Pricing, Planning and Performance Management Software Creates Business Value


People who don’t spend much time analyzing the software market may have trouble understanding the differences between products in a given software category or the difference between two categories. This happens because vendors and commentators use the same words to describe different depths of functionality and degrees of comprehensiveness in one type of application. As well, there can be multiple categories of software that address the same general business issues but are designed for different specific uses. Not only is it worth the effort to sort through the labels and understand what does what best, but different categories of software that are sold and deployed separately can provide even greater value when used together.

For example, I recently had a conversation that touched on the relationship among three categories of business software: price and revenue optimization (PRO), sales and operations planning (S&OP) and performance management. The three share characteristics. All are analytical applications that have planning capabilities. Each category can – and sometimes does – stand on its own in an organization. Yet the three are complementary, and deploying them in a coordinated fashion can increase the value of each component. To envision this, imagine a pyramid-like relationship between the three: Performance management provides a foundation at the bottom, sales and operations planning fits in the middle, and price and revenue optimization is at the apex. I’ll explain this hierarchy in more detail.

01_PRO_Pyramid_The_Price_and_Revenue_Optimization_PyramidThe performance management software label covers a broad set of functions that provide corporate planning and budgeting, decision support and communications capabilities including reporting, dashboards and scorecards. It is a foundation element in corporate software that provides essential services to help executives and managers set goals and objectives, monitor business conditions and assess the performance of individuals or business units. Performance management software has been around for more than a decade and has been widely adopted. Our Financial Performance Management Value Index finds that most products available in this mature category are robust and offer the same core capabilities. They also have planning and budgeting functionality to set financial targets and assess progress toward them.

Sales and operations planning is a management discipline originally developed in the 1980s to improve coordination between the parts of a business that focus on market demand (including sales and marketing) and those that create the supply that meets that demand (including manufacturing, supply chain, purchasing and operations). In theory, one could use performance management software to achieve this balance, but products in that category lack the kind of process and functional capabilities that are designed specifically for S&OP. One would have make substantial modifications to a performance management application and then continually maintain it to approximate the functionality of an S&OP application. Used together, though, the underlying capabilities of a performance management application can provide the corporate and financial planning context for the sales and operations planning function; it can be the central source of dashboards for monitoring all S&OP-related activities and the system that generates reports.

Price and revenue optimization is a business discipline used to create demand-based pricing; it applies market segmentation techniques to achieve strategic objectives such as increasing profitability or market share. PRO first came into wide use in the airline and hospitality industries in the 1980s as a way of maximizing returns from less flexible travelers (such as people on business trips) while minimizing the unsold inventory by selling incremental seats on flights or hotel room nights at discounted prices to more discretionary buyers (typically vacationers). Today, it is a well-developed part of any business strategy in the travel industry and increasingly used in others. Analytical software is available that enables companies to implement and manage a PRO strategy, which I covered in an earlier perspective.

For manufacturing and distribution companies, S&OP and PRO software combined can provide valuable capabilities. The latter can devise a mix of products at given prices that will optimize profitability given other constraints (such as market share or minimum volumes), while the former enables the company’s operations, supply chain, manufacturing, sales and marketing organizations to put the plan into practice and continually adjust the balance of supply and demand to reflect changing market conditions.

S&OP does not have universal relevance. It applies mainly to product and manufacturing businesses that move physical objects from sources through distribution to buyers. Its analogue in financial services would be a portfolio management and optimization application, which would be used to set the parameters for the composition of assets on the balance sheet – typically the types of financial instruments that the organization will hold, their riskiness and maturity.

Another type of complementary middle-layer analytical software is sales compensation management, which is an essential element in businesses that use a direct sales model. I’ve noted in the past that for these types of companies, sales compensation management software increases the effectiveness of profit optimization software because it makes it easier to adjust incentives quickly to reflect changes in market-driven requirements.

Software industry analysts often focus on the issue of choosing a suite or a group of best-in-class products. But there has been little coverage of the advantages of using complementary applications to improve performance. As I mentioned, performance management, S&OP and PRO software each can stand alone and deliver value to companies. They naturally have loosely coupled relationships with each other, which reflect the organizational reality that each is managed by different parts of the business for their own purposes. Together, though, these three types of applications, as well as sales compensation management, can enable the companies that use them to do even more in achieving their strategic goals.

Regards,

Robert Kugel – SVP Research

Mercer Unifies Talent Management Practice and Announces Product Suite


Mercer is a global consulting company that has more than 19,000 employees in more than 40 countries. One of the company’s major consulting practices is talent management. My colleague Mark Smith assessed Mercer’s survey delivery product WIN for compensation management in September 2011. Mercer recently held an analyst day in Boston where speakers discussed the launch of a new internal group focused on talent management and a new talent management suite sold as part of its consulting services.

This year Mercer consolidated its talent management practice into one group. At the analyst day the company announced the release Talent Impact, a suite of talent management products and consulting services that it will formally launch at the HR Technology show in October. These two developments form a more integrated approach to talent management and acknowledge the increasing demand of customers for integrated applications instead of individual point products. Other human capital management consulting vendors are building similar talent management packages; one example is Talent REWARD from Towers Watson.

Mercer has organized the Talent Impact suite in five “solution offerings” or consulting practices. They are Forecast, for workforce planning and analytics; Engage, which focuses on managing expatriates while on assignment and at different points in the employee life cycle; Mobilize, to manage international mobility and mobile reporting and analytics; Reward, which combines compensation benchmarking, position management and rewards; and Assess, a set of 360-degree performance assessments and simulations. All five of these areas include an analytics component for which Mercer is using MicroStrategy software. Yet these are basically stand-alone offerings, and Mercer has not yet done the work to create an integrated product. Today Talent Impact is more a concept than a unified suite, although the company plans to make it one.

This is not to say that Mercer isn’t doing integration work now. It is adapting some of its strongest products to create an integrated offering called Reward. This should take advantage of a market opportunity vr_totalcompbusiness_impactful_barriers_to_compensationexposed by Mercer’s own research, which shows that only 24 percent of organizations have workforce plans that are highly effective in meeting business needs. The work done for Reward has integrated Mercer WIN ePRISM, its market leading compensation benchmarking and modeling product that includes a global database of over 100 countries, with Mercer eIPE for position management and Mercer Analytics. Mercer’s advantage is the quality and quantity of the benchmark data it can bring to the solution. This can especially help large global organizations that have employees in many locations and are trying to understand issues such as workforce turnover or trying to do workforce planning. In addition, it pulls together compensation and talent information to do planning; our benchmark research on compensation management finds that the number-one barrier (for two-thirds of organizations) to impactful compensation is lack of integration to talent management.

Mercer may find it challenging to manage the complexity of the individual modules of Talent Impact. Building a product suite must include managing all the parts of a development plan for a unified package; that could be difficult for a consulting company. To that end, Mercer has hired several people with product experience, including Lisa Sterling, formerly of Ultimate Software, to help execute the product management and development functions. Later on it will be important to ensure follow-through with functions like support and hosting as upgrades and enhancements occur, to show clients the benefits of investing, including strong service, and ensuring reasonable costs while avoiding expensive upgrades for each item.

Overall I believe the direction Mercer is taking with the new team structure and the Talent Impact suite is a good one. Vendors of human capital management software have been successful in persuading customers to purchase multiple products that address related processes because they are well-integrated. Talent Impact can be Mercer’s way to provide the same value proposition to its clients. Organizations that are evaluating talent management consulting firms should consider what Mercer now has to offer and additionally assess its existing and new software offerings.

Regards,

Stephan Millard

VP & Research Director