Monthly Archives: March 2014

Using Business Cases to Champion New Ideas and Advocate Business Growth

Despite clear business-growth objectives, managers often have to make decisions on projects with uncertain out-comes, which can result in failed initiatives, missed goals, and overrunning costs. In this article Wolfgang Messner, author of the book Making the Compelling Business Case, out-lines how a business case can be used as a tool, document, and process to build consensus among stakeholders and give decision-makers the rationale evidence for the go-ahead.

As a CEO, do you remember the last time your team presented an idea and your initial reaction was “I don’t understand it?” As a business planner, do you remember how your CEO simply brushed over your financial analysis with “I don’t believe it?” These two killer phrases immediately turn down even the best-intended busi-ness case and the ambitious new market-entry approach, the excellent new product, or a brilliant cost savings idea is dead on presentation. But why does the CxO league either not believe or not understand the business cases that their teams have created? Why do we have so many bad business cases out there?

The underlying causes are plentiful. For one, most busi-ness schools teach finance and advanced finance, but not business case methodology. As a result, freshly baked MBAs are confused with the real-world requirements of business case methodology and they struggle to pick and choose the right concepts from their core classes. Unfortunately, this confusion does not stop with young graduates, but ex-tends far into top management layers; business case training is rarely found on the corporate training agenda. Second, many business cases are built by lone corporate warriors on a computer spreadsheet and there is a scarily high neglect in managing stakeholders. Data and context information used for the business case needs to be collected from stakeholders and this input might be inaccurate, incomplete, irrelevant, or even manipulated. After all, it’s the stakeholders’ goal sheets and professional careers which are affected by corporate decisions. It remains a mystery how some corporations still believe that they can drive growth by looking at computer spreadsheets alone; it’s the human network which puts these abstract figures into context.

In corporate decision making, a business case is not only a document delivering a cost–benefit justification for an investment proposition, it is also a process run by a small but energetic project team analysing the company’s strategic objectives, suggesting investments, working out alternatives, identifying and aligning stakeholders during the decision-making process, and determining the worthiness of all the suggestions and alternatives. And while the science of business case methodology is not easy, the art of extracting information from stakeholders and managing their expectations is even more challenging.

The primary objective of an organisation in today’s world is generating and maximising wealth for its owners, share-holders, and stakeholders. Several decades ago it might have been sufficient to be just a little more efficient than the local competitor down the road. But if businesses in today’s glob-al and ever increasing transparent world do not delight with value-for-money products, services exceeding expectations, and continuous innovation, customers will simply evaporate and the firms will ultimately starve to death. Adding tan-gible value to the customer base and generating intangible customer delight thus becomes a new métier that companies need to focus on – in fact, it is the new corporate bottom line. One would think that business leaders would give it some serious thought. But where would they learn this from? Many business books and case studies just recount camp-fire stories about visionaries who thought that they saw the future, made bold decisions, and got it miraculously right. The phenomenal rise of Apple under Steve Jobs or the bold decision by James Burke of Johnson & Johnson to pull all Tylenol capsules off the shelves after the medicine had been deliberately contaminated in 1986 are just two examples of leaders who had this guru-like feel and got it right. At other times, companies get things completely wrong. Microsoft had to pull the plug on the KIN smartphone in 2010 after it sold only some 500 units during its first two months in the market; a product development and marketing investment of $1 billion was wasted. Google Wave was intended to be a web application allowing users to communicate and collabo-rate in real time; but it did not get the user adoption Google had hoped for. And after spending $2.9 billion of tax payers’ money, the upgrading of the US Presidential helicopters was stopped in 2009 and started anew on a clean slate and with a fresh budget. In every organisation, there are many more ex-amples around failed IT investments, marketing campaigns, and product launches which strike even closer to home.

Popular remedies introduced in organisations to counter such investment decision disasters are top management involvement, tighter controls, and team-building measures. While these fixes can certainly reduce failure rates, they will not eliminate unfeasible projects right from the beginning. Instead, investment or project issues are often symptoms of deep rooted decision-making problems that can be traced back to the original business case. Many business case teams do not understand the link to the business issues behind the investment and thus all the calculations are of little meaning, if not invalid and misleading. Consequently, the counter-measures eventually introduced to save a flawed investment cannot turn back time and address the original problem; they might even aggravate the situation and backfire.

Building the Four-Component Business Case

Overcomplicated formula and endless assumptions do not add to business case credibility; instead they turn off senior management. Certainly, a business case needs some mathematics based on the time-value of money principle. Only the net-present value (NPV) method gives the right results; return on investment (ROI), internal rate of return (IRR), and payback period may look easier at first glance, but are seriously flawed in certain conditions. Assumptions need to be documented. But assumptions are also an indicator of uncertainty. The more assumptions there are in a business case, the higher the risk of finding a completely different en-vironment after project implementation – and the original business case does not hold water any more.

