StaffBalance uses the approach pioneered by the noted business thinker Prof Robert Kaplan, who developed the time-driven activity-based costing (TD-ABC) methodology. Using business modelling software, the StaffBalance team developed an ongoing methodology for optimising Bord Gáis’ resources. The aim was to ‘right size’ teams in order to meet business objectives, to prioritise workloads in order to maximise customer service, and to seek out opportunities to improve operational efficiency. Going through this process gave Bord Gáis a key understanding of process, cost and profitability: the cost to acquire and to serve customers. “The forensic evaluation that was done is vital to our business,” says Roche.

Full article on Silicon Republic

Harvard professor Robert S Kaplan is probably best known as the creator of both activity-based costing and the balanced scorecard – the renowned tool for linking a company’s actions to its strategic goals, first presented in his bestselling book The Balanced Business Scorecard in 1996. His model aims to help business leaders clarify their corporate vision and align people, business units and resources with a unified strategy.

He was in Dublin in October addressing senior executives at an event organised by StaffBalance, and we caught up with him afterwards to discuss some of his thoughts on how Irish leaders can get their companies through these tough times.

He began by telling me that in growth times, people become very exuberant – recruiting customers, launching products and spending widely – something that of course happened during the boom of recent years.

“In an expansionary environment, what Keynes called the ‘animal spirit’ of businesspeople gets aroused and they go hunting into new territories and you see an expansion of product lines, new customer segments, new geographical markets,” says Kaplan. “With enough growth all these things seem to be working well.

“Then when growth stops, companies really have to examine their operations, and get back to their core and find out with their product lines, with their customers where they literally have some type of advantage that enables them to retain the customers they want and also to make money from them.

“It is this second part that is difficult to identify. It’s easy to measure customer retention and customer loyalty and satisfaction – the challenge is whether all those customers are making money for the company. Often times the company, in order to attract and retain customers, has offered lots of services or features, and made the offering more customised, more individualised to customers’ needs. The question is are they getting paid for all the features and the services that they’re offering the customer?”

Not that Kaplan is saying companies should not offer such elements. “I would actually encourage companies to follow differentiated strategies, and to get out of just offering commodity-type products and services,” he says. “However, it is important that the value you create from this exceeds what it costs you to create and deliver that differentiation.”

The problem, he points out, is that you cannot know this unless you have an accurate costing system that’s able to trace the cost right down to individual orders, individual products and customers.

“This becomes particularly noticeable during a downturn when the revenues and the market start to decline, but the companies don’t adapt to see whether in fact the features and services they’re offering are still being covered by the margins and the revenues that they currently are experiencing.”

Taking stock

It is easy for companies to see why this is important in a downturn, but Kaplan stresses that companies need to be making these measurements on an ongoing basis, as part of their business processes.  “I mean technically we should be doing this continually; you shouldn’t just be doing this in bad times,” he says.

“Given the technologies that now exist, the combination of first hardware, where you can actually track products and orders as they go through your system very well; then software which is able to capture the data that comes from these transactions, whether production or customer delivery; and the third part is the analytic thinking – which is the model that I’ve contributed on activity-based costing, where you aggregate all the very detailed transaction data into measuring a cost and linking it to prices and revenue, and therefore profitability.

“This should really be part of a company’s ongoing management systems, that two to four times a year they should be calculating the profit and loss on every product and every customer. I’m not saying you drop products or fire customers based on losing money in a three-month period, but you want to be able to highlight where in fact you are losing money, because often you fall into these situations, and they’re correctable. Once you see the drivers of the loss, there’s a set of actions that the managers can take that will enable you to transform unprofitable products and customers into profitable ones.”

Quick results

The results come very quickly, says Kaplan. “It’s about changes like improved processes in order to create the differentiation, sometimes it’s about getting an appropriate level of customisation in a product or service, or it could be about price changes,” he says.

“And it’s not only price increases. Often you discover, some of your high-volume, somewhat standard products are the most profitable, and you may actually be able to cut your prices and win some additional market share, in a very price-sensitive portion of the market, and so make money that way.

“It’s about having that kind of detailed information available to the managers, but they have to have the discipline to collect the data, to report it themselves and meet periodically.”

