Last week, I delved into why Revenue Management teams fail to execute on initiatives, with a particular focus on the knowledge gap and how to get ahead of it. If you haven’t read it yet, I highly suggest you do as much of this article builds on the themes introduced there. Unfortunately, lack of Revenue Management knowledge is only one of many “gaps” teams face. As such, this week’s article focuses on the process gap – a lack of proper processes in place to make data-driven decisions or identify opportunities.
If you are building a Revenue Management team or looking to scale your current team, ensure you are addressing the following four points from a process standpoint.
Ensure Balance
This point builds on last week’s article about the knowledge gap and managing stakeholders, so I won’t spend much time on this topic. The main thing to remember is that it is not the type of analysis that matters (for example: build a price curve, price waterfall, or even a price value map), but rather the balance in the approach. The process needs to reflect the balance between the sales, marketing, and finance functions. Doing so helps to ensure that decisions made have equal input from different perspectives within the organization. Companies that approach processes with a balanced approach outperform individual Revenue Management initiatives by as much as 70%.
Something to keep in mind when incorporating the Balanced Revenue Management Framework is the availability of data. A proper approach utilizes financial information, market information (such as share, competitive pricing, etc.), and internal value analysis. Even if you are missing some of these data pieces, build the process around what you have. An incomplete process is still better than no process at all. You can always obtain data over time and refine your approach. Also remember to keep track of where you spend most of your time, as it will help you move towards a more even and balanced analysis.
Open Gaps
There are two types of Revenue Management teams I typically come across. The first group I call the “Firefighters”. They are very reactive, going from one burning issue to the next to close gaps and get decisions out the door. Although Firefighters can be very effective at what they do, these teams usually do not last too long because of the pressure associated with fighting fires, leading to high rates of burnout.
The second group is the “Reporters”. They are very good at creating standardized plans using data. They keep the organization in the know about every key metric and issue with meticulous tracking. However, the root cause of the issues is often missed during analysis because of a lack of granularity. Unlike Firefighters, Reporters struggle with getting initiatives completed.
How can you get the best of both worlds? Try to create a process that encompasses the positive aspects of being a Firefighter and Reporter (while avoiding the negative aspects). Here are the steps I suggest following:
1. Create reports of current processes and study the metrics tracked. Studies show that 3 to 4 key metrics are more than sufficient. Any more may cause confusion and disorganization.
2. Once these metrics are in place, create an active environment in the process to identify gaps.
3. Encourage the team to find issues and have them explain how the results came to be. This usually comes with a double click or two on the granularity of these key metrics.
Through my many engagements, I have seen this process effectively drive over $1.5M in positive mix for organizations. By proactively identifying mix opportunities and driving them to a close via a structured review process, you reduce the number of gaps within your process that would have otherwise gone unnoticed.
By being both the Reporter and the Firefighter, Revenue Management teams can more effectively open and close gaps. The Reporter mentality provides thorough insight and structure to identifying opportunities while the Firefighter approach closes gaps in a timely manner for maximum results.
Create Trust
In many cases, the inability to get internal buy-in is driven by a lack of trust between team members and functions within the organization. Creating trust is difficult and cannot be done overnight. It takes time to build internal credibility. The following two principles can help:
1. Leverage The “Sniff” Test
Revenue Management teams often rely on data, but when the data is wrong, trust is lost. The sniff test is a common-sense check that many professionals forget about in their day-to-day work. The sniff test relies on the use of simple math to validate and question the output of the data. Conduct a quick quality check before sharing the analysis widely.
The sniff test becomes easier to apply with more experience. Experience can tell you if the data looks right or not. For example, having data suggest a price increase would have no impact on sales volume looks suspicious if all previous price increases have lowered volume by 2-3%. While mistakes are inevitable, the key is to make sure they are small in nature and not fundamental to influence the final output/decision.
2. Follow Through
This one is simple – do what you said you were going to do and do it quickly. Often, I see teams lose credibility in the organization because they take a long time to turn things around that are relatively simple. This lack of follow-through creates a “don’t ask” culture which decimates productivity. It is important to be clear with timelines and expectations with every process that help you become agile for quick turnarounds.
Ensure Accountability
A lack of accountability comes in many forms, from pushing the decision-making onus onto others, to blaming bad results onto everyone but yourself. While a lack of accountability may start from a specific function such as Sales, Marketing, Finance, or Revenue Management, inaction promotes its spread throughout the organization and quickly becomes standard company culture. This is especially true if senior management perpetuates such a culture.
The best way to ensure a culture of accountability is to lead by example and create a process that defines everyone’s roles and responsibilities, so they know what the expectations are. You should also define who the key decision-makers are since they will be accountable for the outputs. A RACI matrix is a great tool to help identify the key stakeholders and team members. Knowing exactly who is accountable, who needs to be consulted, and who must always be kept informed will significantly improve the chances of success. However, do not overdo it. A RACI should be reserved for key processes that provide value to the organization. Using a RACI to decide on zero dollar-added activities tends to slow down the team and create a culture of bureaucracy.
Aside from aligning on personnel, it is important to align on what to do if a conflict arises. For example, what would you do if you were the one decision-maker on a project and someone more senior who wanted to make a recommendation different than yours? The team must make clearly outline who is responsible for the final decision since they will also be accountable for the result (both positive and negative). This brings us to my last point. Regardless of the result, you must accept and respect the outcome. If the outcome is not what you anticipated or agreed with, and the roles and responsibilities are clearly defined, DO NOT try and go above the decision-maker to change the outcome. By going above the decision-maker, you undermine their decisions and take away their accountability. People cannot be held accountable for decisions they did not make.
Final Thoughts
If there is one thing I learned from my engagements, it is that you must ensure your company is consistently identifying and closing process gaps within the organization to meet growth targets while also strengthening a culture of trust and accountability. Though challenges arise in every organization, having the right processes in place ensures you can adequately overcome them.
ABOUT THE AUTHOR Michael Stanisz is a Partner at Revenue Management Labs. Revenue Management Labs help companies develop and execute practical solutions to maximize long-term revenue and profitability. Connect with Michael at mstanisz@revenueml.com
