by Karuna Mukherjea, Solution Marketing Director, Analytics, SAP

Spices at Market, Carcassonne, Aude, Languedoc-Roussillon, FranceAs an avid cook I’m always looking for interesting ways to use my favorite ingredients, most loved spices and herbs to make this new perfect dish. I’m always amazed how one can alter the aroma and taste by just so slightly altering the amount of herbs when they are added and how they are combined with other spices. At the end of the day it’s chicken with spices and herbs… but each dish is so unique and so perfect!

Creating this perfect recipe is very similar to the process that customers from different industries go through to define their “Perfect Recipe for Profitability”. Take for example the airlines industry today that is operating in extremely tough economic conditions. According to the International Air Transportation (IATA) Report published in Oct 2012, the airlines industry is operating at a meager 0.6% profit margin. This is attributed to the sluggish economy and rising fuel prices. The industry as a whole is making a very concerted effort to become more aggressive in adjusting fares and flights to respond to fluctuations in fuel prices and demand and have become more profitable as a result. They’ve started to look at technology that will enable them to get better visibility into their costs and as a result they are starting to analyse costs and profitability across virtually every dimension: by fare class, cabin, route, fuselage, day of the week etc.

Now lets take a look at a completely different industry, telecommunications. In order for Communications Service Providers (CSPs) to achieve long-term sustainable and profitable growth, they must focus on critical success factors like drive growth through timely market relevant service offerings, improve subscriber retention and up-selling – and pursue operational excellence fostering top line and bottom line growth. But, even with a relentless focus on these critical success factors, CSPs ability to realize growth is often hampered by immense cost pressure, inefficient billing processes, missing insights into costs and inaccuracies in profitability strategies.

The other industry which is  very interesting is the retail industry. They need to identify not only their most profitable products but really the winning combination of product and channel. They often struggle to answer questions like is the cost to serve lower for a product online or in a traditional brick and mortar store, yet alone the growing combination of ‘clicks and mortar’, where we buy and pay online then turn up at the store to collect. In order to stay competitive and ensure future profitable growth they need to stay razor focused on optimizing their cost to serve, identify ways to reduce their indirect and direct costs and define new strategies for creating value.

If you take a step back and remove the industry component out, all customers are facing the similar challenge to managing costs and increasing their profitability. However given the specific nuances of the industry they need a framework and solution that will allow them to make the necessary adjustments that are needed for their industry. The airline industry should be able to model the scenarios and costs for route profitability whereas the retail industry should be able to do the same for “store profitability”. The perfect recipe for profitability lies within SAP Profitability and Cost Management.

Stay with us over the next few weeks as we take you through this journey for some key industries and discuss how they are leveraging SAP Profitability and Cost Management to identify the strategies for cost optimization and increasing profitability.

Originally published on CFO Knowledge and republished with permission.