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High Tech Decisively Moves From Analyzing Gross-to-Net to Managing it as a Single Process

By Chanan Greenberg, senior vice president and general manager, High Tech, at Model N

Over the past 18 months, companies in almost every sector in high tech manufacturing have shifted their systems paradigm and business application investments to enable managing the entire gross-to-net process of pricing and revenue onto a single integrated platform.

These types of "next gen" innovative projects used to be in the realm of the visionaries and early adopters. However, pragmatists and even conservative companies have been taking the plunge to retool. Despite macro-economic concerns and challenges such as China/Tarif wars, Brexit and some early indicators of short-term economic uncertainty, companies are budgeting and investing in projects focused on achieving better controls over revenue leakage, discounting and overpayments of incentives. These projects are no longer viewed as ‘nice to have' or optional. The capabilities delivered are an integral part of the business strategy to maximize growth and profitability and are necessary to keep up and surpass competition.

There are several key dynamics that are driving an urgent need to adapt: First is the ‘Amazon Effect' - most people and companies have grown accustomed to the easy experience Amazon offers in the B2C space. Customers and partners now expect an easy and fast experience as their buying journey has become a digital experience. Speed is the new currency and slower deal cycles translate into lost revenue. The second driver is the growing reliance on channels and how their roles are changing within the value chain. This second driver carries more complexity on every level - from how to engage and enable channels, how to incent them and how to control pricing through them. Companies that are slow to address these issues are already starting to feel first hand the impact on their market share, reduced profitability and stinted growth.

This has led industry leaders to re-evaluate their revenue management practices and adjust to the changing landscape. To study this shift, Model N fielded the 2019 State of Revenue Survey.

The results were clear: organizations are facing significant revenue management challenges and have identified key areas to optimize.

Understanding the Challenges

Pricing Complexity leads to Revenue Leakage

The simplest way to think of revenue is this: (price X volume) - incentives = revenue. However, B2B transactions are rarely that simple. Pricing gets complex very quickly. The same product may have different prices for different regions, for different channels, and even end markets. For example, high tech components embedded in a consumer electronics product may have a different price point when embedded into a cloud data center, a car or other products. Complexities do not end there, as every customer (depending on their buying and negotiating power) can become a price point for that product. Meaning the same product may have literally thousands of different prices. This can get more complex when transacting through channels. The process does not end with the delivery of a price, but the real net revenue can be further impacted by things like SPA /debits, price protection and performance rebates. Companies are able to analyze this waterfall through a variety of analytics packages and pricing solutions, but they are often incapable of making systematic and lasting improvements to address the inconsistencies of price execution, unwarranted discounts, balancing the impact of discounts and incentives upfront during deal negotiations and avoid overpayments.

Most companies do not have the ability to manage all these elements as a single process. Despite recent investments in revamping CPQ solutions, most companies have only been able to achieve better guided selling and perhaps some productivity gains in their sales force, but revenue and profitability gains have eluded them. Typically, these processes are handled by different people, in different departments through 3-5 different tools. This makes it impossible to achieve a systematic repeatable and scalable process to optimize revenue and profitability.

Unsurprisingly, this is difficult. McKinsey found that 30 percent of pricing decisions don't get optimal value, leading to $1 trillion of revenue leakage annually. Yet improving revenue leakage is rewarding, as companies saw an increase of nearly 9 percent operating revenue per 1 percent of price increase.

Beyond Price & Revenue Controls is the need for Speed and Scale

Global consistency of price execution across channels and regions, consistent enforcement of end customer contracted pricing, discounting controls, balancing upfront discounts with performance-based rebates all directly help increase revenue and profitability and can only be achieved through an integrated solution.

Integrated solutions also deliver the ability to create systematic scale, allow accelerating deal turn-around-time and create operational efficiencies. The high-tech world continues to consolidate and with more mergers and acquisitions that bring with them more diverse product portfolios and more cross sell and upsell opportunities an integrated suite that allows combining rebates within the quoting and contracting processes enables companies to achieve more scale. The end-to-end Gross-to-Net process control of pricing, contracted pricing, deal intelligence, SPA/debits and rebates on a single platform also allows companies to shorten deal cycles by as much more than 50 percent. For commoditized product lines this has a direct impact on increasing win rates and market share.

