Making Technology Investments Profitable

ROI Road Map from Business Case to Value Realization

Jack M. Keen

• Publisher: Wiley
• Year: 2011
• ISBN:
  9781118028605
• Edition: 2
• Topic: Économie
• Subtopic: Statistiques pour les entreprises et l'économie

A guide to getting the crucial business case right?every time

Showing professionals how to calculate the value of typical budgeting and funding requests quickly and easily, Making Technology Investments Profitable, Second Edition applies the "Value Realization" process, using proven strategies that maximize the business payoff from IT projects. Filled with case studies, this innovative book enables managers to confidently quantify, in a matter of minutes, the true business value of funding a desired project.

• New edition explains how to proactively manage the conversion of a business case's value promise to its value realization
• Includes dozens of new case studies on realizing maximum value from IT enabled investments from various industries and around the world
• New checklists and tables
• A dedicated Web site containing additional material, case studies, chat rooms, and blogs on the value-realization process

The Second Edition provides senior executives, project managers, and technical staff with new insights on how to get the crucial business case right, while also explaining how to proactively manage the conversion of the business case's value promise into the value reality of a completed project.

PART ONE

Understanding Value Leaks: Major Threats to Program Success

A strong passion for any object will ensure success, for the desire of the end will point out the means.

—William Hazlitt, 1778–1830, English writer

Theme

Value leaks are big deals. Preventing and controlling them can make or break value success.

Jerry Kaplan was perplexed. Twenty minutes ago he had entered the boardroom in an upbeat mood, exuding self-confidence and ready to give his CIO a report on the status of the global ERP program.

He proudly reported that the rollout of the firm’s largest IT-enabled program was fully on-schedule and on-budget. Jerry was surprised when his audience became upset, even antagonistic.

The problem, they told him was that although his program was hitting schedule and timeline milestones, it was not on-value. And value was the only thing they ultimately cared about.

Of course, they didn’t use words like “on-value.” They said things like “not worth it,” “too much pain,” “too expensive,” and “I’ve got a business to run.” But Jerry knew it meant the same thing.

Jerry was concerned. What’s the problem? he asked himself. They had funded this initiative because of an impressive business case. Every capability they requested was now installed. No time or budget target was missed. Sure, a few business disruptions had occurred, but that is always the case.

Now Jerry faced a challenge. The whole cadre of senior management was questioning whether the program was “worth it.” Jerry was convinced the program was transformational. But now he had to figure out how to explain this to his leaders and peers. He had very little time to devise the best way to do this, and thus get the program’s stakeholders back on his side. Also gnawing at the back of his mind was the question of whether the stakeholders of his other 15 important in-flight programs were also going to ask if their programs were “on-value.” If they did, what was he going to tell them?

Jerry, in the midst of his typical 12-hour workday, forgot that ultimately, it’s all about the value. Even if key stakeholders don’t say “on-value” out loud, it’s what they really want. Making sure programs are on-value (and communicating it) is a major management challenge. This is especially true since many senior leaders lack a understanding of the seriousness of value leaks, why they happen, and what to do to prevent or fix them.

A value leak is a benefit opportunity that could have been realized, but wasn’t, because of avoidable missteps by management. These threats to return on investment lurk at every step of the implementation cycle. Some examples are:

• Hidden benefits never discovered when building the business case
• Compelling benefits discarded by hyperconservative managers who misunderstand enterprise needs
• Valid benefits rejected due to poor explanations in the business case
• Omission of crucial intangible (nonmonetary) benefits that can make or break an investment’s appeal
• Value that never sees the light of day because no one is held accountable to make it happen
• Design decisions that unintentionally optimize low value capabilities
• Scope control decisions that ignore the value implications of choices available
• Rollout priorities that disregard impacts on value achievement

The nature and timing of these value leaks, and the impediments to resolving them, are discussed in Chapter 1, with special attention given to value leaks triggered by business case shortcomings. Chapter 2 recaps why value leaks persist and outlines the central importance of “Being On-Value.” Part Two (“Flushing Out Value Leaks: A Guided Journey”) provides direction on how to locate these often elusive value destroyers. Part Three (“Plugging Value Leaks: Success Begins Here”) suggests actions for stopping these leaks. The final section, Part Four (“Getting the Business Case Right”) provides a deeper look into how to create more trustworthy business cases, the foundation from which all value results spring.

