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September 29, 2014
Diversified unregulated revenue
By: Mark McDonald

Not every dollar of revenue is equally valuable. Some revenue is more valuable to companies than others. Margins, customer relationships, future potential, etc. represent characteristics describing the quality of revenue.

Finding and facilitating revenue quality is an aspect of digital strategy. Many strive for high quality revenue but too often they equate quality with quantity. This leads to the impression that digital lowers revenue quality; particularly new technology that deliver the same old solution.

“Diversified Unregulated Revenue should be a consideration in every digital strategy,” advocates Drew Boston, a colleague at Accenture. He recognized this development in the healthcare industry during the pre- and post-signing days of the Affordable Care Act (ACA) aka Obama care. In the publication “Healthcare M&A Rethink: Why Are Healthcare Payers On the Hunt For Healthcare Providers?” he illustrates the change. Prior to the ACA, payers concentrated the vast majority of their investments on acquiring members and growing regulated revenues. Following the ACA the acquisition strategy shifted to buying companies that expanded their unregulated revenue. This strategy is changing the face of the healthcare industry.

If healthcare gets it, then every industry should get it. The “IT” is using technology to drive new sources of revenue. Unpacking the term Diversified Unregulated Revenue provides a path to understanding how digital technologies should fit within a business strategy.

  • Diversified, in the sense that it represents new revenue streams rather than simply changing channels for existing revenues. Diversification is the key to an accretive digital strategy, as anything else tends to create rather than cancel out commoditization.

  • Unregulated revenue that does not require external permission from authorities. Unregulated revenue allows you to work at the speed of inspiration, innovation and customer initiation. Regulations are necessary for protecting customers, employees, employers, etc. Featuring more than a little ‘revenue madness’, unregulated revenue creates opportunity as it creates markets that did not exist before.

  • Revenue, as opposed to cost take-out. While both drive the bottom line, top line growth drives share price. Growth that expands the pie, rather than extracts more from existing customers is more valuable still.

Digital gives organizations the means to diversify their revenue

New digital capabilities create new digital revenue opportunities, a prerequisite for diversifying revenues. Without the new capabilities enabled by social, mobile, analytics, cloud, 3D printing, the Industrial Internet of Things, etc., there is no reason to think of the future as anything more than a projection from the past. Having a different view on digitization is essential to seeing new revenue opportunities.

Selling yesterday’s products on today’s technology does not count as diversified unregulated revenue. This type of revenue involves creating new value propositions outside of existing market constraints and new offers for new markets. That requires taking an alternative view on capabilities, information or resources previously seen as internal or cost oriented.

For example, new revenues from anonymizing information to mash-up banks and advertising to add a wealth dimension to marketing. Redeploying back office and security practices to meet the emerging demand for privacy services. The Harry Fox Agency’s creation of digital rights management services, detailed in the book The Digital Edge (click here for a complimentary copy) provides another example.

Each source of revenue is created by digital technology capabilities or they are created by new digital technology demands. Seeing those sources requires looking from outside the company and into the value of these resources. Digital technologies create disruption and diversify revenues by unlocking new levels of access, performance, or economics. Finding the source of these disruptive and accretive revenues sits at the core of business strategy.

Use the characteristics of Diversified Unregulated Revenue to find Diversified Unregulated Revenue

Diversification entails being different and that requires thinking beyond the four walls of the organization and what it does now. Increasing diversification requires breaking old habits and ways of thinking to find new opportunities. Nowhere is that needed more than in the way executives think about information technology (IT). Traditional IT is singularly focused on back office automation, integration and operations. There is nothing wrong with that, but for every ‘management’ system in the organization today there is a digital potential to raise revenues by raising human ability.

Unregulated makes executives think risky when they should think new. Equating “new” with “cannot do” is a frequent barrier raised in regulated industries. Thinking this way creates a type of regulatory latency that opens the door to competitors (e.g. sharing services for taxi’s and hotel rooms).

Rather than living within the limits of regulation, consider the social mission of your industry. Every regulated industry has an implied social mission, often expressed as preventing bad things from happening. Turn that around and think about ways to further the health, wealth and well-being of people regardless of regulation to find new opportunities for revenue.

Revenue gets executive attention that is often misinterpreted as earnings. There is no bottom line without a growing top line. Too many executives have invested in digital with a goal of improving the efficiency of their existing business, from digital marketing to field force enablement, to supply chain, etc. Improved efficiency is not the same, nor does it carry the same market value multiple as growing revenues. If a technology cuts a cost, that is good, but if there is new ways to generate revenue, then it’s great.

Every business is a digital business, every customer a digital customer and every idea carries revenue impact. Too often that impact is thought of in terms of today’s business models and limited by the implications of each model. Diversified Unregulated Revenue provides a different way of looking at the digital future and a different goal for digital strategy.

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