In its simplest form, a business case is assembled from four main components:

  •  Costs,
  • Benefits,
  • Risk and uncertainty, and
  • Strategic flexibility options.

Before any investment decision is presented to the decision makers, it is beneficial to have all the facts organised according to these four components. Costs and benefits are the basics of every business case and yet many business case teams get it wrong. Costs are often underestimated, ignored, or – vice versa – the wrong type of costs attributed to the investment. Evasive benefits are exaggerated or the right benefits overlooked. Studying risk and uncertainty associ-ated with a suggested investment and considering its stra-tegic flexibility options for future investments are the more advanced elements.

A compelling business case can be summarized in one sentence: “In order to improve ___ we are doing ___, which is worth ___ and can be measured by ___.” This is a task easier said than done; it is even more difficult than writing an executive summary because it requires business case clarity and transparency in the first place. The first place holder addresses the business pain point: what do we need to improve in the organisation? The second place holder describes the proposed investment and what will be done differently from today; this activity should be ex-plained in non-technical plain English terms that a senior manager from the business line can easily understand. The third place holder details how much the investment is go-ing to be worth after all costs have been taken care of in net-present value terms, adjusted negatively for risk and positively for future strategic options. Last, but not least, once the plan is implemented the fourth place holder makes the investment proposition observable and measur-able through bottom-up metrics.

Championing the Business Case

However, structure alone does not make a compelling argu-ment. Only by understanding the executive decision-making process, a compelling decision package for senior manage-ment attention can be assembled. Being successful in driv-ing home a message to busy senior executives, gaining their attention, and moving them to action relies on two aspects:

  •  Have a great story, and
  • Convey it in a simple and convincing way!

Without a compelling business case document, without the homework of cost analysis, benefit identification, con-templation of risk, and consideration of future strategic op-tion, there is no great story and there is no shortcut to fol-lowing the business case process meticulously. But many of the best business cases still miss the mark, they remain pure spreadsheet tools and their rationale never becomes clear to anyone. Amidst day-to-day firefighting and overloaded with information, busy senior executives need to comprehend a message instantly.

Storytelling is a narrative process, which gains attention, stimulates retention, and moves to action. Stories work in business just as well as they work for newspapers and maga-zines, because they connect to deep-felt issues of the listen-er. Just as best-selling novels usually have a simple plot and a limited set of characters, business case stories also need to be uncomplicated; there is no second chance for driving home a message. An effective business case story needs to mirror the message of the business case and the needs and feelings of the audience. There should be a very strong and carefully selected main story and then individual messages of the business case can be supported with separate stories. First and foremost, such stories need to have a goal and each story should really only serve one goal. Do you use the story to gain attention? Or to overcome a controversial point and get decision-maker buy-in? Second, each story needs to have a target audience and it should really only target one stakeholder segment. But watch out, a super-abundance of stories diminishes the effectiveness of each and every story; too much of a good thing can be just that

– too much.

Controlling the Business Case

Planning and controlling are closely related, and in fact they can be viewed as the blades of a pair of scissors. Just like scissors cannot work unless there are two blades, with-out planning, control is not possible, because performance has to be compared against established criteria. And with-out control, planning remains nothing more than a make-work activity.

And so the original business case for the investment proposition should later be used as a basis for control; that is as a framework of bottom-up metrics that helps manage-ment to monitor the investment and control if the promised benefits are actually being reaped in. Everybody is keen to realise benefits, but benefits only come true when senior management continues to monitor the investment. Other-wise projected benefits remain elusive and do not make it out of the planning spreadsheet into the organisation’s balance sheet.

“The real value of a business case is in the learning that takes place while interact-ing with the stakeholders and assembling all the information in one place.

The Real Value of a Business Case

Becoming serious and disciplined about business cases requires an organisational mindset change. A carefully crafted business case does not only help an organisation to select the right alternative, it may even stop it from em-barking upon an unsound investment. And here we have a business case for the business case; the real value of a busi-ness case is in the learning that takes place while interact-ing with the stakeholders and assembling all the informa-tion in one place. The benefits of a business case project far exceed its costs.

About the Author

Dr Wolfgang Messner

Wolfgang Messner is Associate Professor of International Management at MYRA School of Business (http://www.myra.ac.in), Di-rector of GloBus Research (http://www. globusresearch.com), and the author of Making the Compelling Business Case (Palgrave Macmillan, 2013) (http://www.thebusinesscase.info). He has served in senior management positions in a number of promi-nent companies in Europe and India, including the BMW Group, Capgemini, Deutsche Bank, and The Information Management Group (IMG).

