Tag Archives: return on investment

How to Make IT Efforts Strategic

Has your IT come out of the proverbial and actual basement to be an integral part of your business strategy? Too often, business leaders assign IT a task and expect an initiative to be delivered. End of story. The truth is, business owners must engage and own the outcomes of their IT investments, driving them to a strategic value that can be measured.

What is IT strategy? Think about any infrastructure initiative (building highways, public transportation or urban development). Without the requisite strategic investment of time, funding and planning, these initiatives face delays, cost overruns, diversion from desired strategy and failure. True partnerships between IT and business operations insure that the best thinking of both can be applied to a given situation to produce strategic results.

See Also: The 7 Colors of Digital Innovation

Business value

IT should be viewed as a business strategy. Today, not a single discussion in the workers’ compensation industry relating to claims management or medical management does not include IT. As workers’ comp focuses on outcomes (both cost and quality), it is the only new strategy around. Moreover, it is the most effective and efficient strategy to achieve business goals. The following six elements are necessary to generate business value by leveraging the IT strategy. 

1.    Define the project—Describing how new technology or a new data application will function is only the first step in integrating IT into the business strategy. However, defining the project can be tricky. Remember, IT professionals talk a different language and appreciate different measures of success than those involved in operations. Business owners cannot assume their IT requests are understood as they were intended. Even slight misinterpretations of requests can result in frustration, cost overrides and a useless tool.

I recall one time, early in my career, when I submitted specifications for a development project. I used the word “revolutionary” to describe the powerful impact it would have on the business. However, the IT person, who was younger and male, interpreted “revolutionary” in an aggressive, military sense, which was not even close to what I had in mind. Always verify that you have an understanding and clarify of all elements of the IT project. 

2.    Design for simplicity—If the IT project outcome is complicated or requires too many steps, people will not use it.

3.    Define the expected business value—As a part of defining the IT project, define its expected business value. Both the business unit involved and the IT team need to align their expected outcomes. Not unlike evaluating ROI (return on investment), identify the financial investment and rewards of the IT project. Make sure to also describe the anticipated collateral outcomes of the IT project, such as PR, business growth or client involvement. Figure out how to measure the expected business outcomes when the project is complete.

Design the project outcome value measures at the beginning. Too often, business leaders do not articulate their expectations of value and, therefore, can never prove them. If you do not know where you are going, you could end up somewhere else.

4.    Commit resources—Funding and other resources such as personnel should be allocated at the beginning; short-shrifting resources will guarantee less-than-satisfactory results. Know from the beginning how the IT project will be implemented and who will do and be responsible for the work. Establish accountabilities and create procedures for follow-up.

5.    Monitor progress—Continuously monitor and manage the project, even throughout the IT development process. Discovering deviations from the plan early on minimizes damage and rework. Obviously, rework means cost and delay.

6.    Measure value—Once the project is accepted and implemented, begin continuous outcome evaluation. Execute the value measures outlined at the beginning. Make the necessary adjustments and keep your eye on the business value.

Not everyone can be an IT expert, but everyone can become an expert in how IT advances the strategies of their domain.

Better Way to Think About Leadership

In “Colin’s Kaizen Corner”–a 26-part learning series, I explain the principles of kaizen, lean manufacturing and respect for people — each a cornerstone for transforming a culture, improving productivity and implementing a continuous improvement program.

In addition, each week I’ll digest a principle of kaizen to achieve these outcomes, explain what we’re doing today, what happens when we get it wrong, what happens when we do it better and why it matters today more than ever, to stay on a continuous journey of improvement.

The value of a new corporate improvement or strategic acquisition is easily estimated for most investors. Calculating future anticipated cash flows, measured over a specific period in today’s dollars, yields the improvement’s net present value.

But leadership isn’t so easily measured, nor is the future value that an effective or ineffective leader begets.

Sure, tools like return on investment (ROI) and earnings before interest and taxes (EBIT) help us measure whether executives are investing money wisely to maximize dollars that may sustain the future of the company. But the tools are based solely on what we know, not what we don’t. Of course, there’s no way to value something you don’t know exists; that is, until someone discovers it does.

Valuing human productivity and the intrinsic satisfaction employees receive from being able to do their jobs well doesn’t show up anywhere on even the most complex of income statements. Neither does the value created or destroyed from a lifetime of leaders who either nurtured man’s most important attributes, or ruined them altogether.

