A new look at extracting value

HP of late has enjoyed stunning growth under its new leader Mark Hurd. However, as with any big company, growing revenues is always a challenge. With $100 billion in sales, it is hard to keep growing at 10% every year. One of the drivers for HP's growth is its research labs. The new head, Prith Banerjee, has an interesting way to ensure that the HP labs generate value add ideas to generate growth. Basically he is narrowing the focus, getting resources allocated on high impact projects and making projects justify their value. "Value methodology" as I call this is the same justification for the business case and benefits management process. Realize the benefits by focusing on high impact areas thereby maximizing the utilization of the scare resources.

Here are some relevant excerpts from the article:

- "HP Labs today does a lot of cool things — about 150 research projects – but it does so many things that none of the projects get enough resources to have a high impact," says Banerjee. "My message was, let's try to narrow the focus."

- Banerjee's vision borrows heavily from the culture of Silicon Valley venture capital firms, which fund fresh new ideas and try to nurture them into the next Intel (INTC) or Google (GOOG). Traditionally, HP Labs scientists have had little incentive to transform concepts into products. But in the future, research efforts that fail to meet benchmarks won't get more funding, according to HP executives; instead, more resources will go to larger projects that are meeting goals and are likely to mature into profitable new businesses.

- Likewise, it will take years before investors can be sure whether HP's revamp of its labs is bearing fruit. Many of the research areas that the company identifies in 2008 won't yield products until 2013, though the new model could produce some benefits sooner. For instance, HP's personal computing group has set up a team called the Innovation Program Office that seeks to grab good ideas from inside and outside the company and turn them into products more quickly.


The full article can be found at : http://bigtech.blogs.fortune.cnn.com/2007/12/17/turning-an-idea-farm-into-a-hit-factory/?source=yahoo_quote

Involving IT and articulating the benefit

There was an article in the WSJ today talking about the importance of the IT department in companies and why they should be involved in the strategic decision making process. Most big companies realize the value of "IT" and how they can enable the successful operations of a company. Whether they are leveraging this is another matter. I think how effectively "IT" is involved is the key differentiating factors of successful companies. It is also just as important for IT to keep showing how they can benefit the company and one of the best ways to articulate this is via the business cases process. The business case is essentially the first contract between IT and the "business" to demonstrate the value (benefits) being achieved and how much (cost) it will take to get this. It is normally written in business terms without all the "IT" jargon so that business executives involved can easily understand, evaluate and buy in to the proposal. If they don't, it will more than likely result in the change effort not delivering value (real or perceived) even if meets schedule and cost targets.

Here are some excerpts from the article I mentioned that talk about the value of IT and the outline some of the pitfalls as seen by business executives. Sound familiar?

- According to a study by Diamond Management & Technology Consultants Inc., of Chicago, 87% of business leaders say they believe that IT is critical to their companies' strategic success. The study finds that few businesses have yet positioned IT in a way that allows it to achieve this. Only 33% of business leaders say IT is very involved in developing their company's strategy, and 30% say the business executive in charge of strategy works closely with IT, according to the Diamond study. That has an impact on performance: 76% of companies say they have had to abandon a tech project, including 29% that say they have abandoned more than 10% of these projects, according to the Diamond study.

- At Walgreen Co., the Deerfield, Ill., pharmacy chain has included its CIO on its management team since the late 1990s. That has helped Walgreen connect all its pharmacies via a single software system, which the IT department updates several times a year. The IT department depends on feedback and suggestions from pharmacists and other store employees in order to make changes. Jeffrey Rein, Walgreen's CEO, says having the CIO on his leadership team sends a message to employees that they need to make providing this feedback a priority. "If you don't involve the CIO in strategy meetings, you end up with systems that don't serve the needs of your employees or customers," says Mr. Rein.

- One reason many companies haven't worked closely with their IT departments is because IT professionals often struggle to explain what their departments do in language that business leaders understand, says Jerry Luftman, a professor at the Stevens Institute of Technology, in Hoboken, N.J. That has made it hard for non-techies to see the value that an IT department contributes to a company and creates the impression that IT leaders are too focused on bits and bytes. < This is where the business case comes in as a key channel for clearly documenting the business value to be delivered>


 
 

Business Case Overview

From Wikipedia, here is a good definition of a business case and how it should be developed:

A business case is the concept of having a non-technical reason for a project or task. The logic of the business case is that any time resources such as money or effort are consumed, they should be in support of the business. An example could be that a software upgrade might improve system performance but the "business case" is that better performance would improve customer satisfaction.

