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    Management accounting refers to processes focused on effective resource use to add value to organizations. Business models are evolving, with some telecom companies in the early 2000s struggling due to an overreliance on capacity utilization and asset-based competitive advantages. New metrics emerged focusing on customer profitability, like cost per new customer and revenue per user. These provided insights into sustainability, revealing companies with low-revenue customers and high acquisition costs were not viable long-term strategies.

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    An Ram An

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    80 views27 pages
    Management accounting refers to processes focused on effective resource use to add value to organizations. Business models are evolving, with some telecom companies in the early 2000s struggling due to an overreliance on capacity utilization and asset-based competitive advantages. New metrics emerged focusing on customer profitability, like cost per new customer and revenue per user. These provided insights into sustainability, revealing companies with low-revenue customers and high acquisition costs were not viable long-term strategies.

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    Management accounting refers to processes focused on effective resource use to add value to organizations. Business models are evolving, with some telecom companies in the early 2000s struggling due to an overreliance on capacity utilization and asset-based competitive advantages. New metrics emerged focusing on customer profitability, like cost per new customer and revenue per user. These provided insights into sustainability, revealing companies with low-revenue customers and high acquisition costs were not viable long-term strategies.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    80 views27 pages

    An Ram An

    Uploaded by

    api-3705877
    Management accounting refers to processes focused on effective resource use to add value to organizations. Business models are evolving, with some telecom companies in the early 2000s struggling due to an overreliance on capacity utilization and asset-based competitive advantages. New metrics emerged focusing on customer profitability, like cost per new customer and revenue per user. These provided insights into sustainability, revealing companies with low-revenue customers and high acquisition costs were not viable long-term strategies.

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    How do M/A unlock value ?

    International Management Accounting Practice Statement


    1 (IMAPS1) issued by IFAC states; that management
    accounting refers to that part of the management process
    which is focused on organization resource use. Thus, it
    refers to managerial processes and technologies that are
    focused on adding value to organizations by attaining the
    effective use of resources in dynamic and competitive
    context.

    By creating the management process of M/A we


    unlock value
    DIRECTION OF THE Management Accounting
    WHAT IS A BUSINESS MODEL ?

    • A business model is the method of doing


    business by which a company can sustain
    itself or generate revenue. The business
    model spells out how a business unit can
    make money by specifying where it is
    positioned in the value chain.
    • If the business is through e-commerce then
    it is referred to as e-business.
    Business Models 1950-1970/80

    Products yesterday Producers yesterday


    • Simple offerings • Vertically integrated
    • Lesser choices • Functional models of
    • Local markets command and control.
    • Goods inherited across • Economy of scale
    generations • Corporate established
    • Willingness to wait performance measures
    • No market driven processes
    • Permit Raj/Delhi links
    Business environment of 21st century
    VALUE CREATING STRATEGIES/PROCESSES
    • Mass customization through a good design
    • Instant production driven by pull of customer
    demand and ability to build on customer ideas.
    • Network of producers through strategic alliances.
    • Supplier privy to strategy. BUSINESS
    • Delayered management hierarchies MODELS
    CREATE
    • Trust , Reliability and core competencies VALUE
    • Information technology as a major enabler
    • Global markets and world class practices
    EVOLUTIONS OF NEW MODELS

    • BUSINESS MODELS ARE EMERGING


    FOR EXPLOITING DOWNSTREAM
    BUSINESS OPPORTUNITIES THROUGH
    Redefining Value Chain
    Building Customer allegiance
    Rethinking Vertical Integration
    MISSION STATEMENT

    COMPONENTS
    OF A
    BUSINESS MODEL VISION STATEMENT

    VALUES STAEMENT

    OBJECTIVES

    IT
    STRATEGIES ENABLED

    PROCESS BASED ORGANISATION


    A Battle on Two Fronts

    ROI
    (1) Strategy
    choose the right ones …..
    Strategic … and align the cost structure
    MA
    on

    (2) Efficiency & Utilization


    ti
    rea

    Operational
    take waste and unused capacity
    ue c

    MA
    Val

    out of the organization

    Management Accounting
    STRATEGY DEFINITION
    METHODOLOGIES
    TIME
    Business Model
    Expenses
    PROJECT
    ACCOUNTING,
    FOR A MA ACCN
    General PROGRAM
    ledger MANAGEMENT MINIMIZE

    $$s hours UNUSED


    (AVAILABLE)
    CAPACITY
    OPERATIONAL PERFORMANCE
    SUPPLY / INVEST ­ PRODUCTIVITY & EFFICIENCY
    CUSTOMERS, STRATEGY  STRATEGY
    ­ BENCHMARKING 
    RESOURCES ­ UTILIZATION/YIELD
    MARKETS REALIZATION ­ TOTAL QUALITY MANAGEMENT
                        (Cost of Quality) 

