Benefits Realization

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 today’s 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 IBM’s broad solution to a changing
marketplace. The next step was to decide how to accomplish this efficiently.
IBM’s 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 Today’s 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.