Understanding Key Principles of Business Value

Enterprises are met with many priorities vying for attention, ranging from external pressures to pull ahead of the competition, to internal pressures to innovate for greater efficiency and productivity.

This can make it hard to prioritize what should get done first and how to make sense of what will drive the most return on investment.

A key consideration in these decisions is the often used, but often vaguely defined term “business value.” Depending on your organization, you may calculate it very differently.

In this article, I’m going to discuss a framework that any organization can use in order to define “business value” that can be applied to the important work of prioritizing your initiatives.

Benefit to Business

The first category we will discuss in our review of how to calculate business value is the benefit to the business itself. By this, we mean the financial, operational and strategic importance that the initiative will play in running and improving the performance of the enterprise.

There are two ways that we can look at benefits to the business: tangible and intangible benefits. Let’s explore each briefly.

1. Tangible

This subcategory of business benefits refers to the things that you can observe, touch or use metrics to measure.

Tangible benefits to business include growth (or loss) in revenue, return on investment (ROI), total cost of ownership (TCO), change in market share, time to market, increases in efficiencies, and more. All of these can be quantified and attributed to the effort in question.

The good part of tangible business benefits is that they are often relatively easy to measure and tie to a value that can be compared and contrasted in a prioritization exercise.

2. Intangible

This next subcategory of business benefits includes items that are more difficult to quantitatively tie to a direct return on investment, but are still critical to success of the organization.

Intangible benefits include things like brand reputation, product reliability and safety, customer and/or employee satisfaction, regulatory compliance, or other items.

The challenge with intangible business benefits is that it is not only more difficult to assign a quantifiable value with them. That said, these measures can be extremely beneficial to improve.

Related Article: The Do or Die of Customer Experience ROI

Benefit to Customer

The next category of business value to consider is the benefit that an initiative provides to the end customer. While there are many ways to measure this, I recommend looking at three main subcategories here, which we’ll each discuss in turn.

1. Customer Engagement or Satisfaction

There are a variety of metrics that companies use to measure customer engagement, satisfaction, or similar things.

These can include Net Promoter Score (NPS), Customer Satisfaction (CSAT), Customer Effort Score (CES), or others. Many times, different parts of the business are measuring several if not all of these for different reasons.

Regardless of the exact measures you use, a good way to prioritize your initiatives is by the estimated impact that it will have on their engagement or satisfaction. These are likely to drive repeat purchases, recommendations and cross-purchasing behavior.

2. Customer Education

The second subcategory is a measurement of whether the initiative will create a more educated customer about the challenges your product or service addresses.

The premise here is that a more educated customer is one that is likely to continue using the product, and ultimately be more satisfied, likely to recommend others and upgrade services. Prioritizing efforts that create a more educated customer is thus an important consideration to make.

3. Product or Service Adoption

The last subcategory of benefit to customer is a measure of whether the initiative will generate greater adoption of the product or service it is intended to promote. The assumption here is that greater adoption will provide more revenue, greater word of mouth and more opportunities to cross-sell other products and services.

By looking at these three facets of the benefit to the customer that your initiative offers, you will be able to better prioritize its importance.

Related Article: Applying 2 Years of Customer Experience Lessons for 2022

Resource Utilization

The last category we’ll discuss deals with a more direct financial component, including hard costs and fees. This is the cost to both produce and implement the initiative as well as to measure the results in order to determine the best path forward.

Many times, you will need to prioritize a pilot project or first iteration of an initiative, and this cost and measurement estimation will be critical in helping you make your decisions. We can look at this category or business value in another two subcategories, which we’ll discuss now.

1. Internal Resources

The first subcategory are your internal resources, which include your employees and contractors that are part of the core team. In addition to costs, such as salaries, you should also take into account their hourly utilization and the cost of having them focus on your new initiative in addition to any existing roles and responsibilities.

2. External Resources

This last category includes both external consulting firms or other companies, as well as fees for platforms and systems. Essentially, anything that is not your internal human resources, and that has a hard cost associated with them.

Getting to Foundation of Business Value

As you can see, determining business value of a proposed change or initiative requires taking many factors into consideration, from the customer benefit, to the business benefits, to the hard costs associated with implementing it. Understanding these factors and creating a meaningful way they weigh into your prioritization of such efforts is the next step after being able to calculate and agree on business value.