How do companies decide where to allocate resources, with so many competing priorities and with every project being of the utmost importance? Limited budgets and endless projects seem to be the norm, so you would think there’s a clear answer to this question.
The answer is elusive, and companies often invest time and resources in projects that result in minimal value contributions or simply in wasted money. Many reasons can explain these outcomes: Companies sometimes launch projects without clear success criteria and metrics in place, they find data is hard to access through existing systems, and they don’t always think in terms of value realization. Whatever the case may be, following the three steps below can help you derive additional business value for your company.
Quantify, prioritize, measure
Let’s illustrate the decision process in a simplified customer setting, using a large technology company (LTC) as our model. By no means is this an exhaustive description of the process, nor does it capture all the complexities involved.
1. Quantify (potential value)
- First, we work with key stakeholders to focus on those projects and initiatives that align with the LTC’s vision and strategic goals. This is easier said than done, as a 2012 survey suggests that as many as 86% of employees lack a clear understanding of the company’s overall strategy.
- Next, we look at value sources. People often think of value as operational benefits, like faster turnaround times or calls handled per agent. The key is to take it one step further and think of value realization, which has a much larger impact on the business. In our case, we worked with the LTC’s leadership team to identify key value drivers — for example increase revenue generation through service.
- We then jointly identify metrics and indicators that will help quantify the value created by each selected initiative. We group metrics into categories (for example, increase revenue or reduce costs). Indicators are lagging (indicating past results) or leading (predicting future results) — more on this later.
- After creating a baseline for selected metrics, we estimate the potential value of each initiative in the next three to five years. Financial modeling is used to estimate the project’s net present value (NPV), internal rate of return (IRR), and ROI.There will be instances where it’s difficult to assign financial value, data availability may be limited, or it’s simply hard to identify the proper metrics. You still need to define success metrics for these initiatives and make the strategic decision to move forward. Qualitative “value drivers” are acceptable as long as the initiatives support your company’s strategic goals.
2. Prioritize (initiatives)
- Initiatives can be ranked according to their potential value, and every company has its own criteria to prioritize investments. In the case of the LTC, we used NPV.
- Interestingly, the LTC’s project roadmap included many low contributing projects. This is far from surprising considering that close to 50% of employees’ time is spent on work that is misaligned with the company’s strategy. The updated roadmap focused on those high-value projects representing 80% of the expected value — Pareto’s Principle in action. This allowed the LTC to better leverage existing resources and focus on high-impact initiatives.
3. Measure (performance)
- Often overlooked, measuring and tracking performance is an extremely important step in the value realization process.
- As soon as metrics and indicators were defined, we worked with the LTC on identifying data sources, setting reporting frequency, and preparing the dashboards and reports used to track performance.
- Most often than not, initiatives take time to produce results. In the case of the LTC, we focused on leading indicators to confirm we were moving in the desired direction.
- Lastly, projects often deviate from plan, and performance tracking can help recalibrate your efforts. This also presents an ideal opportunity to look for additional sources of value we might have missed or that were unavailable at the time.
One last thing: This process has been simplified and many of its complexities excluded. For example, data doesn’t always exist and one needs to design ways to capture it. Other times, no baseline exists, and assumptions are needed to properly quantify value realized. This is why a deep understanding of business processes and organizational commitment to achieve results is essential to driving business value.
Focusing on business value will help you better leverage available resources and help you attain your company’s strategic goals. Keep in mind that business value is more than just numbers, and it’s important to understand the qualitative elements at play. Using the three major steps to driving increased business value — quantify, prioritize and measure — will be the key to focusing your efforts and accelerating your success.
Want to know more? Visit our Success Cloud page to find out how our team of experts can help you drive increased business value.