The problem is that ROI, EBIT and similar tools do nothing to help place a value on, and encourage, man’s discovery of the unknown. To identify and fix that which isn’t broken. To look outside the box.

It is this intrinsic curiosity-our yearning for learning-that makes us unique within the mammalian class. We aren’t just members of a “clade of endothermic amniotes distinguished from reptiles and birds by the possession of hair, three middle ear bones, mammary glands and a neocortex” (as Wikipedia defines mammals). Nor do we just survive on instinct as other mammals do.

We’re provided with daily opportunities to detect and correct errors in our thinking. Our intrinsic yearning for learning constantly encourages us to explore that which we think we understand.

Man has the choice to continuously improve upon his own knowledge base, or demand that others accept pre-determined answers-a radical difference in leadership style between those who lead by kaizen and those who lead by control.

Like scientific discovery, effective leadership creates for the curious a culturally acceptable and true belief in the ignorance of experts.

But man’s creativity and curiosity still don’t show up as direct value or loss through the eyes of a customer. And they’re certainly not measurable; that is, without the proper tools.

And that’s why ROI and EBIT — the preferred tools for modern investing and modern valuation — are precisely the wrong tools for measuring human productivity, the value of an acquisition and the value of a business itself.

For if human capacity is assumed to be x, and man’s true capacity is actually y, without regular corporate and personal discovery neither man nor machine gets its best chance at material improvement.

Using ROI and EBIT, we’ve created a culture of mind-numbed business robots. Really smart children, teenagers and adults, being robbed of their intrinsic motivation because of diminishing human valuations. It’s as if they were rusting old farm equipment, with just a few years of straight line depreciation left on an otherwise highly appreciable asset.

Nothing could be further from the truth. People have exponential value.

Years of poor parenting, leadership, primary education systems and business school professors have finally brought our chickens home to roost. In fact, as Dr. W. Edwards Deming said nearly 50 years ago, if the U.S. wanted to destroy a country, then all it had to do was export its business management and leadership practices.

Today, we know the enemy even better, and it is still us.

An enemy where large lots of wasteful activities exist, yet few executives are visible to help employees improve; an enemy where waste prevents employees from doing their jobs with purpose, joy, accuracy and speed.

Sadly, more executives today than ever before are searching for value within a spreadsheet or income statement. We fail one another when we refuse to look for loss at the precise location where value is created and where crimes of waste are most frequently reported.

To create a better opportunity for human development and true personal productivity, let’s turn to respect. Because respect leads productivity by a long shot as the single most important aspect of man’s institutional existence.

Let’s provide an institutional daily dose of improvement that is eloquently simple: Continuously help me change, and always help me make it for the better. Because good change nurtures and replenishes my mind, heart, body and soul‘s constant need for continuous improvement.

By appreciating systems thinking and human psychology-only two parts of a four-part system, but integral components nonetheless-we can easily find opportunities for mankind to improve.

An entirely new system, which identifies what value means to customers rather than stakeholders, can easily bring about a different culture. A culture that even our most seasoned leaders currently don’t believe in, currently can’t measure and clearly don’t currently understand. A culture that should be helping everyone improve that which we cannot see or measure.

2015 ROI Survey on Customer Experience

Six years ago, we launched the Customer Experience ROI Study in response to a sad but true reality: Many business leaders pay lip service to the concept of customer experience – publicly affirming its importance, but privately skeptical of its value.

We wondered… how could one illustrate the influence of a great customer experience, in a language that every business leader could understand and appreciate?

And so the Customer Experience ROI Study was born, depicting the impact of good and bad customer experiences, using the universal business “language” of stock market value.

It’s become one of the most widely cited analyses of its kind and has proven to be an effective tool for opening people’s eyes to the competitive advantage accorded by a great customer experience.

This year’s study provides the strongest support yet for why every company – public or private, large or small – should make differentiating their customer experience a top priority.

Thank you for the interest in our study. I wish you the best as you work to turn more of your customers into raving fans.

THE CHALLENGE

What’s a great, differentiated customer experience really worth to a company?

It’s a question that seems to vex lots of executives, many of whom publicly tout their commitment to the customer, but then are reluctant to invest in customer experience improvements.

As a result, companies continue to subject their customers to complicated sales processes, cluttered websites, dizzying 800-line menus, long wait times, incompetent service, unintelligible correspondence and products that are just plain difficult to use.

To help business leaders understand the overarching influence of a great customer experience (as well as a poor one), we sought to elevate the dialogue.