Business cases can range from comprehensive and highly structured, as required by formal project management methodologies, to informal and brief, such as the example above. Information included in a formal business case could be the background of the project, the expected business benefits, the options considered (with reasons for rejecting or carrying forward each option), the expected costs of the project, a gap analysis and the expected risks. Consideration should also be given to the option of doing nothing including the costs and risks of inactivity. From this information, the justification for the project is derived.

At various stages in the project, the business case should be reviewed to ensure that:

- The justification is still valid,
- The project will deliver the solution to the business need.
- The result of a review may be the termination or amendment of the project. The business case may also be subject to amendment if the review concludes that the business need has abated or - changed, this will have a knock on effect on the project.

Formal Business Cases

Formal business cases are evaluated to ensure:

1. the investment has value
2. the project will be properly managed
3. the firm has the capability to deliver the benefits
4. the firm's dedicated resources are working on the highest value opportunities
5. projects with inter-dependencies are undertaken in the optimum sequence.

Objectives

The principal purposes of the formal business case process are:

- Introduce a way of thinking that causes people with the authority to recommend projects to firstly consider their value, risk and relative priority as a fundamental element of submitting the project proposal - Require those proposing a project to justify its value to the firm and to self-cull any proposals that are not of demonstrable value
- Enable management to determine if the project proposed is of value to the business and achievable compared to the relative merits of alternative proposals.
- Enable management to objectively measure the subsequent achievement of the business case's benefits.

The Business Case Process should ensure:

1. the required issues have been thoroughly considered and documented
2. sufficient information to facilitate fair evaluations of different proposals is available
3. both the value and risks inherent in the proposed project are clear
4. the project is sponsored by, and has the commitment of, an executive with the capability and authority to deliver the benefits
5. the delivery of the outcomes and benefits can be traced and measured.

The Business Case Process should be designed to be:

> adaptable - tailored to the size and risk of the proposal
> consistent - the same basic business issues are addressed by every project
> business oriented - concerned with the business capabilities and impact, rather than having a technical focus
> comprehensive - includes all factors relevant to a complete evaluation
> understandable - the contents are clearly relevant, logical and, although demanding, are simple to complete and evaluate
> measurable - all key aspects can be quantified so their achievement can be tracked and measured
> transparent - key elements can be justified directly
> accountable - accountabilities and commitments for the delivery of benefits and management of costs are clear.


Generating a business case

Generation of the Business Case should not be mechanical. Indeed, the case must demonstrate that: the issues have been thought through, the full benefits will be realised on time, any technical aspects have been thoroughly evaluated and costed, and track and measure their achievement. For any IT project it is unlikely that any significant proposal would be submitted to the Executive Management Team for approval without both the business sponsor and the head of IT agreeing on the merit of the proposal.

A business case should contain some or all of the following information types (depending on the size, timing, scale and availability of information:

> Reference - Project name/reference, Origins/background/current state
> Context - Business objectives/opportunities, Business strategic alignment (priority)
> Value Proposition - Desired business outcomes, Outcomes roadmap, Business benefits (by outcome), Quantified benefits value, Costs/ROI Financial scenarios, Risks/costs of not proceeding, Project risks (to project, benefits and business)
> Focus - Problem/solution scope, Assumptions/constraints, Options identified/evaluated, Size, scale and complexity assessment
> Deliverables - Outcomes, deliverables and benefits planned, Organizational areas impacted (internally and externally), Key stakeholders, Dependencies
> Workload - Approach, Phase/stage definitions (Project (change) activities, Technical delivery activities, Workload estimate/breakdown, Project plan and schedule, Critical path)
> Required resources - Project leadership team, Project governance team, Team resources, Funding
> Commitments (required) - Project controls, Reporting processes, Deliverables schedule, Financial budget/schedule

Instilling Business Case Discipline Into IT

Found a great Power Point presentation from Forrester while doing a search on benefits realization. I was surprised it was available for free, but happy that it was. Here is the link:

http://www.forrester.com/Events/Content/0,5180,1738,00.ppt

Some highlights are:

- When someone asks the question why do business cases, here is a good answer from the presentation title, "Business cases enable governance, bring discipline, and prove the value of IT"

-  There are a number of graphs, surveys, tables and figures to back up the value of a business case and why it is needed. With appropriate references you could use this in management presentations.

