Modeling the profitability of customer relationships: development and impact of Barclays de Zoete Wedd's BEATRICE

Traditional management accounting systems are often unable to provide profitability information relevant to strategic management decisions. The problem is intensified in unstable environments, where changing margins due to deregulation and new entrants, new products, and customer unbundling of firms' offerings can combine to leave unprepared firms with growing numbers of loss-making client relationships. With information on the profitability of customer relationships, managers can identity and defend their most attractive market segments, and aim to turn loss-making accounts into profitable ones. BZW, a London-based securities house, developed an innovative information system that combines activity-based accounting principles and a model of customer profitability based on an income assignment for each of the 6000 trades the firm makes in a day. The system's strategic value appears to be considerable, and industry profitability data recently published will enable us to test the value hypothesis.<>