For more information about the book Making the Compelling Business Case please visit http://www.thebusinesscase.info

Which Business School to Apply in March?

You reveal quite a few things about yourself if you ask ‘which B school to apply in March” when it is already mid-March. Some examples:

1. You did not make it to an IIM or any other of the Top 20 B schools.
2. You are mildly depressed.
3. Your family wants you to get into a decent B school this year itself.
4. You do not want to spend another year preparing for CAT.
5. You don’t want to take a huge bank loan to get your MBA from some vague school in Australia, Canada, France, Singapore, U.K. or the U.S.A.
6. You are tired of relatives and friends ask you “So, what are your plans? What will you do next?”

What you know is that you will have to apply to a few of the 2980 B Schools in India and get selected by one, just one of them, before June this year. It is a race against time. Trouble is that you don’t know what will help you decide the B School to which you want to apply.

You went through the web sites of a few B Schools. You felt that they all said pretty much the same things: Great Board of Governors. Great campus. Great facilities. Great faculty. Great course outline. Great alumni. Great placements. Easy application process. The websites didn’t help you decide which B Schools to apply.

You asked your friends for advice. They more or less said:

Yaar, Why do people go to B Schools? To get good jobs. And what are good jobs? The ones which pay the most money. The rest, is all bakwas (nonsense). It is not all that complicated. Ask two questions – how many companies came to the campus for final placement this year and what were the CTC packages they gave. Apply to the B School which got the most companies to come and got their PGDM/MBA the highest CTC. That’s it, yaar. Simple! ”

You are not convinced. All kinds of thoughts run in your head. Looks like a press conference is going on inside it.

Sure, getting a good, high paying job is important. But you have to perform well in the interview to get it. How will you crack the interview?
By answering the interviewers’ questions.
How will you answer your interviewers’ questions?
By knowing stuff, your subject matter.
How will you know stuff?
By attending class and studying.
Is knowing stuff enough to clear an interview?
Let me think. Let me think…No, it isn’t. One must first get called for an interview.
How will you get called for the interview?
By writing a winning resume.
How will you write a winning resume?
By getting trained in writing resumes.
Is training all you need to produce a winning resume?
Of course not. You have to have material to put in it, the resume I mean.
Like?
What you want to do. What you have done which will let you do what you want to do. What knowledge and skills you used to do what you did and can help in doing what you want to do. What education gave you the knowledge and helped you develop your skills.
Ok, let us say you get called to an interview. Is your resume all you need to get you selected?
No. You need to answer interviewer’s questions, confidently and convincingly.
How will you answer the interviewer’s questions confidently and convincingly?
By getting trained in interviewing skills.

The answer to your questions is hidden in your thoughts. I walked in your shoes. I too had similar thoughts. Then I decided I would send B Schools whose websites I liked more an email. In it I would say something like:

“Dear Sir/Madam:

I am considering applying to the PGDM program in your B School. I secured ___ per cent marks in my ______ examinations (Fill in the appropriate degree) from ________ (Fill in the name of your Institute/College as appropriate). I was placed in the ___ percentile in ______ (Fill in the name of the admissions test you took. E.g. CAT, XAT, GMAT, CMAT).

Before I send my application (along with applicable fees), I have a few questions and would be grateful if your Placement Office could answer them:

1. Does your B School have a Placement Office?
2. Does your Placement Office market your B School and its programs to companies?
3. Does your Placement Office provide students training in self-assessment, resume writing,
interviewing skills? If yes, can you share some details about such training?
4. Does your B School provide any Work Study Scholarships, where students are given 20 hours
of assignments in exchange for scholarships, such as Tuition Waiver?
5. How many companies came for placement to your campus this year?
6. How many graduating PGDMs found jobs through campus interviews?
7. How many job offers did students receive on average?
8. What were the lowest and highest CTC packages?

Thank you for your help in advance.

Yours sincerely

My name,
My mobile phone number
My email address)”
___________

I would wait to hear from them. I’d give them about three weeks. I would not be surprised or disappointed if a majority B Schools did not reply. To me B Schools which did not reply to my letter demonstrated that they really didn’t care about and respect their students. I wouldn’t apply to them.

I’d study the replies I got from the B Schools. I’d short list those B Schools whose answers to my questions made sense and felt real. I’d then compare and evaluate their fees, payment schedules, scholarships etc. I would apply to B Schools that made me feel comfortable and hopeful. I’d do this because this is what works for me. You have to do what works for you.

Good luck with your B School hunt!
Dr Naganand Kumar

Dr. Nagananda Kumar

Executive Director, MYRA School of Business

June 3, 2014