Discovering and Releasing Latent Value
Author: Eric Weston
March 2009
The pain is real. The squeeze for more value intensifies and the challenges are frightening to IT groups who have never felt this level of risk before. The recession is sinking its teeth and the casualties are mounting. Top line revenue continues to soften, and management is committed to press and tighten spending while expectations continue to rise. CFOs are putting pressure on IT to do everything possible with what you’ve got – the current environment, the existing equipment, and with less people. The push is on to focus inside existing operations for better efficiencies. In response, IT is looking at what’s available – how to further leverage the assets that are already being paid for. Sina Moatamed, CTO for BendPak Inc., (which sells lifts and hoists to auto-repairs shops) stated it succinctly in the Wall Street Journal, “Now is the time to focus on how you’re operating and getting rid of inefficiencies.”Limited discretionary budgets
Latent value often exists as a byproduct from previous projects – projects where all the necessary pieces were not addressed to realize the full potential value. A prime example is when a new software application is installed, but the fundamental business process remains unchanged. Sometimes it’s just too painful (political or organizational) to make the changes required to meet the assumptions in the business case. Too often, schedule and cost driven efforts result in stripped functionality, missing pieces and gaps that undermine the original value proposition. Remarkably, filling most gaps is probably a small cost relative to the whole, but for many reasons is not addressed.
Human resources may represent another piece of your latent value. In many organizations, it’s surprising to see just how little some of the key resources are effectively utilized. In a recent McKinsey & Co. survey of 548 executives, over 40% of the respondents pointed to improving the talent and capabilities of IT staff (e.g. improve communications, more rigorous management training) as the most important initiative to improve IT effectiveness. This investment is miniscule in comparison to the typical costs involved with the sophisticated hardware and software often implemented.
So, how do identify and release latent value? Start with the obvious, reviewing your inventory of hard assets and licenses. Leadership and staff turnover, combined with a changing management focus can quickly erase corporate short-term memory, leaving “shelf-ware” in the wake of hardware and software purchases. It is inevitable that each new leader will tend towards “trashing” their predecessors efforts, but in reality, there is typically value that can be taken advantage of in every approach to solving a business problem.
Another approach is to analyze the disparity (or lack of) between a project’s expected vs. actual net benefits – there is a very big difference between installing hardware and software and implementing a business solution. Not sure whether you have true “implementation” because you are not measuring the benefit stream? You are not alone, and this points to an issue that needs attention. Benefit measurements are not easy, but that doesn’t mean they should be ignored. It may be just a case of listening to your real users – those who get the product out the door. With benefit of (or lack of) data in hand, you need to assess the cause for variance.
As Figure A shows, the variance points to missing value which could be attributed several factors. It could point to undetected flaws in the business case. Deeper analysis into the benefits may point to latent value associated with underperformance due to lost functionality, missing integration points, or insufficient organizational change efforts. A more thorough, methodical analysis can be performed in a top-down manner as depicted in Figure B below. Using this simple but effective model, start with high
level metrics and drill downwards into the enterprise layers using root cause analysis techniques to uncover the latent value. Begin by collaborating with business managers in a review of Key Performance Indicators (KPI) using industry/functional benchmarks to identify gaps. Think of the KPI as being the start of a thread that spreads down and out, connecting to, and dependent upon other threads throughout the business. As you dig deeper, following the threads and linkages, you will encounter symptoms and causes.
Underlying the KPIs is the data layer, usually not a root cause, but rather a consequence of something deeper. Next is the application layer, where settings or configuration issues may not align with the business intent. Deeper yet lies the business processes which may not align with the intent of a packaged application (e.g. ERP or CRM), or opportunities to simplify processes were not expressed. Surrounding the application and process layers is the organization. Threads followed into the “people side” may point
to competence and training issues, mismatched roles and responsibilities, and possible aversion to new operating practices.
Of course, the cost of finding and releasing “pockets” of latent value will vary upon your circumstances, some will be very easy, others harder. Where is the latent value in your business? It all starts with investigation, causal analysis and an opportunity assessment. One thing is for certain, for many of you, it may be surprising how much value is hidden right under your noses.
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