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Business Value Framework – What should I invest innovation budgets on?

Efficiency in innovation

In a recent research report (The Innovation Gap and How to Close It – June 2022), Celent reported on the views of senior insurance executives on the outcome of investments in innovation and the expectations they and their staff have of transformation initiatives. The report found that success is measured as among other things producing a sufficient output of tangible change.

Many insurers had unmet expectations regarding the outcomes of innovation. They wanted both more innovation and better returns from it. When asked to define what success meant in innovation, 83% said it was improved business outcomes.

When discussing technology driven innovation with our own customers, we have found very similar sentiments expressed from insurance customers and others across the Financial Services industry and beyond. What we have also found is that defining business outcomes is not always as easy as it appears.

Discovery - Aligning innovation with business drivers

An interesting finding from the Celent survey was that 83% of insurers said their innovation was tied to business objectives and almost half of those thought the outputs were insufficient. When creating the business value framework, we wanted to understand this mismatch and how to solve it.

The discovery phase of the business value framework seeks to answer a number of questions:

  • BUSINESS DRIVERS - What are the most important outcomes, objectives and customer and user experiences the organization wants to achieve?
  • VALUE STREAM MAPPING – Where is value created and destroyed in key business processes?
  • PRIORITIZATION - How can we make people, process and technology innovation focused on agreed outcomes?

Business drivers

The demands made on the business and support functions of all organizations are partly rooted in the external factors that drive the markets they operate in. These are added to by the internal drivers of organizational culture, history and strategy both at an enterprise and functional level. Many customers have a very clear view of their business vision and an understanding of both the external and internal drivers but confirming consensus gives the business value framework a firm foundation.

Where functions have operated in silos, a common understanding of business metrics and the data used to determine performance may be unclear. A series of workshops and data discovery exercises will build a common understanding upon which transformation prioritization can be built.

Value stream mapping

When the organization has an agreed view on the business drivers, we need to understand the journeys of customers, employees, and other users in key processes to exposes blockers and impediments to the delivery of that value. Business value stream mapping allows us to identify opportunities to eliminate non-value add or value destroying steps in a process or opportunities to automate.

It is here that the application of data science is most valuable. Analytics can provide insight into where in a process value bottlenecks exist. For instance in a new business process the desired outcome is a high quote to buy ratio. Knowing where in the process prospective customers are dropping out is key to understanding what needs to change to improve the situation. It is important to recognize that changing technology applications is not always the only or even the primary fix. The whole process at a people, technology and data level needs to be mapped and analyzed.

Value stream mapping uses the skills and techniques developed in data science, process design and CX development to understand and map out business process flows to create an explicit link between process level metrics and the business outcomes the organization wants to achieve. Atos uses its CX labs to examine in detail how users (both internal and external) operate in a process. Data science and analytics skills are applied to identifying and quantifying bottlenecks and improvement opportunities.

Prioritization

Value stream mapping leads to a better understanding of where the business needs to focus. It identifies and evaluates potential innovation using an agreed set of data and insight and drives business optimization and new market opportunities in support of business goals. In turn this allows a rational prioritization and closes the gap between the expectations of innovation and experience in delivering business value identified in the Celent report.

Focus prioritization helps create a common understanding of which problems need to be fixed first given the inevitable constrains of limited resources. This is an exercise in understanding the trade-offs between speed, effort required (or available) and depth and completeness of a solution.
Prioritizing innovation is not just about picking the initiative that offers the highest return. There are a number of other factors to take into account:

  • Reach – How many customers does the change impact? One that is invaluable to small subset of customers or users is likely to have a lower relative value than a smaller feature that impacts an entire customer base.
  • Customers – They may not always be those paying for or using your product or service. A customer could be a colleague or business unit within your own organization. We need to understand who the customer is.
  • Revenue – Will the change drive revenue or reduce cost or both? If so, how much?
  • Acquisition – Will the change help drive new customers?
  • Efficiency – Does the feature help drive efficiency in customers’ lives – be that internal customers (colleagues), or external (paying) customers?

The only way to answer these questions and assess their relative weight is to identify the stakeholders who need answers and get them all in a room (or Zoom) together. The other important factor in prioritization is determining the effort required to execute innovation. Change managers and technology people will need to add their expertise to the debate.

In our experience, prioritization is the area where external help is often the most valuable. Even the most efficient and clear-eyed organizations are prone to internal political horse trading and budgethording. Rational analysis on what constitutes value backed up by reliable data is a great antidote to gut feel. Using a 2X2 approach avoids the dominance of the HiPPO (highest paid person’s opinion) or prioritization via the opinion of the loudest or most articulate voice in the room. Fact free decision making rarely delivers the outcomes needed.

The 2×2

A list of organizational change initiatives and innovation ideas can become a dumping ground for hundreds (if not thousands) of must do enhancements that may or may not add any true value for customers. Prioritization paralysis regularly occurs as it becomes progressively harder to identify initiatives that are really going to have an impact on the business metrics – the measures that determine the overall success of the enterprise or the individual business function. They get overlooked by the “noise” generated by the scale of a change backlog where everything (and therefore nothing) is top priority.

The four quadrants of the 2x2 approach are:

  • High Value / Low Effort - Initiatives that offer the best value for customers with minimal effort. These are the things that should be worked on immediately.
  • High Value / High Effort - Initiatives offer high value but require significant effort to deliver. These can sometimes be broken down into smaller, bite-sized pieces and re-prioritized.
  • Low Value / Low Effort - Features offer lower value for customers but are easy to implement. These can be slotted in as and when there is spare capacity or between larger initiatives. They can also help maintain momentum.
  • Low Value / High Effort - These initiatives require significant effort to deliver and offer lower value to the customer than other items in your backlog.

The 2×2 matrix can be used to triage initiatives using data-driven insight as to where real value is being generated in a process or across a business function. It’s quick and simple to use and enables business change functions and software development teams to determine the relative value created vs the effort required to deliver a proposed change.

Creating an efficient innovation culture

We have already alluded to the HiPPO approach to picking innovation winners. This can often be amplified by the notion that experimentation equals failure. There is also the idea that it is better to be the second mover when it comes to innovation. The latter can lead to a herd mentality where organizations implement change because everyone else is rather than because it fits their business needs.

Overcoming the fashion industry approach to innovation and relying instead on a data-led understanding of business metrics and value often requires a change in corporate culture. The results of the Celent report show that a scientific approach correlates strongly with better outcomes, but that it requires a cultural change first, and it must start from the top.

One area where cultural change is hardest to achieve is in experimentation. Lean Agile approaches to transformation have become increasingly popular in financial services over the past decade. However the Waterfall thinking that loves big transformation programs that go into a black hole and spit out an answer after 18 months are still common. A “Wagile” approach is often taken where Lean Agile terminology is used in a Waterfall corporate culture.

In the next blog we will talk about another result of the Celent survey. That is the complaint of many business managers that not only is innovation investment not delivering sufficient value. Its not doing it fast enough either.

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About Andrew Davison
Global Insurance Consulting Leader
Andrew is a Global Insurance Consulting Leader at Atos and specialises in the Insurance sector across Europe, Asia and North America.

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