Ever wondered if an initiative is worth the effort? Ever wondered how to quantify its worth? This is a loaded question as you may suspect but I wanted to ask it nevertheless as my team of Global Industry Consultants work with clients around the world to do just that (aka Business Value Assessment or BVA) for solutions anchored around Informatica’s products.
As these solutions typically involve multiple core business processes stretching over multiple departments and leveraging a legion of technology components like ETL, metadata management, business glossary, BPM, data virtualization, legacy ERP, CRM and billing systems, it initially sounds like a daunting level of complexity. Opening this can of worms may end up in a measurement fatigue (I think I just discovered a new medical malaise.)
Before I touch upon some major concepts here let me just say that Initiative valuations are only somewhat similar to stock valuations, a comparison often drawn as a simile all to quickly because of its financial nature. While a stock price attempts to contrast (and here is the art of modeling rather than science) raw numbers like earnings divided by the shares outstanding, it also reflects the faith of the market for potential future earnings based on to-be buy-out prospects, customer base, new product adoption, regulatory pressures, increased brand equity, patents approved, CEO acumen and a lot of other things hard to measure. Although just as much a guide, a BVA tries to be more scientific and smaller in scope. While some folks like to interpret wild future gains into BVAs; it should (strive to) live from a combination of a small number of easily gathered and forecasted raw numbers on a more tactical level. As such, we must consider carefully the use of quantifications around future gains just as well as the human (organizational) factors.
There are a number proven of steps we use to break down any surviving level of complexity into bite-sized chunks to assess what the initiative can sensibly add to the bottom line of an organization.
First, it is imperative not to overthink the problem getting trapped in the details trying to analyze every minute business aspect an initiative may help solve. Here a customer sponsor is crucial as he/she can provide initial insight, help in focusing the effort, locate internal resources, organize meetings and manage expectations. Lack of detail focus but emphasis on scope focus is key here. You want to pick the 2-3 most important, yet digestible processes and/or KPIs from a business perspective the products being considered will enable. From a marketing-centric point-of-view, it will likely be response rate (marketing effectiveness), number of campaigns run per period or cost of campaign (marketing efficiency) or conversion rate (marketing to sales effectiveness).
Secondly, start early with the investigation, ideally during the concept phase. It will provide enough time to rethink scope, build internal consensus, gives you ample time to find quantitative nuggets and avoids looking like you are trying to find a nail for a hammer last minute when procurement throws you a curve ball. You should find a flexible evaluation approach to allow for this moving-target paradigm.
Step three involves the motivation of the organization to provide subject matter expertise to a team of “investigators” to provide a quantitative and qualitative sense of where the revenue and/or cost are bottlenecked. Organizational dynamics almost always wreak havoc here as priorities and egos compete for attention. An organization with activity-based-costing experience may be more quickly able to muster this type of thinking and support. This is particularly true when we look at productivity (process-oriented) gains to be realized. The insight may be gained via phone or face-to-face interviews over a number of weeks but most effectively around an onsite workshop.
The forth step is to agree with a “sponsor in the know” on what the organization can accept as valid, implementable results. This could mean if absolute numbers or ranges (conservative to aggressive) are preferred, if benchmarks are desired for contrast or just plainly the financial indicators widely accepted and understood by key decision makers, e.g. ROI, payback period, IRR, NPV, etc. Often this will be a factor of prior experiences with similar externally or internally conducted exercises. It must be made clear that the foundational insight around as-is and to-be states of data, processes and KPIs has to come from the client to establish a sense of credibility for the business case.
Fifth is the realization that we are all in this together. A sponsor and his team, the client organization as well as Informatica and any supporting system integrators (SI) need to “buy” into the approach, resulting priorities and numbers. Don’t bet the house on glitzy boiler-plates and over-engineered analysis. The beauty is often in simplification. As a consequence, it is of little value to come up with fact-based, yet-over-engineered revelations and recommendations if executives cannot follow or believe them or the SI has no experience or faith he can implement in a way to approach the declared benefits.
Number six is the sometimes hard fact that any value assessment, aka business case, can only be as good as the base information uncovered. This is the GIGO (garbage-in, garbage-out) paradigm, which is often understood but not internalized throughout the process. To come full-circle with step one; don’t scope things you have no numbers to measure on. Approximations, best (wild) guesses will not only dilute the business case but also put in question the technology itself even if process and people are the widely accepted top-ingredients of any strategic initiative. Also, while hard numeric facts are good to have, don’t ignore hard-to-quantify benefits like brand awareness and alike.
After this short excursion into the world of the financial aspects of a business imperative, what are your thoughts on this? Has your organization built formal business cases for initiatives; if so, for every one or only big, strategic ones? What was the outcome and was it generally accepted? Did it result in a rethinking of priorities or technologies selected?