Business Value – Holy Grail of the Business
Author: Dr. Dawid Jasinski, PMP, PMI-ACP
Customers do not pay anymore for products or services. They pay for the value they expect to receive thanks to products or services. Check why else the value is a key for the business.
Autor
Dr. Dawid Jasinski
The Role of Business Value
Functions of business value
The role of business value results from its function and the company’s vision. Due to the range of factors affecting the creation of business value, the number of relationships between it and various aspects of business operations, and the importance of business value, it can be assumed that business value should be an impulse to create an enterprise, condition its success and be a determinant of development.
It is what motivates enterprises to cooperate and what determines the profitability of project implementation. It can, therefore, act as an indicator of the willingness of the principal and project contractor to engage in it, while the value created must be less worth to the contractor than the principal is ready to pay for it[1].
The difference, which may be a sufficient reason to decide on the implementation of the project, is a value for the principal. Otherwise, there should be a sufficiently strong argument of long-term benefit that it can cover the short-term losses of the company resulting from the project implementation costs.
Business value also allows you to prioritise projects competing in the company for resources to implement them and helps in selecting projects that have the greatest benefit for the enterprise to the portfolio of projects.
In the author’s opinion, the significant difference between the assessment by value level and the classic assessment of return on investment is that the assessment by value level also includes intangible goods. Focusing on business value, in addition to short-term benefits, therefore allows you to include those of them that may occur in the long run, i.e. those that are of strategic importance for the functioning of the company.
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The business value measured during the project lifetime can serve as an indicator helpful in making the decision to discontinue the project before its planned completion. This is particularly possible with the use of iterative or adaptive methodologies, through which values in the project are provided during the entire project implementation period, and not at the end, as is often the case with the use of cascade project management methodologies.
If the planned values are not consistently delivered in individual stages of the project, it may turn out that its further implementation will not bring the minimum expected results. Therefore, a further investment of resources in this undertaking will become unprofitable.
Kerzner also mentions the continuum of values as a function of the level of project maturity. The values presented in Figure 1, categorised in four groups, are obtained after reaching a given level of project maturity.
Therefore, the company, achieving financial values in the long run, should have a fourth level of project maturity or higher. The author has some objections to such conclusions. Increasing the level of knowledge about project management, defining joint processes and implementing process controls should also imply an increase in financial value. Process improvement can also contribute to the above after increasing customer-related and internal values.
Fig. 1 Business values as a function of project maturity level
Source: own study based on H. Kerzner, FP Saladis, 2009, Value-Driven Project Management, Wiley, Hoboken, p. 220.
Wysocki is of the opinion that the main goal of the project should be creating business value. It follows that it is important that both the requirements and the sub-goals of the project are derived from the value that the project is expected to provide. Verification of requirements and goals by assessing the value they are to create is another function of value. If the results of this assessment prove unsatisfactory, this may be a sufficient argument for abandoning the given requirement or project goal. The intention of this action is to separate the wishes from the sponsor’s needs and reduce tasks that do not contribute to increasing the value in the project.
The above-mentioned functions of business value point to its important role not only in enterprises that significantly benefit from the implementation of projects. Being guided by the priority of creating value in all activities undertaken as part of a business by its owners and employees seems to have a large, positive impact on both the company and its business partners. Assessing these activities through the prism of their impact on business value would allow to see unnecessary work, which could be replaced by more valuable activities from the point of view of this assessment.
The importance of values for project stakeholders
Project stakeholders’ perception of value is not homogeneous. It results from many definitions and meanings of this concept and the business model of companies. The main axis of division in the meaning of business value is identifying it with a product or with a solution to a business problem.
The most popularised product orientation assumes that customers pay for products or services that the contractor undertook to produce and deliver to the principal. They can turn into the main subject of interest, and all activities of the stakeholders are focused on their improvement. The purpose they are to serve becomes less important, which means that the meaning of business value is reduced to the functionality and quality of these products, and the value associated with satisfying the need for which the product was manufactured is ignored.
At the turn of the 20th century, a concept was created, according to which customers pay for the value they expect to receive thanks to products or services[2]. This change in the approach to the perception of value revealed new areas in the activities of enterprises implementing projects in which additional material and intangible benefits could be generated.
Companies that first recognise and make use of these opportunities are considered leaders and are often more successful than those that adapt to the new situation[3].
The above concept of business value gives it a greater significance as the main determinant of cooperation between business partners. As the latest research confirms, this approach often allows a better understanding of the problem, which leads to a more effective solution[4]. M. Randmaa, K. Mougaard, T.J. Howard, T.C. McAloone, citing the work of C. Prahalad and V. Ramaswama[5] as well as R.A. Tana,[6] B.J. Pine and J.H. Gilmore[7], claim that as technical companies have a product-oriented perspective, changing optics to creating personalised customer experiences can be a major potential for improving performance, creating long-term customer relationships, and a competitive advantage in a globalising market[8].
