You’ve probably seen the following scenario play out before: A team improves efficiency and claims it created value for the business. But the value doesn’t materialize outside the department. Still, the team celebrates while others struggle to understand where the benefits went. So what happened here? Where did the disconnect occur?
The team I just described failed to understand the difference between value creation and value realization. It’s a critically important distinction that makes the difference between modest changes and transformational results.
Defining Value Realization
What is value realization and how is it different from value creation? Value creation is effort that creates a quantifiable benefit. Value realization is effort that creates a quantifiable benefit that accrues to a stakeholder. An example of value creation would be creating greater efficiency within a department. An example of value realization would be creating greater efficiency that leads to a noticeable improvement in profitability for the whole company. The former only benefits a few people, whereas the latter benefits many more people in a tangible way.
You could make a spreadsheet showing that a change generated a 10% reduction in departmental operating costs and be justified in calling it value creation. But when you can show the line management team reducing spending, the finance team adjusting departmental budgets, and the accounting team showing the reductions in the P&L, well, now you have an outcome worthy of celebration. These are the kind of results that accrue benefits to key stakeholders. Now you have value realization. So how can you make sure value realization happens with every project?
Selling with a Story
Begin building a story by identifying your stakeholders and understanding their interests. As I discussed in my earlier post about getting executive buy-in, it takes more than superficial support to make a project transformational, let alone successful. It takes personal engagement from individuals and groups at multiple levels of the organization to ensure success. A key way to keep people engaged is to tell a great story.
Your story should be easy to understand, credible, and compelling. People have to be able to understand why the change should happen and what’s in it for them. Developing a story is critical for securing funding and managing change. Seek input and feedback from a variety of stakeholders to ensure the story will resonate with your audience. Recognize that the story will not be complete without compelling numbers to represent the benefit to all potential stakeholders. In other words, the potential value realization needs to be clear.
In order for a story to be credible, the business benefits must be quantified. Identify the outcomes that will be the most compelling to key stakeholders. Express the outcomes quantitatively and tie them to meaningful metrics, such as revenue, expense, customer retention, and more. Apply methods and assumptions already used and accepted within your organization, such as average revenue per unit, gross product margin, average full-time equivalent hours, or cost per year.
Setting the Bar Higher
Many of us regularly make requests to initiate funding for programs or to secure next year’s budget. We’re constantly challenged by crosscurrents of competing priorities and conflicting personalities that can derail our goals. How can you make sure the benefits of your initiatives are obvious to everyone? How can you lead transformation and find champions for your ideas? The answer is clear: Stop aiming for value creation and start insisting on value realization.
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About the Author
John Catalfamo is part of Salesforce’s Innovation and Transformation Center, a Cloud Services offering that helps customers achieve their most ambitious goals. As a Program Executive, he partners with customer executives to collaboratively create innovative ideas and implement them in transformative ways to propel organizations forward.