Sunday, July 26, 2015

STRATEGIC COST MANAGEMENT....INNOVATION IN SALES MATRIXES

In continuation to my previous articles on cost accounting profession I will be discussing about the new segment of strategic cost management where those cost accountants who are employed needs to focus. As we cost accountants are now in the mode of decision making we need to develop strategies breaking the traditional strategies.  The Time has again come when the Indian economy is trying hard to get back on track and macro factors are also working in favor of the business and industry. It might take few more quarters to get the real numbers coming up in the profit loss and cash-flow statements but prior to that I find the strategic cost management division should focus aggressively on increasing revenue. It has been found that by just saying cost management one gets a image of only cost reduction. Well the period of cost reduction and cost efficiency have been achieved much during the slowdown phase of the Indian economy over the past several years. The time has now come when we need to focus on efficient application of resource and design strategic cost management to maximize the returns during these macroeconomic growths.  We have found that many companies suffer from high sales but poor margins and profitability. This is article is expected to solve a certain part of this issue.

We need to design the sales compensation package which is the key force behind driving the revenue of the organization. The time has come when companies would brace up for recruiting and expanding its sales forces. But only expansion will not help neither strategically expanding the branch network. We need the model of compensation for driving sales. It’s high time to shred the old strategies of sales compensation and focus aggressively for the strategies which will drive the revenue growth of the organization. Further we need to include and promote the hunger for earnings strategically designing it with sales of the organization. Sales force should be compensated either on monthly or quarterly revenue based targets. Their targets should not be linked with sales. This is the key area where today’s cost accountants needs to understand that designing sales force to run aggressively is the key target for improving the margins of the company and its various products.  Sales target based compensation needs to be based on product wise where the sales team must be aware about the key areas where product based profitability of the company will increase. 

Hence gross sales of all products should not be taken into account. This approach will give a clear idea to the sales forces about the profitability product mix and its margin mix which will boost up the revenues.  The sales team should not be asked only to sale the high margin products since that will be detrimental to new product innovations and will innovation process. Further sales mix should be designed according to region specific so that business loss due to geographical location change doesn’t happen. Well every company has multiple products hence strategies accordingly to maximize the revenue as well as the compensation packages of the sales force.  At the same time the sales force needs to be taught about the newly designed matrixes so that they can plan their areas of compensation earning accordingly.  Dont forget that today every organisation is facing the problem of getting right talent and also high levels of attrition. Hence we cost accountants needs to design strategic structure for compensation aligning with the long term objective of cash flow and profitability growth improving the margins of the organisation.

Focusing on the margins rather than on the gross sales would be more productive in the long term.  This process will eliminate the loopholes in low profitability despite of high sales. many organisation are suffering frowm this problem that despite of high sales their margins are low.Even slightest vague approach of explain the sale force can be big opportunity loss. This segment have been often ignored but one needs to keep in mind that all product don’t find same market hence product specific ,revenue specific matrixes needs to be designed. We need to train the sales team about the revenue and product based profitability matrix. Further the sale team needs to be compensated on monthly or quarterly basis rather than waiting for a yearly compensation packages where salary hikes and bonuses etc comes into play.  This strategic change will drive aggressively the sales force which will boost the revenues of the company.

Often I have found the back office team also has client resources and they often try to pitch the product but they become reluctant to move ahead as sales is not part of their job role. Corporate must understand that sales are not limited to a particular segment. Hence in order to make the organization more driven towards the corporate profitability objective we need to introduce compensation packages for the back office or operational team without any target.  Without target but with compensation will drive the operation or back office team to understand more of the products and will innovate ways to present or market the product. This uplifts the organizational knowledge and also innovation levels coming from all segments without asking anyone to contribute.  Hence my cost accountants develop new strategies for increasing revenue and efficient use of resources. 

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