Are you leaking profits?

They may not be the stuff of outdoor adventure magazines either, but most revenue maximization projects share more with hiking up a mountain than with soft-chair exercises in deep thinking. Revenue maximization projects demand technical skill, of course, but even more, they demand hard work, relentlessness and diligence.

Diligence is especially needed in the many projects that leverage automated tools, a technology that in some cases has developed an unfair reputation for being mysterious or esoteric. It's not. Implementing key automated tools is not only a core strategy of revenue maximization but also an early step in some of the most straightforward projects to maximize revenue.

For example, "provision check" is a simple concept: a company reconciles data from its service systems, its billing systems and its provisioning systems. For a cable company, a provisioning project would compare data from the "headend" management system that tracks activated cable boxes, from the access control system that manages which individual services have been provisioned, and from the billing system that produces invoices.

Once the data is manipulated into usable formats, running the comparison produces mounds of exceptions: a not-very forthcoming Mrs. Johannsen who's been getting cable for free for two years because her account was never entered in the billing system; her next-door neighbor, the nearsighted, trusting Mr. O'Malley, who's been cheerfully paying for HBO for 16 months without ever having actually received it.

Automated revenue maximization tools include software like the provision check tool that detects and analyzes information to discover revenue collection inaccuracies and enables greater confidence in the integrity of revenue collection. They also include preventive tools that work throughout the revenue stream to eliminate sources of revenue leakage.

None of these tools, however, are silver bullets. Companies need process, organizational change, metrics and leadership to make tools work. Because revenue leaks throughout an organization, a truly advanced revenue maximizing company, one committed to achieving major gains in profitability, integrity and growth from this initiative, will need to examine all of its processes and systems. And it will need to integrate an automated tool on top of almost all systems and inbetween them.

There are five key features of a revenue maximization tool strategy.

Detective Tools

Sherlock Holmes used a magnifying glass. Today's revenue maximization detectives use sophisticated software tools to uncover and quantify revenue leakage.

Detective tools allow companies to capture revenue immediately by correcting exceptions and to discover root causes of revenue leakage for longer-term preventive strategies. In the last few years, for example, some airlines have built automated "exchange violation" tools to determine when airline ticketing agents in a defined period have exchanged tickets incorrectly -- allowing a customer, for example, to swap a $300 ticket for a $900 ticket.

Detective tools work by going after the details, the pinsized holes and inaccuracies in transaction records that add up to major revenue leakage. In most cases, detective tools require major automation. Two examples are automated billing validation tools (which involves setting up an "independent rating engine" to recalculate a sample set of bills to make sure that the right transaction is being charged the right rate, transaction by transaction, often for millions of records), and automated service integrity tools. Many telecom companies use special automated test call boxes to run periodic tests on their networks to see if calls go through. A revenue maximization project will use these boxes (or variations of them) in a targeted way to test if the duration of calls is being properly recorded for billing purposes.

For all projects, the hardest, most intricate work is converting the data into fixes. Challenges can arise from the lack of two sets of data, where comparison is impossible. At electric utilities, for instance, many companies don't have a systematic register of physical locations in a given area. Thus, trying to compare data of all homes or businesses receiving electricity with those actively being metered and billed (by human meter readers) is like clapping with one hand. According to a recent survey by of 600 executives in all industries in the U.S., U.K. and Australia, nearly 58 percent of all respondents experienced data problems necessitating extra costs to prepare data reconciliations.

Analytical Tools

Analytical tools collect, stratify, slice and dice data to help companies monitor revenue maximization performance, better understand why revenue inaccuracies are happening and, eventually, convert that information into fixes.

Analytical tools perform tasks that can be as simple -- conceptually, if not necessarily technically -- as aggregating customer information. For example, BellSouth Cellular implemented a tool to automate analysis of call records for calls that weren't billed. The tool created detailed reports of rejected calls and provided real-time trending of all types of rejections.

