Extreme business disruption, uncertainty and economic headwinds demand that organizations place their bets on investments that create opportunity and value. In the past, many technology investments were made on a leap of faith. Now, information technology leaders are being asked to explain the value of what they do to other executives.
When it comes to data and analytics investments, many D&A leaders struggle to articulate the value they are creating for the organization. In the 2022 Gartner Chief Data Officer Agenda Survey, only 29% of respondents met an objective of delivering measurable return on investment from D&A investments. D&A benefits are often expressed in technical or abstract terms such as better data quality, faster time to insights or a reduction in model building time.
However, executives are unable to connect these technical outcomes to the strategic priorities and business outcomes they care about. Without building a compelling and comprehensive value story, critical D&A initiatives will be viewed as an internal support cost center – and the first budget to be cut when resources are constrained – rather than as a growth and innovation engine that is strategic to the organization. D&A leaders need a new way to think and talk about value.
Enterprise Value Equation is a new approach that considers a range of stakeholder concerns, value enablers and stakeholder impacts to identify the total return of a technology investment for the organization. For D&A leaders, EVE can help create a value story that connects stakeholders’ mission-critical priorities to D&A initiatives, detailing financial and nonfinancial stakeholder outcomes and impacts to get a complete value story. This can be used to make decisions about ranking and prioritizing investments.
Here are five steps D&A leaders can take to build an EVE and demonstrate the business value of D&A investments:
1. Identify key stakeholders and their mission-critical priorities.
Identifying key stakeholders and their mission-critical priorities, strategic ambitions and key performance indicators is a critical first step to understand the perspective and context in which outcomes from D&A initiatives must be framed. Who is the hero in this value story? How will your D&A initiatives help them to be successful?
Start with senior leadership’s top strategic priorities. Interview executives, line-of-business leaders and/or key stakeholders to understand their top focus areas for the coming year or more, how they will measure success and how their success will be measured. The D&A strategy should reflect these priorities.
2. Map your D&A value enablers to the identified priorities.
The D&A strategy development process generally identifies top initiatives that the team must focus on. EVE mapping must be a key part of this strategy development. The D&A team should lead this activity, representing the voice of what initiatives are possible that can address the mission-critical priorities.
Key stakeholders who represent business needs and challenges should also be involved. Through this process, link D&A outcomes, such as faster time to insights and better data quality, to business outcomes, such as revenue, cost, risk, impact of brand and employee value.
3. Identify financial, leading nonfinancial or financial-influencing stakeholder outcomes.
Business executives must be the heroes in the D&A value story. This is where it becomes necessary to translate technical outcomes into those that executives and other stakeholders care about. Their success will be measured by metrics that express the realized return to the organization from these initiatives.
Conduct this step with a fusion team made up of the specific business peers, domain experts and leaders in the D&A team. Iterate questions to determine the “so what” that clearly identifies the impact of a project on the organization, the stakeholder and the mission-critical priorities. For example, ask:
- What are your stakeholder challenges? How will this D&A initiative impact or address these challenges?
- How do these technical outcomes impact a business process, business activity or decision?
- What are business outcomes for each stakeholder that this D&A initiative applies to that can be quantified in financial terms?
- What are business outcomes for each stakeholder that this D&A initiative applies to that can’t be quantified in financial terms now but are leading indicators, are linked to or will influence financial outcomes in the future?
For example, in a healthcare organization, key business outcomes might be medical discoveries, providing world-class patient care, clinician/employee experience or profit. For a luxury auto manufacturer, key outcomes might be to reduce lost sales, rush order costs or scrap rate.
4. Create metrics for each stakeholder outcome identified.
The next step is to assess the realized return to the organization from these outcomes. For each key outcome identified, determine a metric to measure achievement of this benefit and the broader impact on the organization. The D&A team may need to think outside the box for ways to measure specific benefits that are not directly tied to financial outcomes.
Going back to the previous example, a healthcare organization’s metrics could be ranking and reputation, favorable reimbursement rates or ability to attract top talent. A luxury auto manufacturer might look at metrics like stock out percentage, profit percentage per car, or reliability and quality metrics.
5. Leverage value logic to rank and prioritize investments.
Normally, D&A leaders are asked to demonstrate ROI for their initiatives and get straight to financial impact, but the value story based on financial impact alone is incomplete and misleading. Therefore, once a value story is built using the EVE, D&A leaders should prioritize initiatives accordingly.
Use a scoring model such as ROAR or Prism to rank and prioritize initiatives based on complete value assessment, including financial and nonfinancial leading indicator outcomes and risk. This should also factor in feasibility and a capabilities assessment of the D&A team’s ability to deliver on the value. Once the top initiatives have been identified, benefits can be expressed in financial terms using a net present value or ROI model, leveraging the value story, value logic and assumptions created through the EVE.
Rita Sallam is a distinguished VP analyst at Gartner Inc. Her research focus includes tracking and predicting market trends, vendor assessment and selection and identifying best practices for making analytics pervasive and strategic to the business. She wrote this article for SiliconANGLE. She and other Gartner analysts will present additional analysis on data and analytics trends and predictions during the Gartner Data & Analytics Summit taking place March 20-22 in Orlando, Florida.