Value Selling for SME

Transcription

1 Value Selling for SME How to Build a Value-based Business Case Welcome to the unit How to build a value based business case from the Value Selling for SME curriculum. This unit will introduce you to business cases and what they are. The subject of value-based business cases has often been quoted in advertisements, marketing collateral, and proposals. This unit will demystify the value business case concept and offer you a practical approach to using appropriate content and positioning value correctly and effectively. 1

2 How to Build a Value-based Business Case: Unit Objectives After completing this course, you will be able to: Describe how you should assist a customer in creating a business case Define the key sections of a business case Explain how to personaize the benchmark driven engagement into a customer specific engagement Identify where to source detailed information on specific business KPIs Articulate what a value based business case is and how it is used to make decisions After completing this course, you will be able to: Assist a customer in creating a business case Define the key sections of a business case Personalize the benchmark driven engagement into a customer specific engagement To source detailed information on specific business KPIs Articulate what a value based business case is and how it is used to make decisions. In this unit, we aim to give you a greater understanding of business cases by concentrating on the key components and how they are positioned. This will enable you to avoid the fear of other unrelated/wider terms that have nothing to do with business cases. This session will also provide practical examples of how and where business cases have been used and the impact they have had, helping sponsors justify their own budget requests for investment. To deliver professional value-based business cases, we will also highlight SAP tools that are available: Tools that automate large elements of the process, avoiding the burden of detailed calculations, and allowing the focus and approach to be a benefits discussion with the client. 2

3 Key Vocabulary SME Small and Mid-size Enterprise Prospect an SME company with an identified need for a project ROI Return on Investment Payback Length of time for investment return IRR Internal Rate of Return NPV Net Present Value. Also known as EVA (in the United States). DSO Days Sales Outstanding VLM Value Lifecycle Manager EHC Enterprise Health Check This slide introduces you to some of the terms you will encounter in this unit: The key metrics that you need to know are ROI, Payback, IRR, NPV, and DSO. These are covered in detail in the Financial Foundations unit. VLM, or Value Lifecycle Manager, and EHC, or Enterprise Health Check, are SAP developed tools and processes to accelerate creating a business case. 3

4 Agenda 1. Introduction to Business Cases 2. Buying Process Changes 3. What Is in the Business Case? 4. Simple Business Case 5. Business Case Example 6. Summary SAP 2009 First, let s look at the importance of business cases. 4

5 What Is in a Business Case? Financial review of the impact of making an investment in a project External costs Internal Costs Benefits Timescales Risks Quantifiable and measured in Net Present Value NPV Internal rate of Return IRR Payback A good business case will provide the key value components that are important to your prospects. It will provide them with the information about how they can solve the needs and requirements of their business. This means that the business case should include a comprehensive financial review using quantifiable metrics of the impact of making an investment in a project, so the client can make measured but quick decisions. Details within the business case will include: External costs Internal costs Benefits Timescales and risks. We will look at each of these elements in more detail. 5

6 Why Do We Need Business Cases? Decision by teams not individuals Not everybody knows everybody's requirements Competition for funds Need a common way to decide on investments You may wonder why business cases are required. Some of the reasons are that: These kinds of decisions are made by a team, not by individuals Not everybody knows the requirements for all the other parts of the business. For example, the manufacturing director may not know the issues in the sales area. Therefore, he would not know the solution benefits of a CRM system. He needs to see these benefits in terms that he can relate to. In other words, instead of the manufacturing director talking manufacturing and the sales director talking sales they both must talk a common language business and the vocabulary is the business case what is the return? When? And what are the risks? A third reason for the business case is to resolve the competition for funds. Business cases help to define the need in a common way, and provide concrete grounds for deciding on investments. This increases the chances that this proposal or contract will be selected 6

7 Why Do We Need Business Cases The Expert s View Increasing pressure is on technology directors to prove the link between IT investment and the company s bottom line. It is no longer the glamour of technology but the return on it that is driving customers. IT decision-makers do not have much trust in the vendorsupplied metrics. They need to see customized and detailed metrics for the specific solution offered. We should also consider the macro level. What is the perspective of the analysts and the business communities? Analysts and the business community are in agreement on the need for business cases to support the decision-making process. The Gartner quote shown here reflects the expert s view of current market conditions. Gartner recognizes the changing role of IT directors, who now have to clearly demonstrate how and where investment in IT helps their customers profitability. HP acknowledges that technology, and the glamour traditionally associated with it, has now given way to an overwhelming requirement to understand the returns it brings. The final quote is probably the most pertinent. It reveals that IT decision-makers need to understand what an investment in IT will deliver to their business, rather than relying on benchmarks or business cases from unrelated industries or situations. They think that if value is to be delivered from business cases then, of course, it has to reflect their situation with their benefits! 7

