Maximizing Enterprise Value with Prescriptive Analytics
As CEOs, we are not typically tuned into the thousands of commercial decisions frontline sales and marketing teams make daily. Yet ensuring those decisions align with a company’s business strategy and P&L objectives is the key to success. When a strategy-execution gap is present, it can hinder a CEO’s ability to achieve his or her primary objective: maximizing enterprise value.
Basic decisions about how sales representatives allocate their time, which customers they call, what products they pitch, and what prices they quote, have a tremendous impact on company performance. The most effective way to ensure sales teams are making optimal pricing and sales decisions is to prescribe guidance for each decision.
Until now, accurately guiding those decisions has been difficult, if not impossible, particularly in high-volume transaction businesses. However, prescriptive analytics tools using advanced data science can provide pricing and sales guidance to help sales make the best possible decisions that are aligned with the company’s P&L objectives.
Let’s dive into the impact these key commercial decisions have on enterprise value and why CEOs should have a vested interest in guiding them.
Pricing and Its Impact on Enterprise Value
According to a study by Simon Kucher & Partners, most CEOs devote less than five percent of their time to their organization’s pricing strategy and process. That’s troubling considering pricing is arguably one of the most effective drivers of enterprise value.
In fact, the same study found that, “companies with active C-level involvement in pricing are 18 percent more likely to put through a successful price increase. But more importantly, they are 26 percent more likely to get higher margins from their price increases than companies without C-level involvement in pricing.”
While margin lift is often the focus of a pricing initiative and the most palpable benefit, CEOs frequently overlook the detrimental ripple effects of poor pricing. Customer dissatisfaction, an inability to recover cost increases, lost sales due to long quote turnaround times, and over-discounting at the point of sale are just a few of the consequences of suboptimal pricing practices. CEOs are overlooking a huge opportunity to improve their sales and pricing teams’ productivity, capture the true market value of their products and services, and forecast accurately and more effectively.
Prescriptive pricing guidance significantly minimizes, and even eliminates, many of these challenges. Prescriptive analytics can help pricing managers understand how pricing strategies will impact the company’s future P&L performance before putting prices into market. It also gives managers the ability to plan for future cost changes, forecast P&L performance, and use pricing as a strategic lever to meet their business objectives, while giving the sales team the confidence to make the best decision on every deal.
Organic Growth and Its Impact on Enterprise Value
For many B2B companies, the majority of revenue growth now comes from acquisitions or other major business moves. As such, many CEOs think that high-growth businesses inevitably become low growth, and subsequently give up on organic growth or leave it up to each business unit. That’s a mistake. The fact is, businesses are either growing or dying.
CEOs need to take an active role in organic growth, as setting high-level targets will no longer suffice. You can spur organic growth by focusing frontline sales reps on high potential opportunities through the use of prescriptive analytics.
With prescriptive sales guidance, it’s possible to know which customers are most likely to buy additional products from you, to predict the early signs of defection across all customers and products, and to enable your sales team to act on those insights.
I’ve always believed that if you give employees the right information, they will make the best decision in support of company goals. Given the impact on enterprise value, it’s time for CEOs to advocate for the use of prescriptive analytics in order to ensure frontline sales and pricing decisions are aligned with their strategies and business objectives.