Case in point

He points to a company he has worked with, and whose experience he has captured. “They run on a six-month cycle for their products and their customers. So, in Q1 they review the P&L [profit and loss] of all their products and then take some actions based on that. In Q2 they look at the data from the point of view of customers, and then take some actions based on the unprofitable customers, and try to get closer to the profitable ones. Then in the third quarter they come back and review the products because now they’ve had six months’ additional work since they made the decision at the end of the first quarter. Finally, at the end of the fourth quarter they look back at the customer.

“So they’re looking at six months’ worth of data on products and customers and just alternating the quarters, which gives them six months to see the impact of the actions that they’ve taken – first at the product level and then the next quarter at the customer level.

“It’s just a very disciplined process that’s built into their management system. It’s a fundamental way of looking at the products you’re producing and the customers that you’re serving.”

The key, says Kaplan, is the continuous nature of the process, and with today’s technologies there’s little excuse not to do this.

“Take that company I’ve just described. They couldn’t have done this 20 or 25 years ago because they didn’t have the information available or accessible.

After 20 years of companies investing in their ERP [enterprise resource planning] systems of various kinds, they have captured transaction-level data.

“A lot of companies have not gotten much of a return on their investment in the ERP system. So having this  P&L calculation, it’s what’s going to give you the value of return from the data capture that you’ve invested in over the last 10 to 20 years.”

Cost-cutting no solution

The companies that are not doing this often have little option but to cut costs when growth stops, but cutting costs is often not the solution, explains Kaplan.

“If you’re not doing that measurement, then the only information you have is your operating profit and loss data, so you are looking at what is really a horizontal view, how much we’re spending on costs, on selling expenses, on marketing expenses, distribution expenses and product development expenses. So you can go through the line items of your income statement and you start slashing at that level.

“I think that’s really a mistake because some of that spending is supporting profitable products and profitable customers – if you’re slashing across the board like that, you do get rid of some excess fat or waste and inefficiency, but you’re also likely to start slashing into muscle and bone and compromising important products and not serving important and profitable customers.

Rather than taking that ‘horizontal’ look, Kaplan advocates a different approach. “Take a vertical look. For every customer, look at the net price you’re getting from them. Many companies don’t know the net price for transactions because there are so many promotions and allowances and discounts that get taken and that are authorised by different parts of the organisation. That can be sales incentives, some of it is the marketing or advertising allowance, sometimes it’s the financial department giving a discount for prompt payment.

“So you have this myriad of discounts, promotions and allowances which we know in an aggregate financial statement will say: ‘This is how much we’re dropping from total revenue through all these special deals’, but you don’t know it by transaction or by customer.”

Look instead at all the discounts and allowances customer by customer, urges Kaplan. “Then you look down at the cost associated with each customer, how much selling expense, how much distribution expense, how much packaging expense. That’s a vertical look.

“If you have 5,000 customers you’ll have 5,000 P&Ls, each one of which looks like a full income statement. But that’s actionable because you’ll find that 1,000 of those P&Ls are good, profitable, 3,000 or so are breaking even, and then you’ll have 500 customers where you’re losing a lot of money and you’ll be able to see where it is – too much discounting, too much special packaging, too much customised delivery? But now it’s actionable, to reduce these through some negotiations with the customer.”

Again he refers back to his case study. “In that company, the costing study was led by the vice-president of sales who knew that they had difficult unprofitable customers and he said: ‘I’m prepared to have difficult discussions with those customers but first I have to be sure what the facts are. I have to know how much discounting we’re doing with the customer, how much the cost is of special handling and delivery. Our current costing system doesn’t give me that’.

“So, he insisted that they get to an accurate cost system and then he would use that in his discussions with the customers,” continues Kaplan.

“I was just at a conference where the chief financial officer of the company gave a report – this was a year and a half after I finished the case – and he said the company had picked up 10 percentage points of operating margins in the last year just through these discussions they have about their products and our features and the customer relationships. That’s huge.”

Negotiate with the customer

Kaplan is not suggesting you fire the unprofitable customers. “Firing the customer is the last thing you want to do. You may have to if everything else fails because you can’t continue to lose money, but you find that once you see the data, there’s a set of actions you can take.”