Many companies use tools to analyze customer or payer disputes. These systems enable companies to analyze the root causes of current leakage and remain vigilant to new proximate causes. One telecom company, for instance, has developed its own tool in its billing audit function to allow it, in every billing run, to measure product, customer and billing metrics. The tool alerts the company if certain aspects of the billing run are notably out of sync with historical data.

Preventive Tools

When most people new to revenue maximization think about tools, their imagination jumps to the supermarket scanner, which automates manual processes and leads a company into a golden valley of leak freedom. Preventive tools are not all as revolutionary as a supermarket scanner, but they are, in their various forms, essential to a best-practice revenue maximization program.

However, many revenue collection-related problems don't lend themselves to preventive tools. And companies must also situate preventive tools in the correct place in a broader revenue maximization program. As a few executives told us, companies can greatly benefit from preventive automation but only at the end of a major project.

US web-hosting company Interland is beginning to benefit from earnings gains from a major revenue maximization project, which improved customer renewal and customer collection processes. The project redesigned frontline employees' tasks and relationships with the customer. Tools to automate some of these processes came last and were the least of the project's challenges. As Interland's CFO David Buckel told us, "You have to change the processes first. Then comes acculturation. Automation comes after. The more you acculturate the change, the more you can automate it."

Preventive tools are currently a motley crew, applicable in varying ways to countless procedures and functions within the revenue cycle. Among them:

- Inter-system communication tools. Data frequently escapes (and revenue disappears) between systems. This is why many companies have focused on developing tools to make systems better communicate with each other. Certain specialty vendors, for instance, have developed tools that allow normally irascible mainframe systems to get along better. Others are focused on more specific inter-system communication.

- Autocorrect tools. Many systems eject transaction or order records that they can't process because, for example, of a missing data field. Considerable energy is now going into the development of tools that correct these records automatically.

Jeannette Alberte described a project at one of SBC's units. "Service orders were falling out because our databases were out of sync," Alberte explained to us. "So we instituted a clean-up initiative. We researched what should be the golden source of data and programmed the database to go to the golden source and automatically update itself." This led to tremendous preventive and efficiency capture: "The project directly translated into a reduction of service orders that had to be manually processed and the amount of service orders that needed intervention to flow through. This resulted in expense savings and improved timeliness of billing customers."

- Service optimization tools. Optimizing a network or services can clear up available capacity and prevent inefficiencies from hampering a company's ability to make new sales to willing customers. For example, British Airways developed its own tool to cancel connecting flights for no-shows on earlier flights, freeing up 400,000 seats a year.

We foresee over the next few years a major expansion of these types of service optimization tools in all industries. In addition, customer screening tools will be used up front to eliminate bad customers who cause leakage wherever by not paying bills or by paying bills late. Manual-process replacement tools (i.e., the supermarket scanners) are becoming more important.

Constant Technological Improvement

A best-practice tool strategy demands the use of all three types of tools mentioned above. It also demands constant improvement by leveraging the best, highest-return, most technologically advanced tools. We aren't suggesting that every company ought to go on a spending spree. For many companies, with shrinking IT budgets and cultural resistance to revenue maximization, buying the most sophisticated tools would be like buying a car before learning how to walk. (And many companies can develop high-return, first-generation tools in-house.) Yet a company that ignores the powerful tools now available and ignores the tool developer's culture of constant improvement and upgrades, will fail to benefit from the greater functionality, ease of use and flexibility of new tools.

Most automated revenue maximization tools, for example, are simply "getting better" in terms of increased speed and power. For example, an average 100,000-circuit line audit used to take 24 hours. Now it takes two minutes.

