Q&A: How AI, digital transformation are shaking up revenue management in high tech, life sciences

By Byron V. Acohido

A recent poll of some 300 senior executives from U.S.-based life sciences and high-tech manufacturing companies sheds light on how digital transformation – and the rising role of third-party partners – have combined to create unprecedented operational challenges in the brave new world of digital commerce.

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Model N’s 2019 State of Revenue Report surveyed CEOs, CMOs and senior sales executives from leading pharmaceutical, medical devices, high-tech manufacturing and semiconductor companies. Model N is a San Mateo, CA-based supplier of revenue management systems.

Some 78 percent of respondents said AI has altered the way they do revenue management,  while 69 percent identified digital transformation as a revenue management game changer. Meanwhile, some 90 percent of respondents reported reliance on 20 or more partners, while 70 percent said they work with 40 or more partners.

Model N’s study provides yet another perspective on the unprecedented complexities organizations must navigate to compete in an internet-centric business environment. The core challenge for just about any company seeking top line and bottom line growth boils down to solving two intricate puzzles: how to deploy advanced digital systems in just the right measure; and how to collaborate, effectively and securely, with third-party partners.

And, of course, this must be done while defending the company’s digital assets against rising cyber attacks, launched by skilled, determined threat actors.

With that in mind, Last Watchdog sat down with Model N CEO Jason Blessing to drill down on a few instructive findings from Model N’s poll — and connect the dots to some wider. Here are excerpts edited for clarity and length.

LW: How has the revenue generation landscape shifted over the past few years?

Blessing

Blessing: One of the biggest challenges companies face is revenue leakage. It has become increasingly difficult to manage product pricing and contract compliance, globally. When you’re selling through a lot of partners, it can be tough to manage incentive payments, and not pay beyond what your contract incentives are.

And if you have a big product catalogue, managing pricing decisions around the globe can be difficult; huge, unnecessary discounting can take place. And then there is the issue of compliance, and not just from a government or regulatory perspective, but just in terms of internal contractual compliance — staying within the agreed upon terms of a contract can be a big challenge.

LW: How does AI factor in?

Blessing: High-tech companies, in particular, are beginning to leverage AI to gain revenue visibility and drill into every detail on what is or is not working. High-tech companies have a unique challenge: they must accurately predict revenue and ensure the discounts granted to customers are appropriate. Poor discount management can lead to revenue leakage and lower profit margins.

The top-tier companies in our survey have been able to reduce revenue leakage and improve their cross-selling capabilities. They’ve achieved this by gaining visibility into every aspect of revenue generation.

LW: So AI facilitates the number crunching?

Blessing: Yes, as far as gaining visibility into every aspect of revenue. Companies are collecting a huge amount of data. It takes AI to glean insights and to get to the next level of sophistication; on factoring in what’s moving in one geo-location versus another; and on what pricing opportunities are taking shape. Going forward, AI is really going to put the top tier organizations head-and-shoulders above their peers who aren’t using AI.

Right now, top-tier organizations are doing a good job of looking in the rearview mirror  and demonstrating that they know how to create deals based on what has happened in the past, ensuring they’re putting the right products into the mix, and not giving away margins when they don’t have to. As the top tier companies begin increasing their use of AI, they’ll start gaining a more forward-looking view, and do even better at creating and closing deals.

LW: What about working with third-parties?

Blessing: When you have a global organization, you’re selling through a lot of partners. It is very tough to manage all of your incentive payments — basically making your channel whole, ensuring that all of your partners get paid in a timely manner. And if they have a product that’s become obsolete, they need to know you’re going to protect them, and not leave them with a ton of inventory.

Organizations that have better visibility into their inventory can do a better job of moving and selling —  creating rebate programs, for instance; and moving excess inventory to a geography that’s doing better with that inventory.

LW:  Your survey drills down on revenue generation macro trends. That said, what’s a higher-level takeaway?

Blessing:  It’s noteworthy that the top macro trend turned out to be that AI is impacting revenue generation. The technology is accelerating in its sophistication. So your partners, your competitors and your peers are going to explore more effective ways to use AI. If you wait on the sidelines, you’re more likely to be growing a little bit slower, have comparatively lower profit margins, and, subsequently see slower stock growth.

Acohido

Pulitzer Prize-winning business journalist Byron V. Acohido is dedicated to fostering public awareness about how to make the Internet as private and secure as it ought to be.


(LW provides consulting services to the vendors we cover.)

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