Going back to the case study, he says one customer was the second largest loss customer at that company. “I know it was at least 10pc of sales on a very high revenue base, and in six months it became their fifth most profitable customer. It was not just one thing but a series of changes in the relationship, including pricing, being careful about the discounting policies, etc.”

“You can take a very large loss customer in this case, and a customer much larger than the company, and make it into a profitable one. Because in general the customer doesn’t want to be fired. But it’s not their responsibility to make sure that you’re profitable! That’s your responsibility.”

Leadership is the key

Leadership is essential here, says Kaplan. “Everybody in the company has a job and they’re doing the job they’re told to do within the framework they’re operating, but it’s up to the leader to look outside, to look at the competitive environment, the competitors and where are they going, and who are the customers that can be reached. The leader, with the support of the executive team, has to devise that strategy that enables you to compete.”

Irish companies need to do this in an ever more competitive landscape where competing on cost is no longer a differentiator, advises Kaplan. “If leadership is just staying with the existing product line and the existing customer base, if it isn’t doing the things I was describing, like fine tuning the product line, or fine tuning how you work with customers, if they don’t have a really coherent strategy for competitive sustainable advantage, over time whatever advantage they have will be eroded.

“So we do look for leadership to position the company favourably in a competitive environment, and to choose a strategy that looks like it gives some advantage in the marketplace, then communicate that to all the people, and implement it extremely well. And one of the tools for implementing this very well is the feedback you get from the activity-based costing and profit model of products and customers.”

Irish businesses need to be looking at differentiation and innovation in their products and services, concludes Kaplan.

“Otherwise, over time you’ll be competing in a commodity space. And you can do that – I mean Ryanair does it, Walmart does it – but then you have to be ruthless about your cost position because only the lowest cost will survive with that type of strategy.”

This article first appeared in the Winter 2010 issue of Irish Director magazine.

Listen to the Robert Kaplan Interview Below

Download the Presentation

Robert Kaplan, one of the world’s leading business strategists, inventor of the balanced scorecard, and advisor to Barack Obama addressed an audience of 150 senior executives in Dublin today.   The event was a half-day executive briefing on how to build a recession-proof company. Robert Kaplan Live in Dublin was hosted by StaffBalance, a company that implements Kaplan’s methodology here in Ireland.

Robert Kaplan led a half day master-class of speakers including: Will Roche of Bord Gais and Ciaran McGowan of StaffBalance who shared their case-study experiences, insights and methods to inspire executives with the art of winning in turbulent times.

Kaplan talked about how in growth times, people become very exuberant – recruiting customers, launching products and spending widely.  Sustained growth hides negative economic fundamentals such as unprofitable relationships, and products.  It’s only when the tide goes out, when recession hits, that the true cost of doing business becomes exposed.  “You find yourself with a bunch of unprofitable customer relationships, products and delivery channels.”

Then companies slash and cut costs.  To Kaplan, this cost-cutting frenzy is like taking a meat cleaver to yourself to remove some fat.  This action removes valuable muscle and leaves the business so badly damaged that in some cases it may not recover.

Robert Kaplan spoke out against the over-emphasis on cost-cutting as a way to manage a business out of recession.  He said: “The low-cost, low-price model – the race to the bottom – is probably not a strategy that can be sustained, whether in a service economy or the manufacturing sector, because there are always lower cost ways of producing those products and services outside the country.  The death spiral starts when you start cutting and then you have to cut some more.”

According to Kaplan, “The move-forward impetus is leadership.   Executives must continually measure customer profitability, product performance and employee development.   The challenge currently for companies in Ireland include: the economy, new competition and the regulatory environment and leadership is at the heart of that.   The world is too volatile and dynamic to stay static.  The question everyone has to ask is: What will the world look like in five years time?”

He argues that it is possible to pursue cost-cutting to the detriment of a business.  Competition will remain strong from countries outside Ireland whose costs are inherently lower.  So, Irish business must create differentiated, better and more unique products and services.  This cannot be achieved solely by cost-cutting.  Irish companies must be inventive, people orientation and innovative in their approach to product and service design in order to win in turbulent times.

Fill out your details below to receive the presentation.

