If you work in a global organization you will be aware of the difficulty of answering even basic questions like "who is my most profitable customer?" or "what is my most expensive production location?" or "what is the true margin of that transaction?". After all the expenditure on IT over the last couple of decades, why is it still so hard to get answers to such reasonable and simple questions?

At the heart of the problem is the issue of diversity of business definitions. Let's look at "profit", which in simple terms is revenue minus costs. How hard can it be? Well revenue looks easy enough: after all, if we charge someone a certain amount then that is the revenue. Let's ignore tax for the moment and talk about gross revenue to keep it simple. What about sales commissions that have to be deducted from what the customer paid? What about special offers, rebates or 3rd party incentives? If it is through an indirect channel, then there will be royalty fees to pay. Now imagine that you are working in the central office of a large company. Do you actually know all the sales commission plans, rebate structures, incentive schemes etc used in all your subsidiaries?

What about cost? This is an elusive beast, since it all depends on what cost you are talking about. What costs should be associated with a business transaction? The costs of the product you are selling for sure, but what about the distribution costs, a proportion of the marketing costs, or some overhead to reflect the cost of central office support? So now think again about how easy it is to answer those seemingly basic questions.

The problem is that large companies devise rules as to what costs are counted and what are left out, but it is challenging to standardize these precisely throughout a global organization. Yet these days companies increasingly want to manage at least certain products and customers on a global basis in order to exploit common brands, harmonize advertising campaigns, understand their total expenditure with a supplier, or exposure to a customer. If that customer is a company, things may not be as they seem - e.g. you may know that Dove soap is a Unilever product, but did you know that Calvin Klein is also part of Unilever? How much business you do with (say) Unilever is only possible to calculate if you can be confident that all your subsidiaries have correctly identified the various trading companies that they do business with up the chain of holding companies to the ultimate parent.

In practice, large companies employ armies of analysts with complex spreadsheets to provide such answers. These staff’s job is to be aware of the various quirks in the company’s business definitions, and to be able to make sense of the complex panorama of data that is out there. Hoping the problem will just go away due to some magic wand like ERP is not the answer, since it is extremely difficult to implement a single ERP implementation for a global company, and even if you did, the ERP system only covers a subset of your corporate data.