Introduction:
A high-end specialized computer system vendor had fallen on bad times and was attempting a turnaround. Product sales were steadily declining and Service revenues were the sole stable source of revenues but this area too was in decline. Unfortunately, the finance and admin group gave the VP of Service no view into the contract structure and, consequently, no means of managing service revenues. All the support staff could do was to provide a monthly 132-column-wide, 500+ page listing of line items on service contracts.

Determined to turn around the decline in service revenues, the VP of Service brought Roy Sequeira on board to create a viable service forecast mechanism that enabled proper contract and customer management as a means of stabilizing and increasing the service base.

Background:
Each of the six international regions had its own Service management system while the three North American regions shared one Service management system. Unfortunately, none of the Service management systems synchronized or interfaced smoothly with the accounting and other information systems. Various ill-defined policies and procedures, designed and implemented without any Service inputs, resulted in a monthly manual scrubbing of the Service system output and a manual feed into the accounting system for billing. The firm had no funds available to augment or replace any of the existing systems.

What this meant was the VP of Service had to operate in the dark. He had no firm performance figures until six weeks after the books closed on the quarter, much too late for any performance tweaking. All he could do was review past performance. As noted earlier, proactive customer management to stabilize and grow service revenues was not possible.

Objectives & Plan of attack:
Our objectives and plan of attack were as follows:
We wanted and needed a Service Revenue forecasting process that:

• Was easy to use, helped increase service contract sales, and speeded revenue accrual
• Was easily accessible on-line by all interested functions
• Ensured reliable data and information transfer between regions and HQ
• Ensured field management buy-in and enabled them to constantly monitor and review their own status, forecast, and performance-to-target so that they could take timely action. This eliminated any excuse for failure to achieve target.
• Standardized reports for easy comparison between offices and regions
• Provided field management with a clear picture of their territories’ potential

We also planned to review all policies and procedures affecting service contract sales, modifying or reengineering them as needed.

An example of the policies and procedures that hampered Service:
The CFO and Finance organization did not accept using an evergreen clause in the contract. Instead, they insisted Service send out a full new quote each time a service contract came up for renewal. The HQ staff mailed the quote in the final month of the contract. Since a significant percentage of customers were government or quasi-government organizations, this triggered a full-fledged bid process that delayed renewals for 3 to 4 months with no revenues for that period.

What we did:
Since all the regions used Excel for their daily work, we decided to use Excel as the base, using Excel’s database functions to capture and analyze line-item data and other functions to summarize and present results. To facilitate comparisons between areas, all reports were self-similar; i.e., a report for a branch, a region, and an area looked the same as any other territory report, with similar data in any given area. Of course, the numbers rolled up to the level of the report.

To prevent any unauthorized modification, we protected the entire workbook with only the input areas open to modification.

All sales figures were initially in local currency. Summaries showed performance in USD adjusted for exchange rates at plan time and at current exchange rates. This allowed us to see how the given area actually performed and stripped out accidental performance fluctuations caused by exchange rate variances.

The IT department provided an initial snapshot of all current maintenance contracts. This information seeded the input database area. Each manager regularly updated information on local customers -customer status, probability of contract renewal, etc. This input weighted each contract’s revenues to provide a forecast for that local area. Field management could update pertinent information at any time; the forecast immediately reflected any update.

Two examples of the processes we changed:
We modified the contract renewal process so that the system flagged local managers 90 days before a contract expired. The system generated a letter to the customer notifying them we intended honoring the evergreen clause and would continue servicing their equipment and billing them as per the existing agreement unless they notified us of their desire to cancel the agreement. This gave the customer time to generate new purchase orders or complete other administrative work. Most customers issued new purchase orders ( PO ) much before the contract expired which immediately smoothed out revenue flows and eliminated gaps. During this period, the local manager updated the system status notifying us of how likely the customer was to accept renewal and issue a new PO.

We also introduced a bill-in-advance process so that we billed the customer in advance with Corporate Treasury holding the funds in escrow. Service accrued revenues monthly after delivering service for the month. Again, this helped reduce accounts receivable and bad debt where we had rendered service after the contract had expired hoping the customer would renew but did not.

Use:
A Regional Manager would see his report summarizing his/her performance. Since all reports for each of the managers reporting to that cost center looked the same, the Regional Manager could easily compare status and performance to goals for each of his reports. Each VP had a similar report for his area showing how each of his Regional Managers was likely to perform for the quarter. The CEO’s report gave global figures with each VP’s performance as support. The system allowed any manager to drill down to see each of the reports below.

Each management level viewed data for their areas of responsibility before passing it on to the next higher level. This had two beneficial effects. Each manager now knew exactly how he/she was performing in time to do some thing about it before the books closed. The second benefit was increased responsibility for performance. Before this process, they had no timely feedback about performance and blamed HQ machinations for failure. Now they were knowledgeable, responsible, and in control. This made everyone more proactive and responsive to any changes in field conditions.

Results:
Since local management now had a clear idea of which contracts were up for renewal, they focused their attention on assisting their counterparts in the customer’s administration in getting renewals approved quickly. This resulted in an immediate upturn in contract renewals thus stopping a steady decline in the contract base. They were also able to sell additional services, which resulted in an increase in service revenues for the first time in years.

The very first forecast was $18.3 Million for the quarter; actual performance was $18.279 Million. The company had never been this close even in their estimates.

These results were so gratifying to management that they tasked Mr. Sequeira with creating a similar system for product sales.

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