This article is featured in the Irish Times Innovation Magazine

WARREN BUFFETT has a nice line when it comes to describing the post-boom business landscape. “A rising tide lifts all the boats,” says the Sage of Omaha, “and when the tide goes out we see who’s been swimming naked”. It’s a joke that has a relevance far beyond Ireland, but seems to capture the post-Celtic Tiger era. After years of high economic growth, we have reached the stick or twist moment, time for the chief executive and his C-level team to earn their considerable salaries. Some will show a detailed and nuanced appreciation of where the value lies within their businesses. Others will not, and will be exposed, like those in Buffett’s joke, leaving the world to see that perhaps it wasn’t strategic smarts that helped them reap the rewards of the last decade, but something not far from dumb luck.

“The real question is,” says Professor Robert Kaplan, talking ahead of his appearance at the StaffBalance conference in Dublin on October 19th, “can business leaders think strategically – and do they know which customers are profitable and which aren’t? Do they really know the microeconomics of their businesses?”

Kaplan’s career as an author and academic is based on answering such questions of crucial detail; as the tide goes out in Buffet’s seaside analogy, Kaplan is the bloke on the beach with binoculars, staring at your privates.

His forensic approach to cost analysis and business strategy – his full title is Baker Foundation Professor at the Harvard Business School – was the basis of The Balanced Scorecard: Translating Strategy into Action , the book he co-wrote with David P Norton.

His work in this area led to his election to the Accounting Hall of Fame, and he has received several similar awards including a Lifetime Contribution Award from the American Accounting Association (AAA), the Outstanding Accounting Educator Award in 1988 from the AAA, the 1994 CIMA Award from the Chartered Institute of Management Accountants (UK) for “outstanding contributions to the accountancy profession”, and the 2001 Distinguished Service Award from the Institute of Management Accountants (IMA) for contributions to the practice and academic community.

“In good times, businesses are encouraged by positive cashflows to feel exuberant and expansionary,” he says. “They go into new markets and new customer segments and the growth carries them along. But when the growth stops, as happened two years ago, you realise that a bunch of the new relationships you formed, and perhaps some of the new product service lines you developed, just disappear.

“Companies know they have to cut, but often they don’t know where to cut,” says Kaplan. “If you analyse the traditional income and cost statement, and see the categories of cost – selling expenses, marketing expenses, administrative expenses and so on – [you see] they make arbitrary cuts across the different categories without realising those expenses are caused by producing products and services delivering value to their customers.” This is the heart of the Balanced Scorecard approach: do you really know where the value in your business lies?

Whichever strategy is adopted, he says, “you’d better know where the true costs of servicing your customers are”. The low-cost low-price model – the race to the bottom – is “probably not a strategy that can be sustained” says Kaplan, whether in a service economy or the manufacturing sector, “because there are always lower cost ways of producing those products and services outside the country. The death spiral starts when you start cutting and then you have to cut some more.

“You really have to understand what your competitive advantage is. Is it products and services that are sustainable, that customers are not just buying on price but consider best value? To do this effectively you have to have an intimate understanding of your cost base, because it’s really the specific demands of the customer that determine the cost being incurred.”

The point, says Kaplan, is to understand the economics of that on a customer-by-customer basis. And with the right strategy and information management systems, you can do that.

The Celtic Tiger threw a mantle over much of this, with many businesses prospering, despite their management team, rather than because of it.

“Detailed analysis of costs is something they should have done, but when times are good you don’t think ‘gee, let’s impose a new cost measurement system’. The strategy doesn’t go much beyond ‘we’ll sell a few more and we can live with the high costs’.

“But the problem is finding where to get the value at the best unit cost. Sometimes what it costs to create the value for the customer is higher than the value you are getting back. Differentiation strategy, where you’re trying to provide more value to customers, is only profitable if the value of the differentiation to the customer exceeds what it costs you to create it.

“Measuring customer satisfaction and loyalty on the scorecard is only part of the picture, because of course customers are saying, ‘yes, we want more of this’, and they value the personalised services and customisation you’re giving them. But unless you realise what it’s costing to provide that service, you could be following a faulty strategy.

“The amount of added value the customer feels is expressed by the premium you’re getting from your price. The incremental margins from the customer have to cover the incremental cost of those services. For example, if you’re offering customisation, you’ve got specialised technical teams, the cost of which must be put against the product.”

If they don’t have the ability to customise the service or product, Irish businesses have to compete by being the cheapest, the lowest cost producer. “You’d better understand what your costs are there, too, because you have to drive all costs down and take out any that are unnecessary for the delivery of the product or service.”