If there are many stakeholders, it is important that the meaning of values is the same for all of them. Differences in its perception may lead to contradictory aspirations, as a result of which the maximum material and non-material benefits for persons involved in the project will become impossible to achieve.
In the absence of effective communication in the enterprise, it is easy to find discrepancies in the understanding of the importance of values by individual stakeholders. To support this thesis, the author in his earlier research carried out a case study of one of the automotive industry companies operating on the international market.
As part of it, the author tried to determine what business value meant for individual project stakeholders. The answer to this question was definitely the biggest problem for the respondents, because it was not given at all in 8% of cases or after a long moment of reflection. 64% of respondents associated value with money. 32% referred to what constitutes value for the customer and 12% mentioned other values. The sum of the percentages exceeds 100%, as some respondents defined the value as profit for the company and value for the customer.
Noteworthy is the distribution of answers to the question of what value is among the various types of respondents who consider it what it means to the customer, i.e. those who provide answers: value is what the customer considers it to be.
Among the respondents working as directors and above, such answers constituted 72%, among the members of project teams and project support – 10%. Of the project managers, no one has indicated the value for the customer. All of them, however, referred to the elements of the design triangle. This reflects the classic approach to project management, in which success is measured by the degree of project implementation within the budget, time and resources of a given quality.
Due to the key human function in the process of creating business value, the complexity of project management and the role they play in the enterprise, the involvement and support of all stakeholders seem to be necessary for the success of a given venture. The significance of these factors for the success of the project is confirmed by research by A.M. Farzan and H.P. Ashly[9].
In turn, without understanding what business value is in relation to the project, it seems impossible to focus on maximising it, which can also have a direct impact on the success or failure of the project.
Creating business value
Evolution of values
The perception of business value has changed over the years. Certain values from previous years have been devalued due to changes in the business environment. Others, in turn, have not proved the expected benefits in many years of practice. The summary of the evolution of some values is presented in Table 1.
Table 1. Evolution of some values
| Value in the past | Value currently |
| Lack of trust | Trust |
| Job description | Competence model |
| Power and authority | Teamwork |
| Focus on the interior of the company | Focus on stakeholders |
| Safety | Risk-taking |
| Conformism | Innovation |
| Predictability | Flexibility |
| Internal competition | Internal cooperation |
| Reactive management | Proactive management |
| Formality | Informality |
| Traditional education | Long-term education |
| Hierarchical leadership | Distributed leadership |
| Tactical thinking | Strategic thinking |
Source: study based on: K. Hultman, W. Gellermann, 2002, Balancing Individual and Organizational Values. Walking the Tightrope to Success, Jossey-Bass/Pfeiffer, San Francisco, pp. 105-106.
Limited or lack of trust led to an extension of the project duration by questioning the decisions taken and the need to reassess them. For this reason, trust and reliance on decisions made by team members are necessary when implementing projects. With the increasing pace of project work, verifying the findings of individual people involved in the project seems to be a comfort that the project manager cannot afford. Such actions also lead to a decrease in team morale, reduction of confidence in their competences, and thus to a decrease in work efficiency.
Twenty years ago, companies were preparing job descriptions, stating only the role and responsibility of the employee[10]. Throughout the years, these descriptions became more and more detailed and were constantly gaining importance because they gave the opportunity to manage work more effectively, in the authors’ opinion. It was known which of the employees was responsible for performing the given task.
As job complexity increased, job descriptions became increasingly complex and therefore less transparent. As a consequence, they were replaced by competency models that a given employee should have in order to meet their tasks. This allowed to simplify the course of work and increase its flexibility while saving time.
In the past, the power and authority of managers resulted from the job description or project card. There was a conviction that effective project management is possible only thanks to issuing and indisputable acceptance of official orders in the hierarchical structure of the division of labour.
People in managerial positions sought to maximise their powers, which in turn raised concerns about the decentralisation of power and introducing chaos in company management. In practice, it turned out that a small amount of power and authority is needed for efficient management. With a sufficiently high level of confidence in the project’s stakeholders, teamwork replaces the authoritarian style of management[11].
The company’s internal values have been converted into focus on the needs of stakeholders. In the past, maintaining project constraints at the assumed level and profitability were a determinant of project success. Today, there is a tendency to get the satisfaction of all project stakeholders, in particular its sponsor. This is sometimes done at the expense of short-term benefits in favour of long-term profits.
Initially, the risk in the project was perceived as a threat of resource losses. Therefore, the priority for managers was to reduce the risk to the possible minimum. However, it has been noticed that many chances for additional benefits are lost due to this approach. For this reason, there is now a trend to encourage project teams to take risks in those areas where the likelihood of benefits outweighs the likelihood of losses.
