Improving profitability

Now that ABC has a plan to collect and join its data into a company-wide knowledge management (KM) system, it must begin answering the all-important question regarding improving profitability. Improved profitability can be achieved by utilizing the tools of the KM system. ABC can use the personal data of its customers to form a general description of its customer base. It can look at the products and services bought by the customer to answer questions regarding marketing and promotions. It can look at the internal notes on issues, complaints and resolutions to determine the best course of action when problems arise.

ABC can also improve its profitability by acting on the answers to its external environmental questions. It can improve its technologies to stay ahead of the competition. It can also utilize the technology and industry information to increase barriers to entry and effectively hold off competition for an extended period on time. The longer ABC can keep competition away from its customers, the longer it has to develop stronger relationships through increased customer service and to build up the customer’s loyalty to the company. Increased customer service and increased loyalty by the customer is a powerful barrier to entry in and of itself.

ABC can also act off the knowledge gained regarding its distributors and supplier’s power in the distribution chain. ABC can work to integrate systems and build stronger, mutually agreeable relationships with strategic alliances in order to minimize their power and increase ABC’s power in the chain. Because of the trends that can be seen from a KM system, ABC should be in a position to make educated guesses regarding its supplies and product substitutions. ABC should make it clear to its suppliers that if they cannot meet the demands of ABC’s customer to get the products delivered in a timely manner, ABC will seek out a comparable substitute from another supplier. The answers gained from the KM system will allow ABC to plan, create and implement an effective operations plan. An effective operations plan is only effective if there is also an effective financial plan. The financial plan of an organization takes into account many aspects of the business including viability, predictive accounting, operational costs and future goals, to name just a few.

In order to take a brick and mortar business and transfer its products and services online, the most important aspect to consider is the financial viability of the project. Just because a company is successful off-line does not necessarily mean that it will be a successful company on-line. Companies must live by the same business rules that traditional brick and mortar business live by. That is to say, once a traditional company expects more capital, then it should spend more money. This ‘traditional’ way of thinking, was not the direction that many early Internet retailers took. When one company, eToys, saw trouble ahead, and should have been looking to cut expenses, it still spent tremendous amounts of money on advertising.    This example is used quite often in the e-business arena to underscore the fact that a company cannot continue to show losses quarter after quarter and expect to stay in business. A solid financial plan is the first step a company must take before it takes the plunge into e-business.

Staying on this topic, we will next discuss how predictive accounting plays a major role in e-business success.

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