Making business software choices is no easy task. Typically you know you have a problem to fix, a regulation to meet, or an idea that some manual, administrative, business process, or organizational function can be made better through the use of new or improved software. But sometimes it’s difficult to say for certain just what benefit will be felt after new software is implemented, unless you have the stamina to perform a solid business review, build a business case, and then after implementing, perform a comparative review.
But I’ll hazard a guess that for many organizations, such benchmarks are never set, and even if they are, post-implementation reviews are not even pursued … because let’s face it, there’s a need to get on with business. But frankly, that’s not an attitude that I take, because if we can’t learn from the past, good or bad, then how can we improve for the future?
What is business value?
I got to thinking, “what is business value and how does one measure value creation?” after reading a really interesting blog recently from my colleague, Nico Kohler, who wrote about the business benefits that might potentially be felt by organization implementing software solutions to address the three lines of defense. Nico cited benefits as residing in “accountability, oversight, and assurance,” including positive impacts in terms of an early recognition of emerging risks and opportunities, more intelligent risk responses, an end to reputation loss, as well as better use of risk and assurance resources. And of course, the value creation potential in this model goes further than the usual assessment of point-software solutions, because it crosses business process boundaries. So it is even more complex to determine value when you are implementing integrated solutions across multiple silos.
It’s clear from Nico’s thoughts that business value isn’t just about building an ROI business case, which is a performance measure used to evaluate the efficiency of an investment relative to the investment’s cost. It is important, but it’s just one factor of many that one must consider when evaluating overall business value creation.
For clarity, I’m using the term “business value” in a way that’s intended to convey value creation benefits to a business, rather than the worth of a business (which is an equally valid use of the term). And the value creation potential open to businesses is not limited to financial impacts, but rather, I think, should also include other aspects relating to efficiencies, productivity, management, partnerships, culture, customer satisfaction, and employee well-being.
Where is value felt?
If you have read or seen customer stories about software use, such as this excellent video of Honeywell or this case study about Exxaro, you’ll notice that generally, organizations don’t focus, or aren’t willing to share the financial metrics about software use. They are more likely to focus on less easily quantified, but no less important benefits. For example, they’ll assess efficiencies, reductions in manual processes and errors (i.e., greater accuracy), a better experience for employees, speedier responses to customer enquiries, and better, more quickly available reporting for management to support informed decisions.
None of these perceived benefits typically mention a financial aspect. But by and large, if you consider each area of value creation, you’ll be able to uncover an underlying, implied, but often un-evaluated financial value. For example, removing manual activities (and costs associated) is an obvious one, but what about the consequential error reduction that eradication of manual processes enables? In most cases, errors lead to issues that need to be resolved, or goods that need to be returned, or some other similar impact. By reducing errors through automation, you can effectively eliminate areas of cost that arise as a result of errors. Hard to quantify, but definitely there.
I’m not suggesting that you now run off and try to quantify these areas of value creation. Just keep in mind that they exist. Factor these into your software evaluation, and determine what’s important for you and your business. Of course, what I’ve suggested isn’t a finite list; it’s up to you to determine what areas for value creation exist within your own business, and then consider how software might be used to help you unlock such value.
And “what about experience, intuition, and gut feel?” I hear you cry. Of course, use these, too, but ensure that such inputs are grounded by solid logic, and supported by some evidence through evaluation of value creation.
Thinking back to the three lines of defense benefits discussed by Nico, there are some clear areas of value creation that risk, audit, and compliance officers might consider as a starting point. There are also some great tools provided by software vendors, like these value calculators, which help to provide a guide to the potential for value creation, too. Such tools are a superb way to provide a compass to give an indication that you’re heading in the right direction. And while they may not have been built for you specifically, there’s an underpinning of sound logic, supported by benchmarking data that lends credibility to the results.
Unlock your hidden value!
My advice: You’re the expert on your business, and you know what makes your business tick. You know what you are good at and what you might do better. Use value calculators to help in your evaluation, read customer success stories, and review vendor materials. These can be a good guide to where potential value might reside. However, pursue your own review also and work closely with your software vendor to build a strong business case, based on your unique circumstances and needs. And after making your decisions and implementing software, don’t be afraid to go back and evaluate your success against the benchmark data – you may be pleasantly surprised by the results!
Let me know what you think, and what you’ve experienced. I’m a casual observer with some ideas based on what I’ve seen, but there are bound to be experts out there. I am interested in hearing your views and comments on how you’ve experienced business value creation through the use of software systems. I look forward to hearing from you.
To learn more about how finance executives can take a more strategic approach to governance, risk, and compliance (GRC), read the report: Adopt Three Lines of Defense Technology To Manage Governance, Risk and Compliance.