Conformity stems from the pursuit of security and risk reduction. Rigid project management methodology, lessons learned and disseminated from these errors are aimed at supporting conformist behaviour. Such activities leave no room for innovation, which is a source of competitive advantage. Properly designed project management processes provide the possibility to take advantage of opportunities that arise during project implementation[12].
Striving for predictability in the project is a consequence of the focus on risk reduction and conformity. However, in a dynamically changing environment, predictability is extremely difficult to achieve. Continuous insistence on the original project plan does not serve to create value for all stakeholders, in particular for the customer. For this reason, flexibility of actions is highly desirable during project implementation. It allows you to show innovative initiatives, adapt to changing business conditions, as well as take advantage of opportunities that arise.
Years ago, company policy encouraged project managers to compete for the resources needed to implement the venture. The manager who convinced the project sponsor about the desirability of its implementation, received the necessary resources. For project managers, the company’s business goals were subordinate to the project’s goals. As a consequence, those were implemented whose managers were more effective in soliciting their implementation, and not those that were of greater value to the company. Internal cooperation has helped to increase the business value of implemented projects by making more effective business decisions thanks to greater awareness of the company’s strategy and goals, as well as by soliciting project managers for the necessary resources to implement any projects instead of the best ones.
Reactive management, which consists of implementing the agreed project management plan and reacting to unforeseen situations during the implementation of the project, proved to be the ineffective way of caring for creating business value.
The effects of such behaviour contributed to making wrong decisions under the influence of time pressure and lack of accurate assessment of the situation. Consequently, project stakeholders were significantly exposed to material and non-material losses. Due to the increasing level of project complexity and the reduction of time allocated to their implementation in order to increase business value, reactive management has been replaced by proactive management. Its main advantage is the higher quality of business decisions made – thanks to this, based on monitoring and predicting opportunities and threats in the project, it is possible to better understand the problem and make more effective decisions.
Proactive management has become necessary due to a greater tendency to take risks in the project, which more often leads to situations that deviate from those foreseen in the project plan, created a priori in relation to it[13].
The formalisation of project management is the result of striving for strict and total control of projects, lack of trust, conformity and concern for the highest possible predictability. Attempts to measure and supervise the biggest number of project parameters have not proved to be used to build value for any of the stakeholders.
The illusory impression of total control of the project also does not facilitate the work of senior management, because the supervision activities and formalisation of all project activities have extended the total duration of the project. The company’s flexible processes and reduction of the number of documents created as well as the selective control of key project parameters allowed for a significant increase in the business value that the given enterprise was to provide.
In the past, companies wanting to increase the business value generated in projects have invested in project management courses for selected employees. This usually involved one-time activities, which were not synchronized with other activities aimed at consolidating knowledge and exchanging it for skills. Consequently, instead of growing, the business value was decreasing. Knowledge was quickly forgotten, and training costs, as well as time devoted to them, depleted the company’s resources.
Currently, enterprises are organising multi-stage training courses for their employees, which in addition to transferring knowledge are to teach new skills. The training process allows you to refresh the knowledge you have learnt and to expand it at subsequent stages of training with constant attention to the practical skills of its application. This approach means that in the long-run investments in employee development bring measurable values[14].
The increase in customer requirements has contributed to increasing employers’ expectations regarding employee qualifications. On the other hand, employees do not want to be only incapacitated executors of orders and expect new challenges to be faced that would require independent decision-making and give development opportunities.
These needs have intensified with the development of the organisation and have the nature of feedback, because the increase in customer expectations implies the need to develop management systems, increasingly efficient management systems require an increase in employee qualifications, who in turn strive for greater independence and decision-making.
This, in turn, prevents the application of an authoritarian style of management. Therefore, in order to meet the changing needs, hierarchical leadership was replaced by distributed leadership.
In the past, projects were entrusted to project managers after creating a business plan. The tasks assigned to them were rather of an operational nature and came down to planning the course of the project, creating a schedule, ongoing control and ensuring adequate quality.
This approach excluded project managers from making business decisions, so they could have less knowledge about the company’s long-term goals. For this reason, decisions made by project managers could be unfavourable to the strategy implemented by the company.
Increasing the business knowledge of project managers and including them in decision-making processes regarding the creation of a business plan, project portfolio management and selection of projects to be implemented has contributed to a better understanding of the company’s goals and customer needs, thereby increasing the business value created in the projects[15].
Enterprise values vs. business value
In the past enterprises mainly sought to increase market share, which was to guarantee high profits and profitability[16]. At the end of the 20th century, as a result of technical progress and easier access to information that allowed customers to look for better offers, the profitability of many companies began to decline. As a result, the key indicator of success, i.e. the level of market share, has been replaced by the measure of value creation for the company’s stakeholders[17]. This allowed values to become the main focus of entrepreneurs’ interest.
