Modeling the Profitability of Customer Relationships: Development and Impact of Barclays de Zoete Wedd’s BEATRICE

Abstract:

Traditional management accounting systems are limited in their ability to provide profitability information relevant to management decisions. The problems of inadequate profitability measurement are intensified in today’s business environments, where changing margins due to deregulation and new entrants, new products with unknown costs, and customer sophistication in locating low-cost providers often combine to leave unprepared firms with growing numbers of loss-making client relationships. In response, firms in a number of service and manufacturing industries are experimenting with new methods for measuring performance, and are implementing these techniques using information systems. The collection and analysis of information on the profitability of customer relationships enables managers to identify and defend their most attractive market segments, and to turn loss-making accounts into profitable ones. The London-based securities house, BZW, developed BEATRICE, an innovative information system that combines activity-based accounting principles and a model of customer profitability to make an income assignment to each of the 6,000 trades the firm makes in a day. The system’s value is considerable, and can be evaluated by using industry performance benchmarks, and by comparing management decision making using the currently available information with what was possible with previous data.

Key Words and Phrases::

• activity-based accounting
• management accounting systems
• profitability measurement

Additional information

Notes on contributors

Nicolas Stuchfield

Nicolas Stuchfield is a Director of BZW Securities, the investment banking arm of Barclays Bank. A member of the firm’s U.K. Equity Management Committee, his responsibilities cover strategy as well as the management of information technology and settlement operations. His education includes an M.A. from Magdalen College, Oxford. He became a Partner of Wedd Durlacher Morduant in 1985, and was made a Director of BZW when the firms merged in 1986. Mter setting up the working party that introduced stock index futures in the United Kingdom in 1983, he was the founding Chairman of the Options and Futures Society from 1985 to 1988. More recently, he has advised the London Stock Exchange on reforms of trading rules for small company shares.

Bruce W. Weber

Bruce W. Weber is an Assistant Professor in the Information Systems Department of the Stem School of Business at New York University. His research examines the impact of information technology on securities markets, the strategic applications of information systems, and the economic evaluation of technology investments. He has done consulting for the New York Stock Exchange, the London Stock Exchange, and several major financial services firms. He has an A.B. in applied mathematics from Harvard University, and an M.A. and a Ph.D. in decision sciences from The Wharton School of the University of Pennsylvania. After completing his doctorate, he held a one-year faculty position at the London Business School.