Received wisdom suggests the future of the Irish economy should rest on businesses focused on the added value strategy. But, Kaplan says, there will be companies seeking to exploit the EU’s competition environment,

“It is possible in a high-cost area such as the European community that some Irish companies could compete on a low-cost basis. But you run the risk of someone in Bangalore, China or Vietnam offering a similar service with lower cost over time as the world becomes more globalised.”

Either way, investing sufficiently to understand the microeconomics of the business is a good bet, he says, and the payback period is “very short”.

However, time is a major limiting factor in company decision making, with the need for instant results paramount, particularly where shareholders are concerned.

Many companies work to the timings of the stock market and its pressure for quarterly results. “Since they use only financial measures to report their performance to analysts and shareholders, they don’t have a credible way of communicating their progress in enhancing customer relationships, improvement in critical processes and aligning their employees’ motivations and competencies to strategic objectives. Thus, management meetings can become obsessed with meeting Wall Street’s short-term financial targets.”

There is another factor at work here, one that mitigates against longer term planning.

“Those companies that have not yet implemented a management system based on their strategy rely mainly on the budget system for setting the agenda for periodic management meetings. By its very nature, the budget is short-term oriented and management spends the bulk of its time trying to understand reported cost over-runs and revenue shortfalls, and developing action plans for coping with the problems.

“It is important for management to meet to address short-term operational problems. But it is also important for senior managers to meet to discuss their progress in strategy implementation. These are very different meetings, with different agendas and, usually, with different participants attending. Having a management system anchored firmly in strategy will enable a new type of management meeting to occur, at which managers can debate and devise solutions to emerging problems in strategy execution.”

The customer who earns you the highest revenue may not be profitable.  Your operational teams might be busy, but not operating to their maximum capacity.   Your cost reduction initiatives may improve your balance sheet in the short term, but may also negatively impact future profitability.  The problem is that you don’t have the systems software to tell you factually, whether these statements hold true or not.

Ciaran McGowan, Managing Director of StaffBalance™ explains how Time- Driven Activity Based Costing – a significant enhancement to Activity Based Costing (ABC) provides powerful information to help you drive the profitability of your company.

As concerns about economic stability continue to affect business in Ireland and across the globe, corporate executives are under pressure to take a much more sophisticated look at profitability and cost management. This has brought a renewed focus on eliminating duplication and waste, reducing costs, and gaining a clearer understanding of the profitability of your people, products, customers and channels.  Failure to deal with this results in loss of competitive edge and market share profitability.

Few traditional accounting and finance systems provide valuable forensic information for senior executives on how to reduce costs.  Activity Based Costing (ABC) has been around for some time, but it has its limitations.

While there are recognisable benefits in using ABC – cost and profit enhancement opportunities and the facility to improve process efficiency – it can be complicated to implement particularly in multi-faceted organisations.    ABC also requires a considerable commitment in terms of resources; it is not scaleable and the results can be either inaccurate or too simplistic.  There has to be a better way.

Time-Driven Activity Based Costing is a simplified and proven solution to the complexity of ABC.  Time-Driven Activity Based Costing differs from traditional ABC in that it takes the analysis down from the high level activity volume picture,  to a forensic understanding of costs, profitability and process efficiency – right to where the information is most valuable at the individual transactional level.

The newly enhanced methodology uses simulation modelling, which allows you to examine in detail how you can optimise your resources.  This system enables you to implement intelligent cost cutting and generate greater operational efficiency so that you can maximise your business potential.

Benefits of Time-Driven Activity Based Costing

A number of trends have led to the growing need for and widespread acceptance of Time-Driven Activity Based Costing cost and profitability management solutions.

This simulation model offers you a way to cut costs and it highlights inefficiencies.  Time-driven Activity Based Costing gives you a factual perspective on the following areas:

• Elimination of duplication and waste
• Cost reduction
• Understanding the profitability of people, products, customers and channels

The simulation model is easy to implement and it both leverages and works alongside existing investments in people and technology.  Results are immediate and return on investment is typically achieved in less than twelve months.

The other great benefit of Time-Driven ABC is that it has full trace-back capability.  Feeds come from the General Ledger into the simulation model, and they can be traced back each month to ensure there are validated from the GL to the customer.