The company’s vision is “a model concept of a future organisation, functioning and desired development of the company, determined by the aspirations and creative imagination of the company owner (including management, members of the organisation)”[18]. The company’s mission, in turn, is “the subject of aspirations, or continuous attempts that determine the scope of the company’s social activity. In other words, the company’s mission is organisational self-determination in terms of:
- Why does it exist (work)?
- What does it strive for?
- What should it achieve?
- Whose (entity) and what (subject) needs does it meet?
- What is its social destiny, mission?”[19]
The company’s vision and mission define the company’s values to a large extent. Thanks to them, companies stand out on the market and encourage customers to cooperate, and stock investors to acquire shares. This means that the level of business value it creates depends on the company’s values.
Evolution of values made innovation, flexibility, teamwork and risk-taking become the determinants of an efficient company. This proves that customers are more willing to cooperate with such business partners, hoping to create greater business value. However, for these values to be actually followed and used by the company, it is necessary for it and its employees to have a common system of values. Expression of company values is manifested in its activities, so it is the values owned by employees that will be manifested during their work.
The list of company values communicated to staff in the form of information sent by email or during the meeting will not change the value system of employees. Company values written down will therefore be a wish list rather than a description of reality.
Organisational policy and culture serve the purposes of synchronising the company’s values with the values of its employees. Thanks to them, the company’s management can actively shape habits[20] and encourage to take actions that express the company’s values. The identification of company members with the company’s values provides an opportunity for behaviours consistent with it. This, in turn, leads to an intensification of activities in the company in line with its vision and mission. If they include creating business value, it will be easier to develop than in a situation where the real values of the company do not coincide with the values of its owner or management or when the values of the company do not result from its vision and mission or are not defined at all.
Although the values of the company and its employees differ significantly in terms of business value, in the author’s opinion the first may imply the emergence of the latter. It is extremely important for the business value created for all project stakeholders to devote sufficient attention to company values and to ensure that they belong to the employee value system. Otherwise, it may turn out that the effectiveness of efforts to increase business value will be low.
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[1] M. Randmaa, K. Mougaard, T.J. Howard, T.C. McAloone, 2011, cited issue, p. 4.
[2] H. Kerzner, F.P. Saladis, 2009, Value-driven…, cited issue, p. 41.
[3] M. Kukushkin, T. Otto, T. Howard, 2015, cited issue, p. 543.
[4] M. Randmaa, T.J. Howard, T. Otto, 2012, cited issue, p. 4.
[5] C. Prahalad, V. Ramaswamy, 2004, Co-creation experiences. The next practice in value creation, Journal of Interactive Marketing, vol. 18, No. 3, pp. 5-14.
[6] DTU Management, A.R. Tan, McAloone, Tim C., 2010, Service-oriented Product Development Strategies, Lyngby.
[7] B.J. Pine, J.H. Gilmore, 1999, The Experience Economy. Work is Theatre & Every Business a Stage, Harvard Business School Press, Boston.
[8] M. Randmaa, K. Mougaard, T.J. Howard, T.C. McAloone, 2011, cited issue
[9] A.M. Farzana, H.P. Ashly, 2014, Exploring the value of project management. Linking project management performance and project success, International Journal of Project Management, nr 32, www.sciencedirect.com, accessed on 15 January 2016, p. 214.
[10] H. Kerzner, F.P. Saladis, 2009, Value-driven…, cited issue, p. 73.
[11] Therein.
[12] B.A. Hussein, K.H. Hafseld, 2014, Impact of conformity, commitment and management style on an information system project, International Journal of Computing, 13(1), pp. 1-11.
[13] O. Lambrechts, E. Demeulemeester, W. Herroelen, 2008, Proactive and reactive strategies for resource-constrained project scheduling with uncertain resource availabilities, Journal of Scheduling, April, vol. 11, Issue 2, pp. 121-136.
[14] K. Mason, 2015, How to effectively and efficiently train your employees, Talent Management and HR, https://www.tlnt.com/hr-basics-how-to-effectively-and-efficiently-train-your-employees, accessed on 12 February 2017.
[15] D.E. Ranf, 2011, Project Management- Then and Now, Annales Universitatis Apulensis Series Oeconomica, 13(2), pp. 596-603.
[16] A. Stabryła, 2010, Analysis and design of enterprise management systems, Mfiles.pl, Krakow, p. 433.
[17] Therein, p. 433
[18] A. Stabryła, 2000, Strategic management in company theory and practice, PWN, Warsaw, p. 48.
[19] B. Wawrzyniak, 1989, Strategic company policy, PWE, Warsaw, p. 45.
[20] C. Duhigg, M. Guzowska, 2013, Strength of habit. Why we do what we do and how it can be changed in life and business, PWN, Warsaw, p. 31.
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