Seven Steps That Drive Decision-Making Investments
What is the value of becoming a little, or a lot, smarter?
by David Landry, July 2010
Is there value in becoming a little, or a lot, smarter? Can this be quantified? These are questions I wrestled with when deciding whether to pursue my MBA at Stanford over a decade ago, and the same questions the Oracle Insight team regularly helps customers quantify.
To add additional, direct customer metrics to business cases, in the fall of 2009, Oracle conducted the BI/EPM Innovation Awards survey. The objective of this research was to better understand the drivers behind, and benefits achieved from, investments in decision-making technology. Bolstering a structured approach to business case development with these findings and metrics can assist companies in credibly quantifying the financial impact of becoming ”smarter.”
Survey Highlights More than 100 companies responded, representing multiple industries, geographies, ERP and BI systems, and Oracle User Group Affiliation.
Nearly 30 industries were represented, with no industry comprising more than 12 percent of the population
Over 40 percent of respondents used a non-Oracle ERP
More than half of respondents also had competing BI/EPM solutions installed
More than half of respondents were not a part of any Oracle User Group
Not surprisingly, respondents cited the top two business drivers for decision-making investments as:
1. Improved visibility and access to information to analyze and forecast the business.
2. Lack of KPIs/data/consolidated view of business to make informed business decisions.
Most large vendor sales and marketing materials highlight the importance of pre-built integration with that same vendor’s transactional systems (e.g., ERP, CRM, SCM). This is clearly a key benefit of Oracle’s complete and integrated solution. However, it was not among the top cited reasons for selecting Oracle. The top reasons were:
1. Best-in-class functionality
2. Ability to integrate with any data source
Productivity Benefits The potential competitive advantage of faster, smarter decision-making is both intuitive and well-publicized. A core tenet of the value proposition for decision-making technology investments is the ability to shift employee time from collecting information to analyzing it — reversing the proverbial 80/20 or 70/30 rule. The survey respondents cited the following benefits:
More than 90 percent of companies reduced time developing reports, with an average reduction of more than 65 percent
Over 85 percent of companies that leverage pre-built BI/EPM applications reduced costs through pre-built reports, with an average time savings of more than 55 percent
Building A Rock-Solid Business Case Productivity and system consolidation savings are typically enough to make investments in decision-making technologies cashflow positive in less than eighteen months. However, the real power and ROI from these investments comes from their impact on growing revenues and decreasing costs. For example,
Revenue benefits from improved segmentation include enhanced customer or partner acquisition, retention, and expansion
Cost reductions through productivity improvements, technology consolidation, improved supply chain efficiencies, and improved financial management
While it is important to calculate the benefits of improved decision-making, leading companies also look at the option value of the improved capabilities — specifically, the architectural flexibility and agility these capabilities provide — to maximize benefits as business conditions and processes evolve.
Here are seven steps that leading companies utilize to quantify the impact of improved decision-making.
1. Align initiative to key objectives or business challenges
2. Clearly articulate or paint the strategic vision
3. Describe how the solution directly supports the objectives and/or surmounts the challenges
4. Highlight metrics and benchmarks that are specific to the solution’s benefit drivers
5. Build straightforward financial models for each benefit area
a. Ensure 100 percent transparency to all assumptions and calculations
b. Validate simple models with stakeholders
6. Secure sponsors / champions who will stand behind the analysis
7. Deliver summary impact in the language your executives need to see (ROI, IRR, NPV, TCO, Payback, DCF, etc.)
So, what is the value of becoming a little, or a lot, smarter? It depends on how confident the sponsors are in their ability to realize the full potential of the people, process, and technology changes of improved decision-making. In the most conservative case, the value is realized through productivity savings alone. To return to the MBA analogy, this is much like the way an MBA student achieves knowledge from studying strategy, accounting, human resources, and entrepreneurship. In reality, the benefits of improved decision-making are much greater as they augment revenue generation and cost savings initiatives — much like an MBA student expands his network and refines his effectiveness through interacting with highly talented professors, practicioners, and students.
Independent of industry, geography, company size, or business function, improved decision-making can provide companies with a strategic advantage and compelling return on investment.