That meant getting executives to focus, at least for a moment, not on the cost/benefit of specific customer experience initiatives but, rather, on the macro impact of an effective customer experience strategy.

We accomplished this by studying the cumulative total stock returns for two model portfolios – composed of the Top 10 (“Leaders”) and Bottom 10 (“Laggards”) publicly traded companies in Forrester Research’s annual Customer Experience Index rankings.

As the following vividly illustrates, the results of our latest analysis (covering eight years of stock performance) are quite compelling:

THE RESULTS

8-Year Stock Performance of Customer Experience Leaders vs. Laggards vs. S&P 500 (2007-2014)

graph

Comparison is based on performance of equally weighted, annually readjusted stock portfolios of Customer Experience Leaders and Laggards relative to the S&P 500 Index.

Leaders outperformed the broader market, generating a total return that was 35 points higher than the S&P 500 Index.

Laggards trailed far behind, posting a total return that was 45 points lower than that of the broader market.

THE OPPORTUNITY

It’s worth reiterating that this analysis reflects nearly a decade of performance results, spanning an entire economic cycle, from the pre-recession market peak in 2007 to the post-recession recovery that continues today.

It is, quite simply, a striking reminder of how a great customer experience is rewarded over the long term, by customers and investors alike.

The Leaders in this study are enjoying the many benefits accorded by a positive, memorable customer experience:

  • Higher revenues – because of better retention, less price sensitivity, greater wallet share and positive word of mouth.
  •  Lower expenses – because of reduced acquisition costs, fewer complaints and the less intense service requirements of happy, loyal customers.

In contrast, the Laggards’ performance is being weighed down by just the opposite – a poor experience that stokes customer frustration, increases attrition, generates negative word of mouth and drives up operating expenses.

The competitive opportunity implied by this study is compelling, because the reality today is that many sources of competitive differentiation can be fleeting. Product innovations can be mimicked, technology advances can be copied and cost leadership is difficult to achieve let alone sustain.

But a great customer experience, and the internal ecosystem supporting it, can deliver tremendous strategic and economic value to a business, in a way that’s difficult for competitors to replicate.

LEARN FROM THE LEADERS

How do these Customer Experience Leading firms create such positive, memorable impressions on the people they serve? It doesn’t happen by accident. They all embrace some basic tenets when shaping their brand experience – principles that can very likely be applied to your own organization:

  1. They aim for more than customer satisfaction. Satisfied customers defect all the time. And customers who are merely satisfied are far less likely to drive business growth through referrals, repeat purchases and reduced price sensitivity. Maximizing the return on customer experience investments requires shaping interactions that cultivate loyalty, not just satisfaction.
  2. They nail the basics, and then deliver pleasant surprises. To achieve customer experience excellence, these companies execute on the basics exceptionally well, minimizing common customer frustrations and annoyances. They then follow that with a focus on “nice to have” elements and other pleasant surprises that further distinguish the experience.
  3. They understand that great experiences are intentional and emotional. The Leading companies leave nothing to chance. They understand the universe of touchpoints that compose their customer experience, and they manage each of them very intentionally – choreographing the interaction so it not only addresses customers’ rational expectations, but also stirs their emotions in a positive way.
  4. They shape customer impressions through cognitive science. The Leading companies manage both the reality and the perception of their customer experience. They understand how the human mind interprets experiences and forms memories, and they use that knowledge of cognitive science to create more positive and loyalty-enhancing customer impressions.
  5. They recognize the link between the customer and employee experience. Happy, engaged employees help create happy, loyal customers (who, in turn, create more happy, engaged employees!). The value of this virtuous cycle cannot be overstated, and it’s why the most successful companies address both the customer and the employee sides of this equation.

To download a copy of the complete Watermark Consulting 2015 Customer Experience ROI Study, please click here.

To Hellness With Wellness

It seems the only people made “well” from corporate wellness programs are those who collect $6 billion in annual costs. Still, all is not lost. If we use the most basic workings of human nature as a guide we can salvage a more reasonable realm for the notion of employer-sponsored “wellness.”

Corporate wellness is seriously flawed on the grand scale it once proclaimed. Here are four reasons why, in my opinion:

First: Wellness costs too much and thereby sets a high threshold for return on investment (ROI), which begs failure by any score based on savings. Let’s say you have a 500-person workforce. After a couple of years of “wellness,” 10 smokers legitimately quit for life, and five obese employees legitimately get to normal BMI and sustain it. For these individuals, the wellness program is an amazing success with great implications for future health. Unfortunately, with the average cost per employee in corporate wellness programs at more than $500 per year, two years costs more than $500,000, and a calculation of ROI depicts an abysmal failure.

