Do you want to become an expert in making a benefits case? Well meet my daughters they are the archangels of this activity – it is incredible the depth of insight, logic and ability to build a bullet proof benefit case for a new purchase that they are desperate for! I have to confess the same capability when it comes to convincing the family of my latest addition to Ferguson Farm. However, do the benefits and business case get realised? The answer is no! The same is also true in many organisations in which I have both worked and consulted.
We have often debated both with our clients and in the pages of various ‘sense from sensei’ articles, on how the pace of change continues to expand rapidly. The implication for organisations, as I wrote a couple of months ago, is that they have to deliver organisation change more frequently and more effectively.
To what end does an organisation embark on a potentially difficult, distracting and costly (time and money) project, programme or initiative? Of course, to deliver benefit to the business! Sometimes that benefit is clearly articulated, for example a cost reduction programme with a defined headcount reduction; in other circumstances it can be tougher to articulate, such as the impact and implications of a new ERP system or Performance Management process. Either way, most organisations today demand a ‘business case’ which, with varying degrees of rigor, requires a sponsor to define a cost-benefit case which ensures that the Return on Investment (ROI) is acceptable.
So far so good? I am sure that we have all been there; scratching around looking for all the benefits we can muster in order to offset the heavy resource and/or financial cost of the exciting and cunning initiative that we are hatching. When you want to instil creativity in a person or group of people, get them to justify something they passionately believe in or that they want. A group of people passionate about resolving a particular issue or pursuing a promising opportunity can do a great job of building a benefits case that is so compelling that despite the rigors of the governance process, the green light is frequently received. It is common for a Portfolio Management process to highlight committed costs and benefits; but it is disconcerting how, in many cases, this activity leads nowhere. Even in large multinational corporations apocryphal tales abound of million pound projects being commissioned, managed to time and budget and even quality, but failing to deliver the benefits originally outlined. There are many studies and reports defining the scary statistics attributable to failed benefits realisation. An IBM study in 2009 that focused on restructuring suggests that:
Only 46% of businesses realised the benefits they set out to achieve in terms of cost reduction and quality improvement.
Only 25% of organisations effectively promoted the realisation of target benefits; and
50% of Senior Managers questioned believed that the business failed to deliver what it set out to in terms of benefits
A recent McKinsey study suggests that:
58% of companies embarking on a change initiative failed to realise the benefit targets set; and
20% of these companies only managed to realise a third of the benefits they set out to achieve.
This research is validated by several conversations I have had with client organisations.
So why is this seemingly simple concept, ‘make sure you deliver what you promise’, so hard to achieve in many organisations. Part of the answer lies in the lack of change capability but I believe that there are also a number of specific challenges many organisations are unable to effectively address.
Accountability and ownership is not tied down at the outset – in many cases a sponsor brings a new initiative or programme to the organisation, the person defining the benefit case is rarely the individual who can deliver those benefits. Let’s take a good example, a process re-engineering project; the benefits case is clearly defined. For the sake of simplicity let us argue that a 20% improvement in efficiency can be achieved through the application of a ‘Lean’ initiative, the subsequent benefit case reflects a 20% headcount reduction. Simple but effective logic that I have seen exercised on many occasions. But consider this, who owns the benefit delivery? Not the person in charge of the lean initiative, but the person that owns of the headcount. If they chose not to release 20% of the people then the benefit case will be compromised.
A time lag in delivery driven by a focus on getting business case approval rather than delivering the benefit case. Because most organisations have reward and recognition programmes centered on the short term (or at least annual) basis there is a natural tendency to focus on rewarding and monitoring the activity that happens in the performance review cycle. Often benefits are not realised for several years after, the inception of a programme, and sometimes, even the completion of a programme. Leadership teams therefore miss driving their efforts to a successful conclusion, roles change, Senior Managers move on and the benefit delivery becomes increasingly unclear.
Organisations focus on ‘benefits’ and fail to deliver ‘value’ – I believe that there is a missed trick here. If you take the dictionary definitions as a starting point:
Benefit = “advantageous or good”
Value = “relative worth, merit or importance”
Now, what would you rather have something that is ‘good’ or something that has ‘worth’? Perhaps this is an exercise in semantics, but I firmly believe that if organisations spent the time defining benefits in terms of the Tangible, Intangible and Peripheral value derived it would add a potency and sharpness to the mix!
So if these are some of the key challenges, how or what should or could they focus on to improve their track record and ensure change leads to real value:
1. Precise and accurate baseline of the benefits defined in terms of current and future value the organisation will derive. This baseline should be clear and agreed with all key stakeholders at the inception of the initiative or programme.
2. Identify, engage and enroll the right owners for the benefit delivery, wherever they sit in the organisation – formally ensure that owners ’sign up’ quite literally to the benefits they are accountable for and crystallise these in to their objectives, targets and goals.
3. Build a robust benefits realisation plan with concrete actions, timescales and owners – it sounds so simple but very rarely gets done well. This is project planning with benefits as formal deliverables rather than activity in isolation.
4. Excellent execution – goes without saying, but the same rigor should be brought to bear on the benefits realisation plan as on the project / programme plan. Ideally benefits realisation should be a work-stream in its own right!
5. Effectively managing the change – if the organisation is ’done to ‘the value and benefits derived will be significantly lower than if they are ’engaged and committed’.
On reflection and for final consideration, each programme or initiative failing to deliver to expectations in your organisation is likely to make it even more difficult to get approval for a subsequent one. An important risk to consider is that the next one might just be the one that will make the real difference!
Richard Ferguson, May 2012