How Time-Driven Activity Based Costing works.

With the old ABC method, companies were forced to survey employees on how they spent their time – and compilation of the results – which tended to be flawed, took up a significant amount of time and resources.

Not so with Time Driven Activity Based Costing.  Instead of surveying employees, the average availability of staff to complete operational activities is calculated. That means that the practical capacity of the resources available is computed as a percentage of the theoretical capacity.

The methodology

The traditional ABC model surveyed employees to find out how their work was allocated on a day by day basis.  The new Time-Driven model begins by estimating the practical capacity of available resources as a percentage of the theoretical capacity.  From the start, therefore, you are creating a more realistic model of the resources available.

To illustrate how it works, we use an example adapted from Robert Kaplan and Stephen Anderson of the Harvard Business School. If you were to look at the practical capacity of a customer services team, stripping out annual leave, sick leave, maternity leave, and training, you might find that the practical capacity of the team is 80% of theoretical full capacity.  So if a person is theoretically available to work 40 hours per week, they are in practice available to work 32 hours per week.

A customer services department employs 28 people to do frontline work.  Each employee works 8 hours per day.  In theory each worker is available for 31,860 minutes per quarter.  Their practical capacity is 80% of that or about 25,000 minutes per quarter per employee.  This is a total of 700,000 minutes in total for the team.

The cost of supplying the capacity is €560,000 in overhead costs. That means that the cost per minute of supplying capacity is €0.80.

Calculate the time it takes to perform one unit of activity

Having calculated the cost per time unit of supplying resources to the business’s activities, the model next works out the time it takes to carry out each unit of activity. These numbers are obtained by interviewing or observing employees. No surveys required. Time Driven Activity Based Costing focuses on the length of time it takes to complete an individual task, rather than the percentage of time an employee spends doing it.

So in our example – employees spend:

• 8 minutes processing orders
• 44 minutes handling an enquiry
• 50 minutes performing a credit check.

The cost driver rate can now be calculated by multiplying the cost per minute rate of €0.80 by the number of minutes it takes to perform each task. This means that the cost-driver rate for processing orders is €6.40; handling an enquiry €35.20; and performing a credit check €40.

Once you have calculated these cost driver rates, you can assign costs in real terms to individual customer transactions as they occur. This information alone is very powerful in negotiating with customers and in the pricing of new business.

Decision making based on activity cost

Time driven ABC enables managers to report their costs on an ongoing basis in a way that reveals both the cost of a business’s activities and as well as the time spent on them. You have information also on the difference between the capacity supplied and the capacity used.

This gives you the opportunity to review unused capacity, or to look at where there is not enough capacity to satisfy customer requirements.  By factoring in the real costs associated with each customer, you can make adjustments – both operational and financial – that will favourably impact your bottom line.

The simulation model also highlights resources gaps and spare capacity, and helps you to identify opportunities for resource management which will contribute most to business profitability.

The outstanding benefit of the simulation model is that the information is entirely made up of proven factual figures – so that any decisions you make are based on reality.  This means that you can be confident going to board level, that the resourcing capacity that you require is fully supported by accurate information; that you maximise profit per individual customer relationship and that you minimise costs.

Managers can easily update their simulation model to reflect changes in the operating environment and to measure improvement in efficiencies and costs.

About StaffBalance™

StaffBalance™ delivers an innovative cost and profitability management solution to financial services, insurance and utility companies helping them seize profit opportunities by reducing costs, balancing staff resources and maximising the profitability of customers, products, and channels:  all without disrupting mission-critical systems or people.

The company delivers an innovative profitability and cost management software solution.  This practical and effective decision making toolset helps companies quickly identify and build profitable revenue streams, manage staff resources more effectively and understand and control the underlying cost structure and profitability of customers, products and channels.

The StaffBalance™ client base includes: Bord Gais, KBC, and Zurich.  They have already saved their customers over €1m in costs.

Ciaran McGowan, Managing Director, StaffBalance™ can be contacted at: 087 051 9863.