Second: The profit motive of wellness purveyors supersedes common sense. Their sweeping approach provides incentives for assessments to identify candidates at risk and assumes that simple potential indicators of unhealthy lifestyle or other conditions create a savings opportunity. This is absolutely false. One fact is missing. Of the persons targeted, only a precious few are at a personal decision point and have the will to actually attempt difficult lifestyle changes.

Targeting must take human nature into account. We can properly diminish the presumed footprint of wellness if we look back and study individuals with actual historic success. Let us understand what indicators of personal human attitude that handful of successes gives us to use as a second-step screen. How much easier is it to realize ROI when only spending $500 per head on a smaller number of likely candidates?

Third: There is an absurd, blind thirst in both the private and public sectors to find believable reductions in projected future healthcare costs. The hype of wellness is perfectly suited to quench this thirst. Unfortunately, the absurdity is legitimized by governmental acceptance of the fool’s gold of claimed lower healthcare costs to gain leverage in negotiating state-worker union contracts, rigging budgets and passing federal legislation. (Can you spell ACA?) The term “fool’s gold” has the word “fool” in it for a reason.

Fourth: The wellness industry ignores lessons that should be learned from success in its sub-area of  disease management — specifically, that human nature feels no call to action until mortality comes knocking. Disease management savings can be documented in examples like the PepsiCo program called Healthy Living, initiated in 2003 and providing real savings today. Why does disease management work? In my opinion: People with a disease feel their mortality and are inclined to follow any program that might help.

Disease management supports a population with more personal incentive and will. Conversely, the debunked lifestyle approach targets an abundance of people who are personally happy while smoking or overeating. Fewer are suffering the acute implications of their lifestyle. “Wellness” money spent on them is useless.

Quick Tip: Trade “Big Wellness” for disease management with limited lifestyle programs

Don’t throw the baby out with the bathwater. There are many people who need and will accept disease management. As far as lifestyle, there are but a few people ready to commit to change. The good news is that over time, and organically with no cost, these few might spark an interest by others in any employer population. Keep the doors open for them and keep awareness high. In the meantime, don’t waste real money or use gimmicks on them.

I suggest wellness vendors create a new approach that unlocks the psychology of raw lifestyle change, targets the few and is willing to take on smaller footprints. Accept less money but stay for the longer haul.

You owe it to the tarnished notion of “wellness” to fix what you broke.

3-Point Plan for an Innovation Portfolio

One lament I often hear when I advise large company executives on the need to “Think Big” is that their biggest innovation challenge is not thinking big—it is thinking too much. Purportedly great ideas come from the front lines where the organization interacts with products and customers. They come from technology or marketing wizards keeping a sharp eye on disruptive market trends. They come from executives and board members grappling with questions at the organization’s strategic horizon. The challenge is that organizations are overwhelmed with more ideas than they can sort out, much less pursue. Perhaps the best advice on how to deal with the challenge of too many ideas comes from Peter Drucker, who offered this general principle:

Innovation begins with the analysis of opportunities. The search has to be organized, and must be done on a regular, systematic basis.” Don’t subscribe to romantic theories of innovation that depend on “flashes of genius.”

Rather than relying on randomness or organizational influence to dictate which ideas find a receptive ear, here is a three-point plan for initiating a systematic process for uncovering, assessing and scaling the best ideas. 1. Inventory Opportunities Start by casting a wide net. For example, sponsor a series of innovation contests and workshops to educate, build alignment and uncover potentially good ideas. Hold scenario planning sessions with senior executives and board members to explore both incremental and disruptive future business scenarios. Questions to ask might include:

  • Can you augment your customer interfaces to reveal customer preferences and to customize the customer experience, as Amazon and Netflix do?
  • Are there opportunities to better utilize the big data being generated by your business processes, including customer, operational or performance data, for innovation?
  • How might you reimagine key business, customer, and competitive issues if you could start with a clean sheet of paper?
  • How do the six disruptive technologies affecting other information intensive companies apply to you?
  • What extreme competitive threats, i.e., doomsday scenarios, might new entrants wielding these disruptive technologies pose to your organization?

