Benefits Realization by mThink, May 23, 2005 Pick up any current periodical from CIO magazine to Fortune to BusinessWeek and you only have to skim the table of contents to find articles titled Getting the Most Out of Your IT Dollars or How to Improve the ROI on IT Projects. Furthermore, the literature is full of disappointing statistics, such as between 60 and 80 percent of all IT or business transformation projects fail to deliver any measurable economic value. These statistics, as well as concerns from CFOs and other executives, should have CIOs, IT practitioners and management consultants concerned. The real key is to understand the underlying causes of such failures and what can be done to prevent them from recurring. Transformation initiatives often produce business cases that tout substantial cost savings. In todays environment, however, transformation efforts need more than an emotive business case to succeed. They also require flexibility and formal accountability. Many large projects, unfortunately, seem to fail to produce tangible benefits because they are not systematically measured and tracked. Implementation of a benefits realization program can help resolve the common difficulties in achieving and realizing ROI from transformations efforts. Not only does benefits realization provide a formal, sustained process for identifying and capturing the increased revenues, it also helps reduce costs resulting from business transformation efforts. Hit by a double whammy of decreased margins and increased competition, it was clear that IBM, for example, had to make significant strides to survive and regain competitiveness. Simplification became IBMs broad solution to a changing marketplace. The next step was to decide how to accomplish this efficiently. IBMs specific objectives became to transform, integrate and Web-enable the core business processes to increase revenue and profits, reduce costs and enhance customer satisfaction and loyalty. Over a five-year period IBM increased time to market by 75 percent, customer satisfaction jumped 5.5 points and total savings exceeded $9 billion. Another example is the success of a benefits realization approach at a global media and entertainment company. The project trigger was a global SAP implementation in finance, HR and IT across all the business units. This project had two key objectives. The first objective was to determine an accurate headcount in finance, HR and IT within each business unit. The second objective was to realize savings in finance, HR and IT by FTE reduction. The formal benefits realization process has been running for three years and has provided credible benefits realization documentation that allows for monitoring and tracking of the savings. The actual cost of supporting the business units for finance, HR and IT is also now visible to the company head office through the controller. Additionally, the client is on track to exceed original business case commitment of $130 million in annual labor savings. While tens of billions of dollars in savings can be attributed to instituting formal benefits realization programs, experience has also shown several recurring pitfalls to watch for. Challenges in Todays Business Environment Most transformation or IT systems implementation programs that have failed have done so due to the inability to clear hurdles in four broad areas: Change management; Benefit commitment and ownership; Execution; and Realizing results. Change Management Lack of a proper and sufficient change management program can impede transformation due to underestimation of efforts required to make and sustain changes in aggregate patterns of behavior. In a successful transformation program, two aspects of change management are critical. First, change management needs to secure leadership commitment and preparedness. Second, it must maintain clear, objective, constant communication with stakeholders. To enable a successful transformation your organization must prepare everyone from top management to the end user in order to foster positive results. Based on experience, IBM has noted numerous failures due to the dangerous assumption that everyone is at the same level of readiness, and the failure to manage expectations. Benefit Commitment, Incentive and Ownership In most transformation programs, a recurring theme of insufficient or limited executive commitment has plagued the success of the program. Top management, including the C-level, must be personally involved and demonstrate an unwavering commitment to the transformation program in order to support its success. This issue is crucial, and its absence can trigger a failed transformation program. In the past, transformation programs have also struggled due to lack of clear identification of benefit owners. In order to help ensure success, each benefit must be owned by an individual who takes responsibility for capturing and reporting the savings attributed to that specific benefit. This person should receive incentives for achieving benefit goals and be responsible for missing savings targets. Execution At crunch time, schedule, priority issues and budget concerns have often derailed the execution of the transformation program. Even the best of intentions are challenged by the pressing reality of implementation issues. Implementation issues tend to fall into two main categories. First, change fatigue essentially the difficulties associated with bringing the initiative into reality. Second, wallet fatigue due to the increasing cost of the projects. These two issues often deflect focus and priority from the successful transformation of the business unit, process or company; thus they are severe threats to success. Establishing and