8 Benefits of Deploying Business Cases Reduces sales cycle times Allows faster/more reliable business case production Increases win rate Avoids the do nothing option Reduces the focus on discount There are several benefits of creating business cases within the typical sales cycle times. These will deliver early visibility of where the value of a sale does or doesn t meet customer expectations. Business cases will reduce the sales cycle time, since you will be able to position value on the things that are most important for the prospect. Following the process and using the tools will enable you to develop and position reliable business cases in an efficient but professional manner Your chances of winning the opportunity will greatly increase as you begin building a trusted relationship with your prospect Value measures remove the chance of a customer doing nothing and delaying project acceptance, because the business cases clearly demonstrate Value benefits in hard financial terms. This also removes the emphasis on discount, as this higher-level engagement distances the prospect from traditional price-only discussions that are vulnerable to discount requests. 8

9 Agenda 1. Introduction to Business Cases 2. Buying Process Changes 3. What Is in the Business Case? 4. Simple Business Case 5. Business Case Example 6. Summary SAP 2009 This section will look at buying process changes. 9

10 SME The Business Environment 53% of SAP lost orders were not lost at all The do nothing buyer won the day Customers want solutions but they need economic justification The business environment for SMEs today reveals a number of discernable trends. When SAP looked at orders that were considered lost to the competition, it was discovered that 53% of these were not lost at all The prospects had decided not to move forward with any vendor. One of the reasons given was the lack of a business justification to spend any money at all. Customers need solutions, but they want technical proposals enhanced and supported by an economic business case. Fundamentally, businesses exist to generate profits. Good business decisions are essential to protect long-term business strength and ensure benefits for everyone. What constitutes a good business decision with respect to investment in IT? Traditionally, these discussions have been based around features of a solution rather than its economic impact on the company. We all may have different opinions about what is good for a business, but we need to understand the language used to determine whether the amount of money spent on an IT project is sufficient to justify the investment in the first place. These are value measures, and, when included in a business case, can clearly demonstrate the economic elements necessary to decide whether to invest in an IT project or not. 10

11 Buying Process Changes Until recently, inside our customers I have an agreed-upon annual budget Value for money, technology, tenders, RFI New approach... I have no budget as of right now All spending must be economically justified All colleagues need to be persuaded Technology decision and cost justifications Do Nothing! In the past, some senior managers had total discretion for IT spending. They often made their decision based on feature comparisons or strategic technology drivers. However, things have been changing! Most managers do not have absolute discretion to spend money as they please anymore. Even if they say they have budget, they may still have to secure the agreement of their colleagues and fellow decision-makers before a final commitment is made. There are many ways to spend scarce funds, and IT is only one of them. To support the case for spending it with us, we need economic justifications to invest in IT and we also need to fend off an even bigger and ever-growing rival doing nothing. There are many excuses for doing nothing. Decision-makers who are uncertain of the value of a project may decide to do absolutely nothing. We need to position the business and economic value of the SAP solution. And while all these economic issues are decided, we must never forget that the core technical features and benefits from an IT solution must still be positioned with the customer. The value business case enhances and supports the technical decision, it does not replace it. 11

12 Agenda 1. Introduction to Business Cases 2. Buying Process Changes 3. What Is in the Business Case? 4. Simple Business Case 5. Business Case Example 6. Summary SAP 2009 Lets take a deeper look at the contents of a business case. Remember, the business case must reflect not only the cost of the solution, but also the other disturbances, write-offs, and additional hardware that the customer may need. These costs need to be covered by benefits that are relevant to the prospect s business, and have been discussed and agreed to by the prospect. 12