It came as an enormous surprise to a sales director of a major corporate company, when he discovered that his biggest clients were losing the company money. All that time spent negotiating deals with these particular clients to keep them on side – delivering the goods to tight deadlines, providing service above and beyond, building relationships with key decision-makers – all yielded a high revenue but not a profitable revenue.
For anyone engaged in selling, the crucial question is: Can you tell which of your customers are profitable and which ones actually cost you money to serve?

Company executives are taking a more sophisticated look at customer profitability and in particular cost-to-serve as a driver for business growth.

There is a generally held view that the Pareto Principle also known as the 80:20 Rule holds true for all businesses: 80% of profit is derived from 20% of customers. However, new light is shed on customer profitability by Professor Robert Kaplan, of the Harvard Business School and his research shows that:

• The most profitable 20% of customers deliver between 150% and 300% of profits
• The middle 70% of customers are at breakeven level and
• The least profitable 10% of customers lose the company between 50% and 200% of total profits.

This means that often, some of your largest customers turn out to be the most unprofitable. The Whale Curve is a useful graphic to illustrate how this works.

The high profitability of the top tier of customers balances out against the unprofitable lower tier of customers so that you achieve your 100% profitability figure.

There are serious implications for a company that cannot measure and manage customer profitability.  These can include:

• Breakdown in relationships between customers and suppliers.
• Excessive demand by customers for free services or heavily discounted products.
• Over-servicing of unprofitable customers, due to lack of information.

Download the full article.

Irish Time-Driven Activity Based Costing consultancy, Staff Balance have been using MindGenius since the company was started 3 years ago, and believe the biggest benefits the software has brought them are reduced costs and faster turnaround times.

According to Staff Balance, a typical consulting assignment with a medium-sized customer could take 30 days, if done using standard documenting techniques, but once mind mapping is used, the process is shortened threefold, down to just 10 days. The saving of 20 days could mean a saving of €20,000, so they believe that the ROI for a MindGenius license can be as much as thousands of percent and the software pays for itself in the same week.

Staff Balance use MindGenius to map out their customer’s business processes and feel it allows them to arrange all the gathered information in a way that is not possible with lists. In fact, they feel that the fast turnaround of their consulting service would not be possible at all, without using mind mapping, particularly with MindGenius.

Their clients include Bord Gais Energy Supply – all Ireland’s gas and electricity supplier, Zurich Insurance, Acorn Life, KBC Bank, IIB Homeloans, Haven Mortgages and other high-profile companies.

The Staff Balance range of products and services allows customers to find out the optimum number of staff they require, frees up the sales team to work on sales, allows for focus on the most profitable customers, sales channels and products and overall helps significantly reduce costs and increase income.

All Staff Balance Business Analysts and the Management Team use MindGenius in front of customers and for optimizing their daily work.

Romualdas Maciulis, Technical Director, Staff Balance Ltd thinks:

“MindGenius lets us communicate the key points across much faster and we feel it is the best tool you can use for mind mapping, particularly when you are working with extremely large maps. MindGenius is the only tool on the market that can work with large maps without breaking, we tested them all – only this one shines under pressure.”

This is down to the MindGenius Map Explorer, which allows them to focus in on any area of the map, making it more manageable.

Romualdas also had a daily productivity tip he wanted to share:

“It is very effective to have a “master mindmap” of all your activities, projects and responsibilities. Users can leverage MindGenius linking capability to link to specific websites, portals, documents and even other mind maps. And now, with the speed improvement of MindGenius 3, and the added export functionality – I’m even more convinced that MindGenius is the best mind mapping software there is.”

Read the online article here.

Laid up in hospital after breaking both his knees, IT consultant Ciaran McGowan had time to think about his career.

‘‘I fell off a ladder while trying to replace a slate on a roof. In hospital for six weeks, I had thinking time – a lot of it,” said McGowan. Seeing an opportunity to use technology to help companies figure out the best way to cut costs, he formed Staff Balance.

Based in the docklands area in Dublin, the firm takes ‘‘a scientific approach to staff “, and claims to have saved its clients more than €1 million in costs through the use of high tech simulation modelling. Its customers are mainly large financial services firm and utilities, including Bord Gáis, KBC Bank and Zurich Life Assurance.

‘‘The greatest pressure on executives in business today is to cut costs,” said McGowan, who is founder and chief executive of Staff Balance. ‘‘Psychologically, this focus on cost cutting has been very hard on everyone – managers, employees and customers.

