Reality, Meet Your Business Case

In most large organizations, the “business case” is a proven and trusted rights provider. It represents quantifiable commercial rationale used to justify investing money in some element of the business. The approach expresses multiple ideas under a single thinking and decision-making umbrella namely- problem or opportunity quantification, implication if unsolved or solved, envisaged solution, chosen approach, strategic alignment, financial benefits, time frames and risks, expected returns, operational implications and requirements. Despite their wide spread usage, the business case approach tends to struggle with various thinking and design challenges. This is no surprise. Ideas are born primarily in the qualitative space and are converted into quantifiable numeric’s for ease of commercial evaluation.  Business cases and their associated financial projections need to reflect an integrated set of qualitative and quantitative thoughts spanning strategy, business model and operational alignment. In essence, fully and accurately capturing an idea in commercial terms that reflect its working reality is very difficult.

Idea to spreadsheet transitions typically lack the intellectual rigor needed to transition through idea, strategy, business model and operational layers with sufficient congruency.  The number population process often leads to a design by numbers approach. Spreadsheet projections design and solve for the minimum hurdle rate, retrospectively fitting the needed commercial rationale.  The consequences are often material. The business model cannot deliver on the strategy.  The operational requirements are unable to produce the envisaged client experiences. The value proposition fails to materialize. Revenue falls short of projections and costs escalate in an attempt to fix the emergent problems.

This blog argues that the aforementioned challenges are exacerbated by a subtler and more dangerous problem typically not solved by business case development tools and methodologies. The inability for business case developers and approvers to deconstruct the different thinking and design layers inherent in the business case stack into their value creation, capture and extraction sources. This manifests in muddled thinking, compromised ideas, strategies and business models.

The blog asserts that there are 4 working or design layers that need to be traversed and transitioned when building a business case. These 4 layers are not only conceptually different but are also responsible for provisioning and solving differing insights and problems. Furthermore, the transitions between these layers is vital to creating a coherent business case. What follows is a summary of each layer, its scope, role and interfaces.

Business Case Design Layers

The design layers deconstruct commercial complexity into their working parts.

The 4 working layers are:

Theory – Why you believe the idea has commercial value. It’s the starting hypothesis, that needs to be expressed as a “commercialisable theory” capable of creating and capturing value.  The key element of this theory is the ability to present the idea in both commercial and testable terms. Transitioning the qualitative narrative into a theoretical model is the first step in establishing a quantitative equivalent. The ideas theory of value creation and capture provides a structured way of scribing the core commercial elements, their workings and relationships. The theory is thus the pivot around which the entire business model is constructed. If the theory is unsound, then so is the business case.

Strategy – The approach used to test the theories validity. The role of the strategy layer is to find the most appropriate way to test the theory in the market place. This includes which problems to tackle first, developing proximate objectives and options to achieve them Included are the strategy problems that must be overcome to make the specifics of the chosen theory manifest. In this regard, the theory plays a definite role in guiding right vs wrong strategy. In this context strategy is not a plan on how to reach some future dated vision or ideate new product and market combinations. It’s a plan on how best to unfold the theories workings with actual customers.

Business model (s) – The business model is informed by and enables strategy and is primarily concerned with designing the value capture element of the business case.  The chosen business model is usually one of many options. The model describes the specific customer(s), value proposition, how it’s presented and consumed, at what price and mechanism, via what channels using a resource, activity and external partner combination. Change the strategy and you may need to change the business model. A key output of the model is the logic and workings of the profit formula. The profit formula workings further drive the integrity of the qualitative to quantitative transition. The spreadsheets reflect theory, strategy and business model design decisions. The numbers represent the outcomes of a chosen set of design options. The resultant financial projections are grounded in a set of layered and traceable thinking transitions. If the numbers don’t work is it due to a non-viable theory, incorrect strategy or business model. Numeric manipulation gets around these questions by not having to effectively address them.

Operations – The operational infrastructure required to deliver on the work as necessitated by the chosen business model. Operations orchestrate the delivery of business model outputs. The elements include processes, resources, skills, data and interfaces together with their working rationale. The operational requirement are a deep reflection on the business model decisions you have made. The operational layer is responsible for not only executing on the value creation process but extracting a percentage of the value predicted in the profit formula.

Layer Transitioning

Each layer needs to be engaged within the context of the former. This deconstruction enables concepts, problems and solutions to be solved at the correct layer of abstraction. Ideas are captured within a theory, tested through a strategy, enabled via a business model and delivered through operations. Without this separation, the business case derivation process struggles to manage the complexity and inter-connectedness of the moving parts. The layers assist with:

  1. Creating a logical pathway to disentangle the tough to figure “systemics”. Business case development teams can explore the idea to strategy to business model to operational design transitions in a more structured and logical way
  2. Trace how a change in the idea scope impacts strategy options and in turn business model designs and operating requirements
  3. Removing, via the process of highlighting, logic flaws inherent in the qualitative and quantitative concept and design transition

The framework does not usurp existing business case development methodologies. Rather it’s a tool used to amplify and facilitate the identification and expression of two key business case requirements:

  1. Make value creation, capture and extraction concepts explicit in the minds of the teams tasked to both create and evaluate their outputs
  2. Simplify, guide and deepen the logic and design transitions as teams traverse the idea, strategy, business model and operations landscape

The framework does this in two ways:

  1. By deconstructing the value components into the organizational buckets, they are created and managed in. The separation of value capture and extraction as differing but deeply reliant concepts help business case teams think through their construction and integration.
  2. Working through the value creation and extraction options and implications prior to developing associated financial models. This prevents designing by numbers.

Interfaces

The model pivots around the core idea captured within the theory. The theory layer is thus the most stable layer. It provisions both principles and problem sets that need to solved. Each subsequent layer offers increasing degrees of expression. Strategy interprets the principles and problems and figures the best way to enable a working version of the theory. There may be many different strategy options. Critical to this is how to sequence the problem sets and overcome the challenges inherent in the sequencing. If a viable testing strategy cannot be established the process should stop.

Viable strategies include the selection of the business model types that could singularly or in combination create and capture the theorized value. The business model design process refines the working practicalities of an operational system delivering on customer needs. The operations layer executes the business model.

Managerial Implications

  1. The framework allows teams to deconstruct complexity into manageable thinking chunks that can be engaged across a spectrum of formalities.
  2. Business case development teams can use it to loosely pre or post check their thinking or explicitly design layer by layer. The later results in a more robust qualitative to quantitative transition with the numbers and operational execution requirements better reflecting the requirements of the core idea and chosen strategy.
  3. Logic flaws both within and across layers are easier to notice and rectify. Evaluation teams can interrogate the financial projections within the context of each layer.
  4. Existing business case tools remain in use but are engaged through the 4 separate layers
  5. Value creation, capture and extraction thinking is easier to express assisting in decision making
Share on FacebookShare on LinkedInTweet about this on Twitter