13 External Costs Software Hardware Implementation Training Consulting & project management Expenses & travel Cost of parallel running External costs are those that a prospect would be spending cash on directly with third parties. If we are looking at typical IT solutions, these include: Software costs Hardware costs, which may be purchased from another vendor Implementation costs and related timescales Training costs, which are sometimes included in the implementation costs. Consulting & project management expenses, where additional resources may be required by the prospect to support their internal team Expenses & travel And the costs of running parallel systems until the previous solutions expire or are removed. 13

14 Internal Costs Staff costs Costs of disruption Change management Expenses and travel Opportunity costs Internal costs are those that a prospect would require from their own company, these include: Staff costs, which vary by company. They typically include business experts, business users, project experts supported by project management, IT departments and IT infrastructure specialist, sponsors, and executive decision makers. These individuals would need to devote time to the investment project while conducting their regular business role There is also the cost of disruption, in terms of infrastructure & business decisions Change management should be accounted for, since everyone using the new solution may need to change their business processes and get training, while still doing their day job Expenses and travel, in cases where resources from the prospect need to attend training or project briefings and meetings externally There are also other related opportunity costs, where business opportunities are missed due to the implementation project. 14

15 Benefits of Business Cases Reduction of costs Faster business processes Real time information Accuracy of data Avoid duplication Staff efficiency Integration costs Reduce Inventory Increase in Revenues Improved order fulfilment Targeted marketing Increase professionalism Visibility of opportunities = Increased profits & better cash flow The business case requires that clear quantitative and qualitative benefits are included. For example, there is an opportunity to reduce costs, where: Faster business processes are delivered by SAP solutions with integration and further enhanced with workflow and Real time information provided by SAP makes it easier to make decisions and act quickly to changing business conditions. There are several other benefits of reducing costs, such as Data accuracy Avoiding duplication Staff efficiency Benefits of reducing integration costs And reduction of inventory. On the other side of the scale there are opportunities to increase revenues By automating processes and having a transparent supply chain. This will make it much easier to improve order fulfillment from the time a quotation or order is produced to the time the goods or services are delivered. This provides the opportunity for larger and more frequent orders Other examples of increasing revenues are: Targeted marketing 15

16 Increase professionalism Visibility of opportunities. By pointing out how an SAP system can reduce costs and increase revenue, our proposition becomes more compelling. These will have the direct result of improving profits and creating a healthier cash flow, allowing the business with an opportunity to excel further and quicker 16

17 Timescales and Risks Timescales Effect your cash flow Interest rates effect Industry effect Risks needs to be budgeted for: Insurance Mitigation plan Cost of risk assessments Timescale considerations include determining: When will money be spent to pay for the solution and when will benefits come in. This will affect their cash flow, which will change as a result of the opportunity Timescales will also be affected by the impact of interest rates and inflation. If they are zero, 100 today is the same as 100 in a year. As interest rates increase, the value of cash in the bank today also increases one can do more with it now, than they can a year from now. Also, the industry effect is important if industry dynamics play a strong part in fluctuating timescales. For example, companies manufacturing seasonal goods need to make decisions in sync with those seasons. Risks will need to be budgeted: Ensure there is adequate insurance And develop a risk mitigation plan. Then obviously there is the cost of risk assessments and the frequency in which they are conducted, which will involve resource 17

18 Agenda 1. Introduction to Business Cases 2. Buying Process Changes 3. What Is in the Business Case? 4. Simple Business Case 5. Business Case Example 6. Summary SAP 2009 Lets take a look at a simple business case, which ensures the right decision. 18

19 Ensuring the Right Return / Decisions ERP Solution to department store (extra spend) $250k Hard benefits per month (36 months) $18k Monthly costs to consumer (36 months) $2k Period of review 36 months Cost of money (minimum return) 10% p/a What are the financial returns on this type of deal? Payback = 15.6 months (not very exciting) IRR = 89% (per year for each year) NPV = $249k (compelling!) To look at the impact of these value measures we need to look at a typical IT investment example. A department store spends $250,000 on an ERP solution. The owners agree benefits will accrue from reduced time in line (1 in 12 customers would previously have left the line), reduced stockholding, and better buying margins. Benefits total $18,000 per month, but suppliers will charge an extra $2,000 per month for the service. The question for the customer is, Over a 36-month review period, with a 10% cost of money is this a good deal? So what are the financial returns on this type of deal? Who can possibly tell unless they look at the key value measures? Payback is 16 months. It s okay, but not that exciting. IRR is 89% per annum this looks fantastic and well above any likely minimum returns insisted upon by the customer. Usually the cost of money + a working percentage. In this case cost of money is 10%, so the minimum return may well be 15%. NPV is $249,000 the increased shareholder value calculated from all the benefits recovering the initial cost, all the running costs, and the minimum interest returns, leaving a $249,000 surplus. It s now plain to see this makes sense, and the technical decision is supported by the financial language that business people understand. This is a simplistic example of how a business case could be presented in the boardroom and provides an opportunity to be weighed against other investment opportunities. 19

