#1 in a Series: Tangibilizing the Intangible
“A mid-level operations manager has a new digital innovation-initiative to present to his company’s executive management for consideration, with two potential benefits. One benefit is the reduction on the number of calls received at the Call Center, because customers will now place orders online; and the other benefit is an increase in customers’ satisfaction because customers will have a lot more information on the products that they can buy online. Using just the reduction on number of calls —which will not eliminate any people, but will re-purpose the time saved by the Call Center agents— is not enough to demonstrate a positive ROI and justify the investment. The other benefit, which is about providing existing customers with more information and better ways to place orders online, will most likely result in avoiding customers to buy from the competitors. The mid-level manager that is preparing the business case for this initiative is hesitating on how to sell and communicate the value of the project to his management— he is willing to commit to an SLA to reduce the number of calls, but doesn’t want to commit to, or being measured on an intangible benefit related to customer’s retention and revenue protection. He may just include the cost savings benefit because it has a higher likelihood of realization, but will not include in the business case the revenue protection benefit.
This dramatize the problem that many managers, teams, and enterprises have these days on the handling of intangible versus tangible benefits. The way enterprises treat, forecast, measure and manage “intangible” benefits is not only a problem, but also a major challenge because with the increased attention to innovation, transformation, agility, and disruption of business processes, teams and managers will face an even higher pressure in the near future, to forecast, economically quantify, measure, and commit to intangible benefits.
These series of articles will present tips and excerpts from the EVC™ (Enterprise Value Creation) version 3 Framework from Glomark-Governan, on why and how to treat the benefits of innovation, digital, and transformation initiatives, including the ones considered Intangible.
The Importance of Quantifying Intangible Benefits
Glomark-Governan’s twenty plus years of experience and research on business case practices, indicates that intangible benefits on average represent over 70% of the potential positive cash flow impact for each new innovation initiative. While innovation and transformation initiatives bring many benefits about cost reductions, the benefits related to revenue increase are generally considerably greater in economic impact for any enterprise.
Additionally, If Intangible benefits are not included in business cases, not only important benefits cannot be approved, but also projects that are approved without the identification of intangible benefits in a measureable way have less chances of resulting in a business success, because the stakeholders responsible for the project execution and implementation are not aware of the expected business outcomes; and SLAs and KPIs are not assigned to the important intangible benefits.
Intangible vs. Tangible Benefits
There are many definitions and descriptions about the difference between Tangible and Intangible benefits; but in general, people consider benefits as Intangible when there is high uncertainty in the possible realization of the benefit, during and after the initiative implementation.
Intangible benefits can always be measured, therefore quantifying them in economic terms may not be as difficult as it often appears—the challenge, however, is on forecasting a specific improvement (before and after the initiative) because Intangible benefits tend to have dependencies that are not controllable by the stakeholders. Hence the need for doing an objective Uncertainty Analysis for a benefit (tangible or Intangible) in order to increase the chances of realization.
Stay tuned for the next articles in these series, that I will be posting with tips, best practices, and suggestions on the handling of Intangible, Innovation and Transformation Benefits!
If you would like to receive notifications on the continuation on these series of tips on forecasting, quantifying and measuring intangible benefits, send us an email at email@example.com
ABOUT EVC: Quantifying and forecasting an economic benefit from any initiative is easier, more objective, and compelling, when enabling methods from the EVC framework are used, such as the EVC Causation, Uncertainty and Predictability analyses. Using the EVC Framework’s enabling methods prior to an innovation project implementation, considerably improves the likelihood that the project’s operational and strategic goals are met—increasing the probability of the project’s business success!