maintaining a benefits realization program as a strategic priority is required to keep the proper focus and dedication necessary to push it through an organization. Realizing Results Poor communication and failing to recognize realized savings along with the unwillingness to make tough decisions make actual results a tough hurdle to overcome. If the focus and push to recognize results are slowed by the tough nature of the business, realizing results in a timely fashion will be threatened, potentially calling into question the success of the transformation. Benefits Realization Enablers The best way to optimize the ROI of the time, effort and money spent on transformation efforts is by institutionalizing a formal benefits realization program with the following attributes. A formal, empowered governance structure to oversee the benefits realization program: The governance organizational structure should be composed of senior executives with sufficient clout to overcome obstacles on the path to benefits realization. The formal benefits realization program reporting structure should be detailed, its role clearly defined and explicitly communicated to the key stakeholders in the company. The commitment of the transformation stakeholders should be established by linking the success of the benefits realization program to their respective incentive plans. The governance structure should be in place until all the benefits have accrued. The governance structure should exhibit the qualities and balance shown in Figure 1. Benefits realization program with detailed processes and supporting tools: Processes for capturing, tracking and taking action on underrealization of benefits should be clearly identified along with data sources and tools that will support these processes. Benefits should be captured in templates and tools on a set periodic basis after which, reporting to high-level executives on realization or under-realization of benefits must occur. The process should be standardized across all business units to promote consistent practice and capturing of benefits. The processes should support the continuous monitoring of the benefits realized throughout the execution of the transformation plan and subsequent accrual of benefits as shown in Figure 2. In the utility industry, there are several additional challenges to capturing savings that need to be taken into consideration. The first concerns the perception in the industry that regulatory restrictions prevent retention of efficiency gains, resulting in decreased motivation to target and achieve the savings resulting from a transformation. Naturally, lack of incentives for middle-level managers to realize savings from transformation initiatives often reduces commitment to achieving these savings, making it all the more important that the high-level management and C-level executives commit to benefits realization as a long-term strategic priority. Furthermore, that focus must be communicated clearly among all stakeholders to maintain focus throughout the process. Focus on day-to-day operations within the utility industry can also have an impact on benefits realization. Key managers in this industry are regularly preoccupied with daily, short-term operational issues; thus they lose focus on the medium- and long-term savings of the transformation initiatives they had foreseen. For example, noncore utility investments of even a large magnitude are often given very little attention due to the relatively larger monetary value of other capital investment programs in electrical assets. In addition, there is extensive focus on metrics for engineering and operations; however, financial metrics such as benefits realization are often overlooked. This loss of focus and priority can also threaten the successful capturing of savings. Benefits realization also demands that processes be standardized and regulated by a coordinating governing body. Unfortunately, standardization across internal business units is often very difficult in the utility industry. Business unit leaders are typically averse to change and strongly positioned as decision makers or influencers within utility companies. They often operate separately, focused on their business areas and are unwilling to consider the advantages of adopting standard processes across the enterprise. Simply put, benefits realization requires changes within the often change-adverse culture in utilities. This cultural characteristic also requires that top management step in with the necessary vision and clout to push the program toward success. Do You Need It? Benefits realization can be particularly helpful if your business finds itself in one of the following situations. (Note that this is not an exhaustive list, but a list of common conditions where benefits realization has been shown to be effective.) Are you redefining your company mission and vision? Does your business have a history of failed IT and investment initiatives that have come short of reaching your savings goals? Are you in the middle of a transformation effort? Is your company in serious financial trouble and in need of active cost monitoring? Do you have a prescribed method for business case modeling and follow-up? Would you like to be able to effectively track and measure workforce productivity? Do you need more rigorous requirements for reporting of project cost and benefits? As mentioned, most transformation and IT system implementations are not perceived to produce the economic value touted in the original business case for the project. How do you prevent your transformation project from adding to these disturbing statistics? Benefits realization may be the answer. Filed under: White Papers Tagged under: Utilities