Challenge of the Digital Economy Research - Myassignmenthelp.Com

Questions: 1. What managerial insights about profitability per household can you extract from Exhibit 3? 2. Using ABC analysis, and the information in Exhibits 2 and 4, calculate the loss per household for the six customer profiles per Exhibit 4. Round your calculations to the nearest dollar. b) What are two specific management actions for each of the six customer profiles that would substantially improve the profitability? Calculate the impact of these actions to the nearest dollar. 3. Noting that excess capacity is charged back to active accounts, if AIMS scaled back to 3,000,000 active households and planned only a 10% excess capacity reserve for future growth, a large proportion of cost could be eliminated. Estimate how much of total cost for 1999 could be eliminated, based on facts presented in the case. 4. What are your overall recommendations to top management based on customer profitability information? Answers: Profitability per household The company has moved from the objective of overall profitability to the segmentation of the same as to see whether the individual segments of the business are profitable of not. The company further divided the complex structure into differenet segments and deciles such as High Net Worth (HNW) customers, Active Traders (AT), Retirees, and Core customers based on the assets under management, trading volume and age group. The core segment comprised of the maximum number of customers with more than 70% of the households. All this activity aimed at defining the management actions as per the specific needs of the different customer groups. In the given exhibit 3, the wide range of profitability has been shown through 80-20 rule. The president Kim Davis wanted to know the root cause of the problems and losses and the same is being reflected by the table. It shows that what is the quantum of profitability being earned by top 10% of the households in the various business segments like HNW ($ 2Mn and above and 0.5 to 2 Mn), AT (200 trades, 60-200 trades and 36-60 trades), retirees (100-500 K ABC Analysis and specific management actions Below mentioned is the calculation of the loss for the 6 customer profiles mentioned in Exhibit 4 as per the activity based costing done in Exhibit 2 and the relevant cost drivers being used. From the above table, we can see that each of the 6 customer profiles is in loss when assessed individually whereas on the overall basis as well, the profitability is on the lower side. The reason of loss is primarily the huge cost being incurred in the Core segment which is not easy to recover via the revenue(Trieu, 2017). The revenue is not enough to cover all the costs and thus each of the segments is in the loss. Two specific management actions for each of the customer profiles that would substantially improve the profitability of the company are as follows: Since the cost per unit of rep assisted calls is high @ $11 and then the number of such calls is high under each of the segments, the same can be lowered to reduce the overall cost and increase the profits. The cost of the same can also be minimised per unit of activity driver by outsourcing the same. The 2nd action that can be taken is to charge from the customers a fixed revenue of $ 1000 as Mutual Fund Fees and Brokerage Fees each from HNW and AT households and $ 500 as Mutual Fund Fees and Brokerage Fees each from rest of the categories(Farmer, 2018). The revised calculation of the profit in such a scenario would look as below: In the revised scenario, the company is making profits in almost all the segments and cases. This is due to the fixed revenue being charged from the customers and the Rep assisted calls being charged at the unit rate of $ 5(Visinescu, Jones, Sidorova, 2017). Effect of eliminating excess capacity on cost In the given case, the excess capacity is always prevailing in the company which is due to the growth forecast being made based ob the performance of the last year(Dichev, 2017). Taking the same into account and in case, AIMS scaled back to 3000000 active households and just planned to have an excess capacity reserve of 10% (which comes out to 300000) totalling to 3300000 households, then the larger proportion of the cost can be saved(Choy, 2018). The average cost per household has been taken from the past working which comes to $ 249 per household. Now as per the estimate for 2000, the total households ois estimated to be 3880000 as pwer the original estimate. In case the same is trued down to 3300000, there would be cost savings on account of 580000 households amounting to $ 144.42 Mn shown below. Recommendations of customer profitability In case of American Investment Management Services, there are several recommendations that can be given to the company based on the customer profitability information for its future course of action: In order to be profitable and competitive with respect to the competitors in the market, the company should increase the either increase the revenue by raising the prices or charging a fixed margin on the brokerage as well as mutual fund fees or reducing the costs of delivering few or all of its services. Furthermore, the company can also opt for outsourcing few of the services being offered by it directly or substituting the same with less expensive services(Alexander, 2016). Also, the company should choose the customers or households to deal with after due research is being carried out as dealing with the low end households often results in losses and non recovery of the revenue (resulting in bad debts). It should rather make a benchmark above which the net worth should be measured to find the households to deal with. Additional costs which is being incurred in the form of the excess capacity can be reduced by proper planning and growth forecasting(Bromwich Scapens, 2016). When entering into new accounts, the company should have the criteria of maintaining the minimum balance in terms of the assets invested. This should be based on the age criteria such that the minimum investment amount should be more for the old aged people. Charging for the services offered in case a particular level is reached like $1.25 per transaction in case of more than 10 visits(Boccia Leonardi, 2016). References Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-431. Boccia, F., Leonardi, R. (2016). The Challenge of the Digital Economy: Markets, Taxation and Appropriate Economic Models. Springer. Bromwich, M., Scapens, R. (2016). Management Accounting Research: 25 years on. Management Accounting Research, 31, 1-9. Retrieved from https://doi.org/10.1016/j.mar.2016.03.002 Choy, Y. K. (2018). Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis. Ecological Economics, 145. Retrieved from https://doi.org/10.1016/j.ecolecon.2017.08.005 Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), 617-632. Retrieved from https://doi.org/10.1080/00014788.2017.1299620 Farmer, Y. (2018). Ethical Decision Making and Reputation Management in Public Relations. Journal of Media Ethics, 1-12. Goldmann, K. (2016). Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, 4, 103-112. Retrieved from https://doi.org/10.1007/978-3-319-39919-5_9 Linden, B., Freeman, R. (2017). Profit and Other Values: Thick Evaluation in Decision Making. Business Ethics Quarterly, 27(3), 353-379. Retrieved from https://doi.org/10.1017/beq.2017.1 Trieu, V. (2017). Getting value from Business Intelligence systems: A review and research agenda. Decision Support Systems, 93, 111-124. Visinescu, L., Jones, M., Sidorova, A. (2017). Improving Decision Quality: The Role of Business Intelligence. Journal of Computer Information Systems, 57(1), 58-66.