Opportunities should include both continuous and discontinuous innovations. Continuous innovations offer incremental or faster, better, cheaper-type optimizations, such as shedding costs, reducing cycle times and generating incremental revenue. Discontinuous innovations are those that rise to the level of game-changing potential. 2. Develop a Holistic View Using an Innovation Portfolio Next, assess each opportunity based on competitive impact and investment type using the portfolio analysis framework as shown in Figure 1. Figure 1 Figure 1: Portfolio Analysis Framework Competitive impact measures differentiation against what competitors might deploy by the time an idea is launched. Remember Wayne Gretzky (who famously said he skates to where the puck is going, not to where it is)! A key mistake is evaluating an idea against one’s current internal capabilities, as opposed to where the competition is going. This dimension forces an explicit calculation of an idea’s future potential competitive impact. Investments can be one of three types:

  • Stay in Business investments (SIB) are for basic infrastructure or non-discretionary government mandates. SIB investments should be assessed on how adequately they meet regulatory or technical requirements while minimizing risk and cost.
  • Return on Investment opportunities (ROI) are pursued for predictable, near-term financial returns. Standard measures, such as net present value (NPV), return on equity (ROE) or other well-understood metrics are applicable here.
  • Option-Creating Investments (OCI) are pursued to create business options that might yield killer-app-type opportunities in the future. OCI investments do not yield financial returns directly.  Instead, they build capabilities and learnings that can be translated into future ROI opportunities. Like financial options, OCIs should exhibit high risk and offer tremendously high returns.

After arraying opportunities in the framework, eliminate those that fall outside of acceptable boundaries. For example, companies should not pursue opportunities that, once completed, are already at a disadvantage against the competition. For the remaining opportunities, develop an initial sizing of investment levels and potential benefits according to each investment category. Filter as appropriate. For example, eliminate ROI opportunities that do not meet standard corporate hurdles rates. Eliminate OCI opportunities that do not exhibit extraordinary option value. Eliminate SIB ideas that do not adequately minimize cost and risk—be very skeptical of SIB opportunities aimed at providing ROI or OCI benefits. Such opportunities should be judged directly as those investments types.  Figure 2 illustrates how the analysis might look at the end of this stage. Figure 2 Figure 2: Portfolio Analysis Results 3. Balance the Innovation Portfolio In personal investment portfolios, it is important to not place all hopes in one or two investments. The same is true for corporate innovation portfolios. To ensure competitiveness in the near term and in the future, they should include a mix of incremental and disruptive innovations. The right balance and prioritization depends on a company’s investment capabilities and competitive circumstances. For example, as shown in Figure 3, a market leader might field a portfolio geared toward aggressive growth by enhancing its infrastructure, investing heavily in near-term profitable opportunities and developing a small number of killer app options for sustaining its competitive advantage.  (My experience is that the right number of such options is on the low end of the magic 7, plus or minus two. That is because the limiting factor is senior executive attention, which is very limited, not investment dollars. Market leaders have lots of money to waste, but no project with true killer app potential can succeed without significant senior executive attention.) Figure 3 Figure 3: A Market Leader’s Balanced Portfolio Other illustrative portfolio profiles are shown in Figure 4. Commodity businesses tend to minimize SIB and OCI investments. Companies that are retooling might emphasize infrastructure and near-term investments and make only minimal investments in future options. Underperforming companies tend to invest in programs that barely achieve competitive parity, or worse, and do little to prepare for the future in any of the three investment categories. Figure 4 Figure 4: Illustrative Portfolio Profiles

* * *

By adopting appropriate financial and competitive metrics and measures for each type of investment, companies avoid planning theatrics where guesses are disguised as rigorous forecasts. This can happen, for example, when infrastructure and other SIB investments are required to demonstrate explicit returns on investment. Or, it can happen when advocates of OCI efforts are required to calculate net present value of very uncertain long-term initiatives. Such forecasts can, of course, be made by  savvy proponents. But the analyses are better testaments to rhetorical and spreadsheet skills than certainties about the future. At the end of this three-step process, companies should have a prioritized and staged investment plan that represents a coordinated enterprise innovation strategy and follows the think big, start small and learn fast innovation road map. Achieving an adequate understanding of the entire landscape of possibilities facilitates and encourages thinking big. Continuing management of the innovation portfolio provides clear criteria for evaluating other big ideas as they come up. It also demands the discipline of starting small and learning fast in the pursuit of disruptive innovations that will shape the company’s future strategic prospects.