‘‘You have to know exactly where to cut costs and how to improve efficiency, or you could potentially destroy your business, your customer relations, and the trust your staff have in you.”

Having held senior positions with financial software firms Fineos and Eontec, McGowan felt that there was a gap in the market for a new product. ‘‘I found that the accounting and finance systems that our clients used couldn’t provide the level of information they needed to help them understand what drives profit,” he said. ‘‘That explains why cost-cutting measures are often implemented without a clear rationale to back them up.”

McGowan had started to research simulation modelling when studying for his computer degree at Trinity College Dublin. In 2005, he built a simulation model for KBC Bank, with positive results.

‘‘The simulation feature helped us to map out scenarios,” he said. ‘‘If we cut costs here, what is the impact? If we increase employee numbers there, how much more profit can we make? If we automate this task, how much more efficient can we be?

‘‘In most large businesses, you are dealing with multiple channels, complicated product sets, legacy data systems and even a widely-dispersed organisation.

Simulation modelling helps to pull the complex and diverse data together to make sense of that information, and to use it intelligently to identify opportunities for profitability and for improved efficiency.

We help companies to seize profit opportunities.”

McGowan and his business partners, Fiona Flynn and Rachel Killeen, are finalising first-round investment funding of €400,000 for Staff Balance.

He said that the firm was meeting the demand for its service in Ireland, while at the same time eyeing up the international market, which is worth more than €2.4 billion globally.

Staff Balance has been designated as a high-potential start up by Enterprise Ireland, and has won a special merit award in the M50 programme for young businesses.

View the online Sunday Business Post article .

The panel came up with five points that any business could implement at any time, in order to improve their operational efficiency and become a more intelligent organisation.

• Business in the Twitter-sphere:  Mark Little recently set up his own business in digital media to take the ‘real news out of the noise’.   He suggests that companies should take notice of what their customers are saying about them on Twitter. “Twitter is all about self-selecting communities gathered around your product, all equal. “ People commenting on blogs and micro-blogs provide valuable insights on products, services and brands.  Companies must take notice or they  could miss an important opportunity to improve and respond to their customers’ views of what they offer.
• Gain customer insights:  “Research is critical, not for information’s sake, but for insights.  Look at the insights that customers give you and learn from them.  We spent a lot of time with consumers, listening to them, talking to them and understanding what they wanted”, said David Bunworth, who spoke about how Bord Gais implemented the Big Switch campaign which resulted in the recruitment of more than 300,000 new customers.
• Challenge the team: Ciaran McGowan, Managing Director of the profitability improvement company StaffBalance talked about how up to 60% of sales people’s time is taken up by administration.  “Challenge the team to do simple things well.  How much value do they get from internal meetings?  Can they use video conferencing instead of travelling?  Can some of that administration work be passed to other teams to free up the sales person to sell?”
• Monitor web activity: “Some company employees spend two and a half hours per day surfing the internet for personal use.  That is an average of 12.5 hours per week”, according to Jon Mulligan of Openplain, an award-winning workplace analytics company.  “One quick win is to engage staff in monitoring their internet usage.  It is like a personal entertainment system that has been placed on people’s desk and it costs companies millions in lost productivity.”
• All four speakers talked about the importance of measuring progress. According to David Bunworth, “What get’s measured, get’s done.  All of our marketing initiatives and messages were directed towards getting customers to switch, particularly online.   Thirty percent of our customers signed up via the web compared to an industry average of five percent and these results were instantly measurable.” Change is pointless unless the results can be measured.  So whether it is improving customer satisfaction, garnering more time for the sales people to do their job, or putting in place an initiative to recruit more customers, make sure to benchmark and measure progress.

Innovation is not necessarily about major changes or improvements.  Intelligent organisations make small but important adjustments to their systems, practices and communications in order to achieve real gains.  The most successful and intelligent organisations find ways to listen out for client feedback, be it through researching customer insights or by tuning into their comments on the web.

The Innovation in Business Seminar is the second in a series of breakfast seminars run by the National College of Ireland to help senior executives gain a greater understanding of technology, operational efficiency and modern communications.  Staff Balance and Openplain are based in the National College of Ireland Business Incubation Centre which is home to 14 innovative start-up companies working in the areas of finance, business and technology.