Business case … return on investment – often used interchangeably, these two sales tools are related but different.
Let’s look first at the term ‘business case’ – I often see this being used as the economic argument for doing something. It isn’t, except in the most abstract form whereby all decisions made in business are founded on economics. A business case is simply ‘the rationale for doing something’.
Don’t get me wrong – a business case can be based entirely on a return on investment model (which I’ll come to), but it isn’t the same thing. Why might you decide to do something? Well, here’s a few examples:
- It will help you win a major new customer – as, for example, becoming certified to an ISO standard may significantly increase your chances of getting business from government bodies
- It creates a cultural change – a few years ago I worked with a client which was selling a solution into the utilities industry which made contractors take photos of their handiwork prior to relaying tarmac. The business case for this was that less rework would be required because contractor staff would realise that they couldn’t hide a botch job beneath six inches of asphalt
- It will improve your staff (and hence productivity) – Lever Brothers did not build Port Sunlight because someone turned up in their office with a spread sheet; they did it because they felt that it would make their employees better people and give them a happier life.
When you are asked to present a business case for doing something it is useful to refer to Rick Page’s Shark Chart. This tool summarises the relative value of arguments made for doing something. The hierarchy goes like this:
Strategic – providing advantage
- Political – reducing risk
- Financial – creating a return
- Cultural – driving change
- Operational – solving problems
- Capability – delivering tools
When you create your business case, you should always seek to get as high up the shark chart as possible – don’t talk about ‘time saved’ (an operational argument), describe outmanoeuvring a competitor (a strategic case). Needless to say, the higher up the Shark Chart you venture, the more evidence based and compelling your detail needs to be.
So where does a return-on-investment fit within this? A return on investment model would normally be found being used as a tool to explain the economic rationale based on known values drawn from the business – where evidence is more about the nuts and bolts of existing numbers rather than about opportunity. It is possible to include ‘value of new customer’ within a return on investment model – but it often lacks credibility because the likelihood of a new customer being won is low, and the follow on impact of that win is next to impossible to quantify. Sit this next to reduction in headcount figures brought about by the installation of a new piece of machinery that replaces a manual process and you will understand what I mean.