The Economist as an Engine for Improving Company Profitability

30 Jan 2014
Jimmy Koniarski, CEO of Gold Miners, spoke at the launch of the Association conference and said that there are professional synergies that enable market leaders to seek out innovative methods for retaining a competitive advantage. Identifying the clients with higher profitability potential – those we keep and the rest, we let go. It is only the economic department that sees the client for its full 360 degrees. It serves as the organization’s compass. If we direct the entire organization to quantities or revenues – we will actually be introducing clients of no value. Profitability is a measure that must be considered, only complete and ongoing data analysis can support this form of decision-making. If we remember that all of the money in the organization derives from a certain source and there are no free meals, and if we evaluate our pricing systems – we will find that they are all used for planning, control, pricing and profitability analysis. But we have found that pricing renders an organization transparent and provides a link between the different worlds – client-channel-product, costs and their various kinds. One can study the organization and understand who does what, at what internal price and for which client. This information is available within the organization. Does the organization know how to initiate such a process? Most Data Warehouses in Israel were established with the aim of determining sales and only then evaluating the service. But when it comes to human resources, logistics, etc. – the entire Back Office – that is not so transparent. If we have already invested in computers, it is advisable that we harness ERP toward achieving a model that enables a view of the entire organization. Evaluating competitors – what they have and what they know – is also important for determining where we stand. Eventually, there are five developmental levels for economic departments: 1. There are organizations that perform basic and one-time pricing. 2. Full absorption pricing using Excel 3. Complex organizational absorption pricing using an expensive and heavy dedicated tool 4. Operating pricing customary in industrial companies (CO) 5. Bi-oriented pricing generating data from all organizational systems and used for organizational optimization. Only the economic department can clearly compile this data and conclude their business implications. Accordingly, there are five stages of development for the economic department – from a point where the client value is not measured at all, pricing is intended solely for research and budget planning relates to expenses only, to a department that enables full strategic planning for the company, BI based pricing and client value is measured by its total lifecycle. When we are no longer able to change the price, and our ability to lead the market relies only on retaining the better clients – there is a need for a sophisticated organizational-system economic department. More and more companies today operate a full support system. This corresponds with the increased number of CFO’s who are not controllers but economist, due to their ability to perform complex analyses and identify increasing company synergies. The article was published on the Israeli Association for Business Economists website.