Identifying the Business Value of What We Do
Imagine we’re starting work on the user registration functionality of a web site. After conducting a thorough set of user tests, we discover that half of all users who attempt to register can’t successfully complete the process. Those who do register find the process very frustrating. Fixing the registration process to eliminate any frustration would be important, right? Not necessarily.
How does an improved registration process help the business? How does increasing the number of registrations help the bottom line, either immediately or in the long term? If we can’t answer these questions, why should our organization invest any resources to fix it?
Money is the Great Equalizer
Usually, resources are too constrained to do everything the organization wants to accomplish. Therefore, decisions need to be made, based on some priority system.
As we look at how various organizations decide what projects to take on, we see more and more of them are using money as the common unit to compare the effort and contribution of different efforts. They are comparing everything, from direct revenue to customers’ brand engagement, in terms of the dollars they expect to see. By reducing all business effects to money, they easily compare the value of one outcome to another. They can then make informed decisions on where to spend their limited resources.
A Simple Trick: Take It Away
How do we tell what the contribution of registration is to our business? One simple trick is to play with the idea of taking it away.
If we removed the registration process entirely from the site, what would the effects be? Well, because almost everyone who uses it is frustrated, we’d be eliminating their frustration right off. And it probably wouldn’t cost too much to just pull it off the site.
However, what would we lose? Would the absence of new names hurt our marketing efforts? Would it make customer service more difficult? Could we quantify what the long-term effects of the lost functionality would be?
Often the simple exercise of pretending to remove the functionality and looking for the downstream effects can help us understand how important a feature is to our business. With a little research on the feature’s impact, we can start to quantify the true value of the functionality. This trick doesn’t always work, but when it does, it can be extremely insightful.
Where Business Value Shows Up
Fortunately, there are only five places in a business where we can see the value of our work. These are the same for any type of organization, whether it’s a commercial enterprise, a government entity, or a non-profit group (similar to how accounting practices are essentially the same across each type).
We can identify business value by asking the following questions about the end results of our project:
- Will it increase revenue?
- Will it decrease expenses?
- Will it bring in new customers?
- Will it bring in more money from existing customers?
- Will it increase shareholder/taxpayer value?
Depending on the nature of our business, a given project could effect any of these value areas. It could increase revenues or decrease expenses. In fact, sometimes a project could effect two or three simultaneously, such as increase revenues, bring in more new customers, and increase revenue from existing customers.
Talking About the Value
Even something as simple as fixing a problem with registration would effect the business value differently, depending on how the organization uses that registration information.
For NYTimes.com, the online edition of the New York Times, registrations are free, so no revenue comes from the people who actually register. However, the registration process allows the New York Times to learn more about each person signing up. In turn, they can tell their advertisers more about the people they are advertising to. Advertisers will pay more for ads, when they are sure they are targeting the right people. So, for NYTimes.com, a better registration process could yield more advertising revenue.
Contrast that with Stop & Shop stores. Shoppers at this large chain have bar-coded key-chain tags which give them discounts all over the store. Many of Stop & Shop’s best customers signed up for their tags years ago, before they had email addresses.
Since Stop & Shop knows what products each customer has purchased, they can notify that customer when their favorite items are on sale in a personalized circular. Stop & Shop extends "“personal sales” — discounted prices for items a shopper regularly purchases that aren’t advertised in the store. By encouraging existing customers to register, Stop & Shop can encourage shoppers to spend more in a shopping visit saving money. For Stop & Shop, the improved registration process plays an important role in increasing revenue from existing customers.
Verizon, a large telecommunications utility, sends out millions of phone bills every month, spending millions of dollars on the printing, handling, and postage. Encouraging customers to trade their paper bill for an electronic bill eliminates these costs. Verizon’s registration improvements could help with dramatic cost savings.
A registration process can even effect shareholder value, which is most driven by long-term sustainable income. A recent example is Amazon’s introduction of Amazon Prime, a service that delivers, for a single annual fee, free 2-day shipping and discounted next-day shipping on all products purchased from the online retailer. Amazon hopes that this new service will “lock” the frequent Amazon purchasers in, forcing them to increase their regular purchases over time. Making Amazon Prime registration easier could contribute to the shareholder value of the organization.
Identifying Your Business Value
With a bit of practice, it is easy to identify business value for our important improvement projects. First, we have to accept that not every project will be valuable to the business, so identifying the ones that are will make things easier.
Second, we can start the process by imagining what life would be like if we just removed the functionality. This often gives us insight into the “downstream” effects of what we do.
And finally, when we identify which business value areas the project is most likely to impact, we can clearly communicate why investing resources in the improvements will benefit the organization. This dramatically increases our chances of getting approval to do the interesting, challenging projects.