Automated tools are also advancing on several specific fronts:

- Greater intelligence. Detective tools both uncover individual cases of revenue leakage and aggregate these cases into patterns that facilitate preventive capture. Many detective tools are improving on the latter function, automating pattern recognition and making revenue capture easier. Today, companies without automated tools mostly get a formatted dump of information, have to do a lot of "stare and compare," and are forced to do a real significant intellectual exercise to see what they can do to fix a problem.
- Minimally intrusive. In some industries, revenue maximization tools weren't historically feasible because they intruded on a company's systems and ongoing operations. Yet now, more powerful computers can scan and extract data more quickly, allowing the use of exchange violation revenue maximization tools.
- Web-based. Much of the value of revenue maximization tools -- analytical tools in particular -- comes from their being accessible to (and actually looked at by) a wide group of executives and managers within a company. Web-based, sequel server environments are ideal for these tools, allowing for a broader access to data. Web technologies also provide more graphically appealing tools and easier manipulation of data.

Tools as a Living Part of Company Operations

We once wrote that tools are like heart bypass surgery: a discrete operation happens but a change in lifestyle is necessary for success. A lifestyle change is necessary in two ways. First, to maximize revenue, to eliminate inaccuracies in revenue collection, a company must integrate tools into robust, proactive processes to fix proximate causes of those inaccuracies. Second, a company must develop processes to periodically reapply and update detective and analytical tools.

A tool strategy, like a fire prevention strategy, aims for sharply diminishing returns. Every city in the world would love to have a fire department that has nothing to do all day except make itself chili and get cats out of trees. Every robust revenue maximizer hopes that someday its detective tools find not a penny in leaked (or inaccurate) revenue. But to begin to see diminishing returns requires wrapping tools into broader processes for immediate and preventive revenue capture. In fact, analytical and detective tools only have value inside these broader processes.

If a company doesn't implement tools with the right energy, resources, people and processes to execute fixes, it's probably not worth implementing them at all.

As commonsensical as the above advice may seem, we are surprised that many companies still don't fix leakage by wrapping revenue maximization tools into programs. This occasionally may be justified -- when, for example, the ROI of fixing root causes doesn't surpass a necessary hurdle. One company we worked with implemented a sophisticated analytical monitoring tool that generated high-level metrics on a monthly basis for key executives. This provided a nice opportunity for various executives to sit around a table, drink fresh coffee, nibble on pastries and blame other functions for causing revenue leakage.

Living tools, though, are actively managed, continuously adjusted for new systems and products and, most important, utilized periodically. Companies should be able to run -- and should run -- automated tools again and again with little fuss, little outside help, and little incremental investment.

The "end state" of automated tools involves organizational change and new robust processes to make tools a permanent, living part of a company's operations. Revenue maximization software tools combat inaccuracies everywhere. Real-time analytical tools constantly alert companies to areas of acute leakage. Detective tools periodically identify leaking transactions and further uncover root causes and patterns. Dedicated teams and best-practice procedures address the causes immediately. And for particularly intractable root causes, companies implement preventive tools to automate the process.

Actions a Company Can Take Now

- Listen to the pitches and learn as much as you can. What automated tools are available and in what direction are tools in your industry heading? This means going to conferences and listening to individual tool vendors and consultants -- a relatively painless process that often includes free lunch.

- Perform a pilot project. We recommend very "piloty" pilot projects in which a company initially uses detective tools on a small sample of transactions within a single area.

- Do something that's been done before. Beginner companies should, if possible, do something their own company has done before. Verizon, for example, often repeats projects. As Karin Wagar explained, "The easiest thing to do is to take tools that we had already used and propagate them in other territories. We've found incredible payback in that."

- Develop processes.Build formal best practices around converting tool-generated data into captured revenue on a regular and consistent basis.

- Integrate detective and analytical tools into a master dashboard. Best-practice quantifiable monitoring mechanisms demand a simplified, integrated and tiered approach that involves regular application of key tools in a master metrics program.

- Develop skills. As companies advance in revenue maximization, they should bring basic tool expertise in-house, especially knowledge needed to reapply detective tools periodically.

- Lead the industry. Experienced revenue maximization companies should be on the leading edge of all tools, particularly preventive tools, not only in acquiring them from vendors and outside advisors but helping to develop them and customize them to the company's particular revenue leakage issues.

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