how to have a value proposition discussion

©2003 Walter Adamson. CIO Business Innovation Series.

How to Have a Value Proposition Discussion

You may reprint or distribute this document as long as it has not been modified and proper credit is given to Walter Adamson and Digital Investor Pty Ltd.

Original published at: www.digitalinvestor.com.au June 2003 Tel (Australia): 0403-345-632. [email protected]

By Walter Adamson, CEO Digital Investor.

CIOs and IT Leaders need to spark and shape the value discussions with their

business colleagues. They can take the lead in establishing a value proposition, with their business colleagues, for their enterprise end-clients.

The CIO can adopt a pattern of questions which promote discussions to

identify value, as defined by the business unit audience. This paper proposes four themes for questions, which if applied give an easy framework to follow.

In addition to the four themes of questions, the paper opens with a quick

review of the CIO’s leadership role in business innovation.

CIO’s Role in Business Innovation Discussions By adopting a distinct process for generating value propositions CIOs and IT Leaders have an opportunity to take a leadership role in business innovation. In order to achieve this they have to take responsibility for knowing who the IT innovators are for their industry, and why they can sustain that lead, and how that relates to the business factors, absorptive capability and risk appetite of their own organization1. The CIO and IT Leaders need to be able to conduct conversations which: 1. Challenge their organisation to abandon products, services, customers,

distributors, and line of business. Ask the question: Knowing what you know today about those products, services or processes would you invest now to do those same things? If the answer is NO then what is the action that will be taken?

2. Force to the surface the identification of opportunities and dangers by reviewing

and assessing unexpected successes and failures from within and outside the organisation, and incongruities in markets, distribution channels and customer demographics which have taken management or analysts by surprise;

3. Generate new learnings, new capacities and opportunities for change, by

recording and reviewing innovations in the field of a company’s core business, by whom, and how, and what was known or decided within about these innovations.

These conversations can be made easier by thinking of particular sets of questions with which to engage the business leaders. The themes for these groups of questions are the major topic of this paper. By structuring the conversations around these themes CIO can enhance the identification of value, as defined by the business unit audience, and can help communicate value captured in those same terms to help build the business case. 1 See the companion paper in this series “The CIO’s Leadership in Business Innovation” at my website www.digitalinvestor.com.au which explains the process in a short three-pages.

©2003 Walter Adamson. The Art of Active Listening. of 4

[email protected] www.digitalinvestor.com.au

Tel (Australia): 0403-345-632. May 2003

Here are four themes around which conversations about enterprise and shareholder value can be built – we call these the value-driver conversation themes:

1. top-line growth, 2. bottom-line growth, the relationship between (1) and (2), then, 3. enterprise or LOB Return On Invested Capital (ROIC), and finally, 4. organisational competence and capability.

Top-line Growth Shareholder value-driver conversation number one centres on top-line growth. Here CIOs need to fully understand the lines of business and their profitability, how they cross-sell, how costs are allocated and where the market segments are heading. We want to understand the relationship of our market share to the market growth. This is also the discussion theme in which CIOs can explore with their business colleagues the dynamics of customer buying patterns and how competitors, technology, and the economy are influencing customer buying decisions. Based upon this understanding of the top-line and its trajectory, CIOs can then pose questions about how IT can help to deliver better quality revenue by supporting business agility or quality business initiatives. For instance, ask questions to explore how IT affects the top line (revenue) when the enterprise taps new markets and customers, by using systems that allow it to adapt to market changes more swiftly than competitors do. The CIO and IT leaders can bring questions to the discussion about improving customer retention. This also affects the top line, through implementing IT tracking systems to better ensure consistent quality, institute premium pricing and even reduce the risk of product litigation. The focus of this discussion is the effective and creative application of IT to drive top-line revenue to meet the business objectives.

Bottom-line Growth Shareholder value-driver conversation number two concerns bottom-line growth e.g. how fast are earnings growing? Are competitive pressures squeezing margins? Are costs under control? Are any big write-offs coming? These are the types of questions that CIOs can pose to stimulate this conversation segment. This is a big topic, and includes discussions of and understanding of the value chains which facilitate delivery products and services to customers. Different products and services may have very different value chains, and it is important to map these out. Among the most important areas to understand, and among the fastest changing business dynamics, are the relationships with distributors and resellers – the distribution channels. Here again there is a wide-open opportunity for the business-savvy CIO to take the lead in raising alternatives and also in listening closely to the discussion of the business leaders around this issue.