-  Provides some good ideas for the key content to include in a business case through 7 core components to include in a good business case.

-  And finally it provides the linkage between business cases and the benefit realization process in the section titled "The business case — tracking business benefit realization"

All in all a very informative presentation which can be used as a basis for generating ideas and selling the business case concept. I have added to my list of references.

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Best Practices for Managing IT to deliver business value

Forrester Research has come up with a comprehensive list of best practices you can use today to get better results from IT that add value to the business. In an effort to help CIOs struggling to justify IT's business value to their bosses while, simultaneously, reducing waste and cost, Forrester Research analysts Phil Murphy and Andrew Bartels decided to put together a list of the best practices they, and their peer analysts at Forrester, think would offer the most help.

Here are some that I think are relevant from a benefits/value standpoint - reducing costs and/or increasing revenue:. Note - I have left the original ranking number so you can see where it rated in the Top 20 List. Below the list is a reference to the full article. You can use some of the ideas here to build your next business case.

1. Adopt ITIL and other frameworks like COBIT and ISO 17799 to bring discipline and efficiency to IT operations. Having efficient and transparent operations will significantly reduce costs (and add value) to the organization.

2. Use IT systems performance management audits and software to increase application throughput and manage costs.

4. Implement data center automation to reduce operating costs.

5. Install server virtualization to lower hardware costs and reduce administrative burden.

6. Embark on application rationalization to help IT shed duplicate applications and infrastructure.

8. Use application portfolio management (APM) tools to develop metrics to drive maintenance effort and cost reductions.

10. Undertake IT asset management initiatives to optimize usage of software and hardware.

12. Employ enterprise architecture groups to drive standardization of the software portfolio.

13. Use your vendor and contract management teams to squeeze more value from vendors.

14. Utilize contract life-cycle management tools to help optimize the savings from supplier contracts.

15. Use formalized and aggressive IT sourcing practices to cut ongoing depreciation and maintenance fees.

16. Employ eSourcing and services procurement tools help secure more competitive vendor bids.

17. Keep selective outsourcing options on the table that may lower costs and improve IT.

18. Implement IT operations scorecards to track and drives improvements and reduces cost.

19. Give IT leaders dual roles as business relationship managers and IT activity managers.

The full article can be found at : http://www.cioupdate.com/insights/article.php/3710291

Benefit Definition Workshops - Ideas on how to manage them,

One method I have found very useful to try and determine the benefits for a particular project is to have a Benefit/Business value workshop where you invite the relevant stakeholders to brainstorm about the potential benefits from implementing the proposed change. You will be amazed at what you can get out of these sessions. The key for these sessions as the Project Manager or Business Analyst is to provide structure and a strong agenda to keep the meeting on track and to get the information you are seeking. Also for preparation have a few ideas of your own incase of those "silent" moments.

The key things to keep in mind are:

1. It is a brainstorming session so everyone can have their opinion. You are to take notes, encourage discussion but not make judgements. When all the information is gathered you can then analyze, ., prioritize and make recommendations. Ensure you set Ground rules at the beginning of the meeting.
2. Make sure you involve the right people and the relevant people.  Avoid too many executive type people. It is the people who do the day-to-day work that have the best ideas at times.
3. People will more likely complain about what is wrong. Use this as a basis to work out the benefit. Ie, The benefit would be what would arise from fixing the problem. It will be your role to quantify this.
4. Provide some background reading prior to the meeting and have a quick recap at the beginning of the meeting.
5. Have a follow-up meeting to discuss your recommendations and to solicit feedback and get buy-in. Make sure you send out post meeting minutes/action items as well.
6. Encourage discussion and ideas but stay on the Agenda. You want to get the most of the meeting in the limited time you have.
7. Lastly, provide some refreshments for the meeting. It is amazing how some chocolate or muffins get the ideas and conversation going.


Let me know if you have any more ideas?