    ACTIVITIES
    SUPPLY CHAIN (ABC/M) PROCESS
    MANAGEMENT MANAGEMENT
    DEMAND
    ACTIVITY
    DRIVERS VOLUME & MIX
    MAXIMIZE FORECAST
    Asset
    Alignment of cost
    structure to strategy
    PRODUCTS,  management

    DEMAND STRATEGY CHANNELS & 
    PROFITABILITY
     CUSTOMERS ANALYSIS
    What­if Planning?
    PRODUCT & REVENUES
    SERVICES
    SHAREHOLDER PERFORMANCE
    WEALTH MEASUREMENT
    [VBM]
     SCORECARDS

    MAXIMIZE
    KEY PERFORMANCE INDICATORS (KPIs) versus ACTUALS
    CASE OF TELECOM SECTOR MODEL AND THE
    MANAGEMENT ACCOUNTING

    • 1990-2000 WAS THE PEAK OF TELECOM BOOM IN US DUE TO


    ADVENT OF INTERNET AND WIRELESS.
    • RISING TIDE LIFTED ALL BOATS. SAME WAS IN HONGKONG.
    • BY 2002 SHARE PRICES STARTED DECLINING .
    • HEAVY DECLINE OF INVESTORS CONFIDENCE
    • BUT BY 2004 SOME SERVICE PROVIDERS RECOVERED AND THE
    REMAINING STRUGGLED.
    • WHAT DIFFERENTIATED THE WINNESR FROM LOSERS IS THE
    CASE OF NEW BUSINESS STARTEGIES AND MODELS. AN
    EVOLVING INDUSTRY MOVING INTO ANOTHER STAGE OF LIFE
    CYCLE.
    CERTAIN
    COMMENTS
    PRIOR TO THE TELECOM BUST 2001

    • Capacity utilisation driven industry.


    • Possessing assets such as switching and transmission
    equipments, real estate, licence and what is called
    SPECTRUM availability was considered competitive
    advantage.
    • Expansion of customer base was to generate revenues
    through asset utilisation and customers were not assets.
    • Regulatory role to protect customers and new entrants
    become very important.
    • Cost per unit of usage computed through scale oriented
    allocation principles became important.
    THE NEW BUSINESS CONTEXT

    • By 2002 market was not underserved.


    • Driving cost per minute down by driving up NETWORK
    usage was no longer working.
    • Subscribers could choose the service providers after
    evaluation.
    • Growth came only by enticing customers from the other
    service providers.
    • COMPETITIVE ADVANTAGE CAME FROM
    KNOWING THE CUSTOMERS WHO ARE REALLY
    PROFITABLE AND MAKING THE RIGHT OFFER AT
    THE RIGHT TIME .
    • The performance measurement systems were not having
    metrics relating to the new competitive advantage.
    AN INDUSTRY LEVEL COST METRIC PRACTICED IN US

    SERVICE PROVIDER COST/NEW CUSTOMER


    NEXTEL $ 567
    VERIZON WIRELESS $ 383
    SPRINT $ 280
    US CELLULAR $ 410
    T-MOBILE $ 356
    CINGULAR $ 315
    AT&T WIRELESS $ 350
    AN INDUSTRY LEVEL REVENUE METRIC PRACTICED

    SERVICE PROVIDER RPU/NEW CUSTOMER


    NEXTEL $ 72
    VERIZON WIRELESS $ 51
    SPRINT $ 62
    US CELLULAR $ 48
    T-MOBILE $ 54
    CINGULAR $ 51
    AT&T WIRELESS $ 59
    CRITICAL INDICATIONS COULD BE

    • Nextel spends high on customer acquisition and


    must be justified by a better RPU. In fact it is so.
    • But the damage is from US Cellular.
    • Low revenue customer base with a lower RPU
    coupled with high cost of acquisition is not a
    sustainable strategy.
    • Customer churn rate also need to be taken into
    consideration.
    CUSTOMER CHURN AND LIFETIME CONCEPT

