to the entire podcast, click here.
For more information about Oracle Hyperion Profitability and Cost Management, click here.