CHAPTER 1

Why Value Leaks Torpedo Program Success

A small leak will sink a great ship.

—Benjamin Franklin, 1706–1790, American politician, inventor, and scientist

Theme

Value leaks, like water seeping through a dike, can become catastrophic.

When IT Program Problems Are Really Value Leakage Problems

More than 76 percent of all information technology (IT) program investments fail to meet their economic goals.1 This is a sobering finding for IT—the biggest single usage of capital investment funds. For example, at this rate a $100 million public firm could boost its share price 3 percent annually by reducing this failure rate by 40 percentage points.2 An organization with 1 percent of its expenses in IT programs could increase its operating margins by 3 percent.3 The opportunity costs of IT program shortfalls can be even greater, reshaping the character and destiny of both firms and industries. Some examples:

• For an enterprise, needed market share gains are undermined by disappointing customer relationship management (CRM) system upgrades. Massive defections of key customers are triggered by fumbled Web-based customer service implementations.
• For an industry, entrenched leaders can fall to new entrants. For example, a lack of IT vision and commitment hastened the forfeiture of many retailers’ leading market positions to IT-empowered Wal-Mart.

Attempts by management to halt IT investment hemorrhaging have brought mixed results. Popular remedies, such as tighter program management controls, better training, and more senior management oversight, can reduce, but seldom eliminate, IT program shortfalls.

How Value Leakage Problems Torpedo IT Success

Very often IT program problems are actually symptoms of deeper, hidden value leakage–related problems of which decision makers are only vaguely aware.

Being conscious of value leaks can be especially tricky because at first glance, the analytical shine of a promised return on investment (ROI) seems reassuring. A ROI of 125 percent looks better than one of 35 percent. However, behind this seemingly impressive financial facade may reside erroneous assumptions, overlooked inconsistencies, and/or unreliable data. On top of that, during the actual building of the solution and rolling it out to the field, a lack of a disciplined focus on value management can result in major benefit shortfalls that could have been prevented. These flaws may not be intentional, but nevertheless they can threaten the very foundations of IT investment payoffs. Consequently, decision makers may be falsely guided to:

• Approve IT programs that should have been rejected
• Reject IT programs that should have been approved
• Overlook program opportunities that should have been proposed
• Approve good programs that fail during implementation

Top Ten Danger Areas for Value Leaks

Because the link between IT success and value leaks is often misunderstood, attempts to avoid these implementation disappointments often misfire. For example:

• Program cost overruns are thought to be due to poor expense control during implementation. In reality, overruns may be the consequence of a deeper problem, such as misstated cost assumptions in the business case during approval of program funding.
• Missed program deadlines are said to result from unexpected expansion of the program’s scope, which in turn is attributed to lax enforcement of agreed-upon program boundaries. Deeper analysis indicates, however, that the real root cause is the fuzzy program boundaries that were allowed to slip by in the original cost-benefit justification.
• Slower than expected field adoption rates for a new initiative are blamed on technology hiccups. Closer assessments uncover that field management hesitated to embrace the new solution due to lack of buy-in to the business value touted by senior leaders.
• Lower than expected worker productivity increases are thought to stem from inadequate training on new systems. A more thorough investigation shows that the real problem is lack of management and worker motivation. The business case never identified “What’s in it for me?” for these key stakeholders during the program’s initial approval.

There are certain times between a solution’s proposal and its implementation when it is especially vulnerable to value leakage. These benefit-draining danger spots are frequently found in 10 areas (see Exhibit 1.1), all related to management decision making.

EXHIBIT 1.1. Top Ten Danger Areas for Value Leakage

The remainder of this book expands upon how to detect obvious as well as subtle value leakages in these areas.

The Business Case: The High Cost of Not Getting It Right

While there can be multiple causes of value misfires occurring when passing through these top 10 danger areas, the leading (and foundationa...

Table of contents

• Cover
• Contents
• Title
• Copyright
• Dedication
• Preface to the Second Edition
• Acknowledgments
• Introduction
• Part One: Understanding Value Leaks: Major Threats to Program Success
• Part Two: Flushing Out Value Leaks: A Guided Journey
• Part Three: Plugging Value Leaks: Success Begins Here
• Part Four: Getting the Business Case Right
• Appendix: Sample Business Case
• Glossary
• Bibliography
• About the Author
• Index