    SERVICE CHURN AVERAGE


    PROVIDER LIFE in Mth
    Nextel 1.6% 62
    Verizon 1.5% 69
    Sprint 2.3% 44
    US Cell 1.6% 62
    T-Mobile 3.0% 33
    Cingular 2.7% 37
    AT & T 3.4% 30
    COULD BE CONCLUSIONS
    • Higher marketing spend at Nextel is justified by higher
    revenues and longer customer lifetime.
    • Sprint’s lower marketing spend does not look appealing
    with dissatisfied customers.
    • US Cellular should reexamine their customer retention
    policies to ensure that retention offers are cost effective.
    • At & T has the third highest RPU but the lowest customer
    satisfaction trend.
    • As the industry structure starts changing we need new
    ways of measuring performances by relating to new
    strategies.
    • This is an universal truth and not applicable only to the
    West.
    CHANGING TELECOM INDUSTRY SRUCTURE –
    UNIVERSAL PHENOMENON

    • CUSTOMER ACQUISITION TO CUSTOMER RETENTION. US


    REGULATORS REMOVING BARRIERS BY REMOVING NUMBER
    PORTABILITY.
    • CUSTOMER RELATIONSHIP AND NOT PRODUCT
    DIFFERENTIATION IS THE SOURCE OF COMPETITIVE
    ADVANTAGE.
    • ONE TO ONE MARKETING BY IDENTIFYING CUSTOMER
    SEGMENTS AND TAILORING MARKETING OFFERS AND
    SERVICE PROPOSITIONS TO INDIVIDUAL CUSTOMERS.
    • EXPANDED PROUDCT DIVERSITY AND CUSTOMISATION NEEDS
    CAPTURING OF COSTS OF PROCESSES WHICH RELATE TO
    THAT.
    • DEREGULATION IS SHIFTING POWER TO CUSTOMERS.
    IMPLICATIONS OF THE FIVE FORCES

    • PROFIT GROWTH FOR SERVICE PROVIDERS WILL


    COME FROM BUILDING INTIMATE RELATIONSHIPS
    WITH CUSTOMERS AND BY PROVIDING MORE
    PRODUCTS AND SERVICES TO THE EXISTING
    CUSTOMER BASE.
    • HOW MUCH TO SPEND ON WHICH CUSTOMER TO
    RETAIN AND THEM AND STILL MAKE PROFIT IS AN
    IMPORTANT MEASUREMENT ISSUE.
    • ACTIVITY BASED COSTING SYSTEMS MEASURING
    CUSTOMER PROFITABILITY AND RELATING TO
    LIFE TIME VALUE FROM THEM BECOMES
    IMPORTANT.
    HOW CAN EXCESS CAPACITY IN NETWORK AND
    UNPROFITABLE CUSTOMER CAN COEXIST.

    • FUNDAMENTALLY A CUSTOMER WHO DOES


    NOT PAY THE BILL.
    • DOMINATING THE CALL CENTRES WITH A
    HIGHER LEVEL OF TECHNICAL SUPPORT.
    • CHURN REDUCTION PROGRAMS TARGETED AT
    CUSTOMERS UNIVERSALLY WITHOUT
    LOOKING AT LOW PROFIT ZONES.
    • EXPENSIVE SEVICE CENTRES OR TELESHOPS
    AT UPMARKET PLACES MORE USED UP IN
    SETTLING COMPLAINTS AND COMMERCIAL
    DISPUTES.
    WHY THESE COMPANIES WANTED TO
    MEASURE CUSTOMER COSTS ?
    • Manage each customer’s costs to a lower level.
    • Establish a surcharge for or re-price expensive cost to serve activities.
    • Reduce services
    • Introduce new products and service lines.
    • Raise prices.
    • Abandon products or service lines.
    • Improve the business process.
    • Offer the customer profit positive service level options with varying
    prices.
    • Increase investments in activities that customer shows a preference for
    • Up-sell or cross-sell the customer’s purchase mix toward richer ,higher-
    margin products and service lines.
    • Discount prices to gain more business with low cost to serve customers.
    Users

    Users

    Users
    Is this going to be relevant in India
    or we say these are only for west
    • Call rates coming down consistently.
    • RPUs are falling down for many companies.
    • Customer acquisition becoming a mad race.
    • Markets getting saturated in metros and expansion
    going the rural way.
    • Business magazines articles on telecom calling for
    customer profit measurement.
    • The sector is adopting global practices.
    • Hence we need the new business models and
    practices.

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