The conversations around the stages of the value chain and the distribution channel and the value created and the resources consumed at each stage are a very important sub-theme of this major theme of discussion. This point is where the top-line growth discussion overlaps with the bottom-line growth discussion – across the value chain and distribution channel for each customer and product segment. IT plays an important role in reducing the bottom line when correctly aligned with the business objectives of the value chains and the distribution channel for each customer segment. The mission of the CIO is to listen carefully and ask perceptive questions to ensure that IT delivers alignment with the business objectives. Of course, the control of the bottom line for IT itself is also an important topic, and this has to be optimised against the goals and strategies of the enterprise. For example, it may make sense to spend more money on IT in order to get better bottom line growth. This topic is a sure one to raise the level of discussion. CIOs can lead discussions about how IT can support quality and cost-reduction initiatives to deliver earnings growth. For example, IT can facilitate both increased quality and decreased costs by reducing product recall rates. Ask and propose how IT can reduce the costs of handling returns and eliminate the need for invoice corrections - both of which save money and contribute to a larger bottom line. IT can reduce costs for the customer and both customer and supplier can share the efficiency gains. By hearing and stimulating what the business leaders are discussing around bottom-line growth the CIO can build further conversation to ensure IT fully understands how to deliver effective support for the emerging value propositions.

Return on Invested Capital Shareholder value-driver conversation number three focuses on return on invested capital (ROIC). For example, CIO’s and IT Leaders should engage their business colleagues with questions that are financially and asset oriented:

• How high is our enterprise and LOB's return on invested capital? • How is this return trending? • How is the credit rating of our enterprise? • Is the cost of capital likely to increase with investment plans or a credit crunch? • Are we balancing good returns with good growth? • What questions on ROI is the CEO fielding from analysts, and why?

Points of discussion sponsored by IT should aim to help improve return on capital by supporting knowledge sharing and cost-reduction initiatives. Included in these conversations should be questions about sourcing strategies and ways to remove costs, maintain service and thus increase ROIC. Services can improved and costs reduced by creating a network of partners and vendors. Here again the CIO and IT leaders have an opportunity to raise questions and lead discussions about how their enterprise or LOB can remove non-productive assets from the balance sheet and reduce supply chain costs - both of which increase asset use.




Competence and Capability Lastly, shareholder value-driver conversation number four focuses on core competence and organisational capability. This is a more general discussion but one which is very critical to business success, not the least through enabling the best IT-related decisions and investments to be made in the light of this conversation. For example, in order to find the right IT solutions we need to discuss the track record of the business leadership in implementing change. How honest are they in assessing their ability and the organisation’s ability to absorb change and new methods of working? How well can the business leadership and organisation respond to industry dynamics, which are possibly conspiring to inhibit enterprise performance and growth? More questions: Is the leadership able to decide if they want to cooperate with other business units in building new cross-business processes, supported by new IT systems? Or would they prefer to maintain business unit-control of any new process changes and IT implementations? How good is management at managing business risks? IT can help track and control business risk factors by initiating conversations about change initiatives and process development initiatives. The enterprise or business unit leaders should also be encouraged to discuss the competencies needed by IT and how those competencies should be delivered into the implementation of new value propositions.

Conclusion The key to value discussions is to ask questions that promote conversations about how the business units are going to give customers what they want, the way they want it, when they want it, at the price they want to pay. This requires recognition of the CIO’s customers’ business drivers -- profit growth fostered by customer acquisition, new products, rapid time to market and low-cost production; customer care and retention; limited capital requirements; and sustainable competitive differentiation -- and the manner in which the underlying systems support these value-creating processes. By taking the lead in developing conversations around value propositions CIOs and IT Leaders will not only be better recognised for their business contribution but will also be better placed to ensure that IT investment is aligned with the business goals. Finally, although the goal is to promote discussion, CIOs and IT Leaders should take note of this important insight to help guide their questions: Value creation lies in improving the problem statement, not in giving answers. Put another way, seek to ask new questions to old answers. By organising thoughts and questions into the four themes proposed by this paper, CIO should find it easier to promote and lead vale proposition discussions.

how to have a value proposition discussion

Economy & Finance