Most companies till think in silos and search for solutions in silos: CPQ, Pricing, Channel Portals, Price Protection and Inventory Management, etc. This approach perpetuates the silos and makes it increasingly difficult to manage the Pricing and Revenue Gross-to-Net process effectively. End-to-end solutions are not only available today but are widely used by some of the largest brands in the high tech industry and are best positioned to deliver significantly differentiated value than point solutions.

Five Key Revenue Management Optimizations

In the 2019 State of Revenue Survey, respondents cited several critical aspects of revenue management that need improving: Deal Management, Deal Intelligence, Channel Management and Channel Data Management.

Deal Management & Deal Intelligence

In this area companies feel they need to improve in 4 critical capabilities:

Automated Pricing -  that can handle a variety of price conditions, multiple price books, regional, channel and customer specific pricing with the ability to integrate to standard EDI formats and E-commerce platforms to automate pricing and quoting process as a key enabler to remove human error and reduce deal cycle times that helps improve win rates.

Integrated Contracts and Quotes - a key factor to assure consistency of price concession control is to assure that when quotes requests are received across the globe and through different channels, end customer pricing is enforced uniformly and when needed masked from partners. This has direct impact on profitability.

Integration of quotes and contracts to rebates - allows pricing managers, sales operations and deal desk managers to see what incentives a channel or customer might be getting on the backend of a deal to help them during deal negotiation optimize what upfront discounts they may offer. It is also an important tool to allow companies to offer customers and partners with discounts that are tied to their volume commitments and avoid discounting against volume commitments that are not met. Both are effective tools to optimize revenue.

Deal Analysis - the ability to provide real time feedback, without prolonging deal cycles, to help companies rationalize price concessions, measure deals in real time through contextual analytics to what the market is currently paying and provide deal scores and price guidance that help maximize the opportunity to win while optimizing margins.

Channel Management

Visibility into Inventory & Channel Sales data (Point of Sales) - enabling visibility for the sales, sales operations and pricing teams into inventory and POS through the same platform in which they do their deal management work allows them to make better decisions in less time, e.g. when a partner requires price concessions, it is useful to see how much inventory they are carrying since if their inventory is low it is a clear indicator, they have no problem selling at the current price. These insights delivered through an integrated platform empowers the company to make fast decisions that optimize the business.

Smart & Fast Validations - validating rebates and credit payouts are critical to assure that overpayments do not happen. Most companies are challenged to do this systematically well. It requires calculating shipments and POS to arrive at the calculated quantity on hand vs. reported inventory, track changing values of inventory and factor if price protection was already paid out to assure the right amount is paid. It is equally important to be able to execute this process quickly to allow for accurate and timely payments to the partners and channels to keep them engaged.

Channel Data Management

The ability to effectively manage channels, better enable them, compensate sales correctly and payout channel incentives correctly are all based on having timely and accurate channel data.

This is proving to be a challenge for many companies. Some companies go weeks and even longer with missing, incomplete sales data from their partners. Not having weekly (some companies even operate on a daily basis) accurate sales and inventory data means the company is in a responsive mode and lagging behind the business. It means slow response time to inventory buildup, slow to respond to inventory needs in different territories and slow to respond to channels that are struggling. This all translates into lower performance and less sales. Additionally, channel data in its raw format is not ready for us for transactional purposes like paying out sales compensation and channel incentives. The poor quality of the data can lead to overpayments and requires a significant resource investment internally to clean and correct the data before it can be used which not only entails increased costs but also prolongs the time to pay. The inherit inaccuracies cause as much as 10 percent of all payments to be disputed which takes more time, more cost to resolve and impacts sales team and channel satisfaction.

This is confirmed by the survey, which found that top-tier organizations are more than four times more likely to be doing well in their channel sales with highly automated POS and inventory data.

Summary

Customer and partner demand for faster and easier buying experiences along with the complexities of Gross to Net pricing and working through channels is presenting a challenge for high tech manufacturers that is impacting growth and profitability.  Over the past 18 months companies in almost every sector of high tech manufacturing have invested in retooling their business applications to enable managing their end-to-end Price and Revenue Gross-to-Net processes on integrated solutions rather that silo tools and processes.

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About the Author

Chanan Greenberg, SVP and General Manager, High Tech, at Model N

Chanan Greenberg 

Chanan Greenberg is responsible for all high tech sales and operations at Model N. Prior to joining Model N, Chanan was founder and CEO of Privia, Inc., where he worked with top 20 government contractors, including Boeing and Lockheed.

Published Tuesday, September 03, 2019 7:22 AM by David Marshall
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