What are business benefits and value?

By | November 22, 2013
This entry is part 10 of 31 in the series Defining words

Ironically, the most common request I get from business people nowadays is to explain the business benefits and/or value of some course of action that we are proposing.

In the past, business leaders wanted to accomplish some goal for good reason and we were asked to propose a way to do it. They knew the benefits already and had a sense for the expected value.

Now, business leaders are asking technology experts for ideas on how best to compete. The line between business capabilities and technology enablers is blurring. I am not just referring to products such as Blogsy, where the technology is the product. In financial services, from the customer’s perspective, the mobile app is becoming indistinguishable from the bank. Instead of solving a well-defined problem we are trying to figure out how to make customers more loyal or something like that and the technology is the primary knob to tweak.

When an IT or transformation team sells business stakeholders on solutions, projects, and initiatives they are selling products and services to meet business needs and wants that are derived from the ultimate consumers’ needs and wants. This is true even for corporate banking, just more indirectly.

The value to the business stakeholders is a function of the expected benefits to the business (derived from benefits to the ultimate consumer) and are calculated based upon the present value of the resulting future cash flows.

For example, lifetime customer value is calculated as the present value of future revenues from a customer and depends on customer loyalty. In banking, a 5% increase in customer loyalty lifts lifetime profits from that customer by 85%. This is because of high customer acquisition costs such as advertising, on-boarding, and financial inducement (a lower price or special promotional deal) required to get customers to switch banks or choose one bank over another for a particular product.

So the business benefit expected is the 5% increase in customer loyalty. The business value is the present value of the changes to future revenues and costs.

How to make customers more loyal is another matter.

Series Navigation<< What is Strategic Design?What is DevOps? >>