Turning Complexity Management into profit

Turning Complexity Management into profit

The power of three.

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The pace of innovation is accelerating, products and services are exploding in number, new channels are emerging, and digital technologies are disrupting business – all while customers are demanding and expecting new, different, better and faster products and services. Has doing business ever been more challenging?

Companies in every sector are struggling with an unprecedented level of complexity brought about by the relentless pace of change and its adverse impact on costs, efficiency, profitability and competitiveness. Many businesses feel they are often ‘flying blind’ and relying on reactive, short-sighted strategies such as abandoning unprofitable products or implementing quick cost cuts.

The reality is that while many businesses are selling more products and services to more customers across diverse new channels and in increasingly competitive markets, the infrastructure they rely on for decision-making and efficient operation has not kept pace. As a result, the proliferation of products is failing to contribute significantly to revenue growth. In a recent KPMG study, companies on average increased their total number of active products by 32 percent but only grew sales by 4 percent.1

Understanding how to manage ‘true profitability’

So what to do?

We have worked with some of the world’s largest and most complex organizations and through their experience have developed new advanced analytics diagnostic tools and techniques that are helping to solve the dilemma of complexity management and, in turn, helping optimize profitability for clients. How? By tapping into the immense capabilities of digital technology and the power of data and analytics to determine the ‘true profitability’ – or economic valued added (EVA) – of individual product SKUs, customers, channels and suppliers.

The Power of Three

The process rests on three powerful pillars that help organizations unlock their potential:

Information: We begin by gathering information – in the form of ‘raw transactional data’ – from across every aspect of the enterprise. Experience has revealed that the overwhelming majority of businesses today mistakenly try to measure and manage the impact of complexity by simply looking at top-line metrics such as gross profit. But effectively managing complexity requires a deeper and more ‘actionable’ level of detail – one gained using KPMG firms’ own data-driven diagnostics and tools to measure every product SKU, customer type, transaction type and business process. This provides a ‘bottom-up’ model that maps the economic contribution of every product and aspect of the business and ultimately reveals the ‘true profitability’ of every SKU in a company’s portfolio. This is a game-changer for clients, giving them for the first time both an accurate view of the value their product portfolio is creating and exactly where money is being lost or wasted in serving customers.

Response: From there we can explore the right options, using a powerful data-and-analytics engine and algorithms to identify both the root causes of the results and specific opportunities to unlock value. These proprietary D&A tools essentially look for patterns beneath the surface of the data (across a wide range of operational and commercial factors) to deliver critical new insights into the specific actions, processes and conditions that can prove profitable – or unprofitable.

Decision-making: Armed with new business insights, we can begin decision-making, putting all data and insights at the client’s fingertips in the form of ‘what if’ scenario-modelling. A powerful interactive dashboard lets businesses evaluate potential scenarios and conditions in their markets. Strategies and decisions involving the product portfolio, services, suppliers or any aspect of the business can soon follow to improve cash flow and profitability.

By unlocking the “power of three”, clients from a variety of sectors – including consumer goods manufacturing, retailing, medical device makers and industrial products companies - are demonstrating that while managing complexity is never simple, it doesn’t need to be complicated to succeed.

Footnote

1Complexity Management, KPMG in the US.

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