Although the concept is not new, profitability modeling, to date, been limited to individual departments or business functions. Although companies are developing models that are more comprehensive and cross-functional, these efforts are sporadic, relatively expensive, and time consuming. More companies could attempt such a model, if they had a clear framework and procedures for communication, to guide them. Marc Epstein and Robert Westbrook, a professor at Rice University Jones Graduate School of Management, studied the company's efforts to develop models that link actions to gain and developed a general model that managers can use to connect any departmental action in overall corporate profitability. Changing their general model, firms can quickly arrive at a specific connection between the action and its impact on profitability. Action nonprofit relations model helps managers to identify and measure the key factors for success in business and profit, develop cause-and-effect relationship between them, and assess the impact of action to bring them about. This process forces managers to reduce their strategies in areas of high return. The focus shifts from the concerns of individual performance metrics for understanding how these indicators work as a system and how they lead to higher profits and greater shareholder value. The process of getting to the final model is valuable because managers have great understanding of how the various indicators of the organization linked. The model also contributes to the general management focus on the variables that are most important for success. Moreover, it helps to develop disciplined thinking about profit drivers, tracing their clients through the range of products and, ultimately, the company's actions. "Hide
by Marc J. Epstein, Robert A. Westbrook Source: MIT Sloan Management Review 13 pages. Publication Date: April 1, 2001. Prod. #: SMR064-PDF-ENG
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