I want to make changes.. but they keep asking for a cost benefit case!
Can’t we just do what our customers want us to do?
Can’t we just do what our customers want us to do?
We get this comment a lot when it comes to putting change in. The “they have said I need a cost benefit case – surely they should just know we need to do this?” cry for help.
In todays world of agile, aligned ways of working, where billion £ businesses are created virtually overnight, you might think we would come out in support of a position that says:
If it’s aligned to Customer needs, then you should just do it.
But we don’t and that is because doing a cost benefit (or business case, or return on investment etc) has a lot of merit.
Here are a few reasons:
1. It encourages cross functional working – no bad thing for creating alignment between a brand and its customers through its colleagues – a big driver of Brand Empathy & Customer Loyalty.
2. You should know what it ‘costs to serve’ your brand to your customers. How else can you focus your efforts correctly on doing things that add value to the customer?
3. The basic tenant of all business is simple – create something at a cost of Y, sell it at a price of X. As long as the amount you spend on ‘selling’ your product is less than X minus Y, then you’re making money.
And finally it has another major bonus – The plans you have for change are significantly more likely to get approved because most of us work in businesses where the final arbiter for approval is ROI (Return On Investment).
As with many things, it’s not about if you should do something or not, it’s about how.
So how do you go about building a cost benefit case?
So a bit like our thin strategy approach (keep it clear, customer centric, emotionally engaging & with a clear financial outcome), we have a view on cost benefits. You should be able to quickly access the cost, and therefore the benefit of any changes you wish to make, on an ongoing basis. It should be a core part of your decision making process.
Here are some tips on how to do this:
1. Involve your finance team – especially anyone who has a title such as Cost Accountant. Finance are all about helping business make sensible decisions – especially improving the
X- Y equation stuff.
2. Create a high-level view of the major steps involved in ‘selling’ your product (or service) to the customer. It helps to do this as an internal Process Map and not a Customer Journey map initially.
3. This Process Map will usually involve actions within discrete areas of the business and will be focussed on hand over points. A good way of doing it is a quick huddle with your peers to work out the input/output, handovers and metrics.
4. Once you have got the high level process & metrics, the finance team can look at the cost incurred in each stage. There is usually more to this than taking the departmental budget and dividing it by the ‘product’ volume. But often, it is that simple.
5. Now you will have a high level map of the ‘process’ your business goes though to sell its product or service. You will also have the steps, metrics and cost – in short you have a Cost To Serve Model that details the process, measurement & cost for getting from X to Y.
Is it really that easy?
In short… yes. But as with most things in business, what can be an easy thing to outline in 5 steps, proves a bit more difficult in real life. Usually because a lot of informal internal process builds up to protect functional budgets.
But don’t be distracted and again this is where Finance come in. They have a cross functional remit, so they can help look across functions and ensure the end result has credibility.
But how does this help build a benefits case?
Once you have a Cost To Serve Model (specifically the metrics by process step aligned to the cost), you can used it to test the outcomes of different ways of doing things.
The biggest gain you can get to quickly using this approach is to look at the true cost/impact of failure. This can be both the downstream (perhaps a logistic failure) or upstream (bad service experience) impact of getting something wrong. Because you can see how much cost you have wasted, or how much you are going to have to expend rectifying it.
And guess what, the same peer group that helped create the cost to serve model, will almost certainly know what could be done to flex the model to improve it. More than that, you will be able to look at what the ripple though effect is of changes in one area on others.
Even better. This team, who will have a business wide view of the process used to ‘sell’ your products to your customers, can also then use Customer Experience methods to identify what areas of the process should be looked at to create even greater benefit – but that is not for now.
Surely this is too simplistic a view of things
I understand that thought. But equally I have worked for a lot of very large companies, in both the service and product sectors and my general experience is this:
- Sophisticated modelling – when it exists – is deep at a functional process level. Business has tended to develop a lot of ways of working (for what used to be and can still be, good reasons) that are functionally orientated.
- Business wide modelling – when it exists is remote from the main business and done as part of a directorate level strategic planning process, so may not filter far enough down a business.
My view is few companies have a got a workable view on their cost to serve model at a level of visibility and understanding that means the colleagues working in the business day in day out, can make a significant impact.
It is also worth saying that even at this high level, you need to maintain a rigour over the metrics and costs that are being used. The old adage of rubbish in, rubbish out, is always true and high level does not mean lots of ‘best guess’ variables will be ok.
But getting your Cost To Serve Model into this format, means the people who can make the biggest difference every day, have the means to do so.