20 Hard Benefits Benefits to the business that can be financially quantified, for example: Reduction in Days Sales Outstanding (DSO) Reduction of Inventory Increased earnings per fee earner You need to find the ones relevant to your prospect Hard benefits are benefits to the business that can be financially quantified, for example: Days Sales Outstanding (DSO) Reduction of Inventory Increased earnings per fee earner. There are many other KPIs that you need to discover in relation to the prospect. You can learn more about the KPIs important to your prospect in the optional KPI ebooks. 20

21 Agenda 1. Introduction to Business Cases 2. Buying Process Changes 3. What Is in the Business Case? 4. Simple Business Case 5. Business Case Example 6. Summary SAP 2009 We have a couple of business case examples to share with you. 21

22 Business Case Example 1 Business Move $900k ERP Solution Business Move Supplier claims benefits will save 14 people Customer says, It will save 5 people Supplier hires consultants, It will definitely save 14 people and here s the business case: Result = 18 months without an order! Value Selling approach... is the business case justified based on the 5-person headcount savings? Yes. And we ll be claiming 50% of cost in government grants. Our first sample business case explains the real benefit of engaging a customer regarding the savings that could arise from a solution. If they don t buy in to the figures in the business case, it is worthless it is sales talk, not a genuine business case. In this instance, an sales person has presented the SAP solution to a prospect that is looking to move their business to a new location, and reinvest in technology. The reseller tried the approach of providing the maximum benefits they felt could be delivered post-solution. The customer disagreed with the approach and insisted that only a 5-person headcount could be saved, not the 14 claimed. The sales person countered by engaging independent consultants to support his maximum headcount claim. They agreed. Again, this led nowhere. When the sales person engaged in a discussion of benefits in the value business case, the prospect revealed that they would get a government grant of 50% of external costs, so the solution cost was halved. This meant a 5-person headcount made the project sustainable based upon the customer s estimate of benefits to be delivered. This is why the benefits and costs must be owned by them, and not presented by you! This change in approach, using the value business case to discuss and sponsor benefits and derive associated key values, accelerated the negotiation and secured the order. All with numbers that the customer was happy with. 22

23 Business Case Example 2 Airline Supplier sells 9000 software cash collection suite for airline Customer: It s only 9000, and is easily justified by 1-day improvement in cash collection times. Success! We got the order and didn t need a business case. Collect 9000 order and go home feeling proud Business case: What s your annual turnover? 1.1 Billion What improvement in cash collection do you think this will deliver? Well, it s at least 1 day = Interest savings ( 150k p/a) would support 400k sale Our next business case addresses the claim, I don t need value business cases to get orders. That may be true in some cases, but you never know what opportunities you may have missed without one. In our example, a salesperson has successfully sold a 9,000 cash collection module to a client involved in charter airlines. When the salesperson asked the customer for an order, the customer said, It s only 9,000, and I m sure it s justified by a likely minimum 1-day improvement in cash collection days. Success! The salesperson left with the order, but what could have been achieved with a different approach? If a value business case had been used to determine the value of the saving from a 1-day improvement, the questioning would have been as follows: What is your annual turnover? Answer: 1.1 Billion. A reduction of 1 day delivers a significant improvement of cash collection, and the interest savings alone would have justified a 400,000 solution, which the airline actually needed. So a 9,000 order was won but the opportunity to identify the value to support a 400,000 sale one needed by the client was unfortunately missed. 23

24 Creating a Business Case Creating business cases a simple approach: Step 1. Understand the prospects need, pains, vision, strategy and importantly the key performance indicators, or KPIs Step 2: Using these KPIs, discover the competitors & peers, and compare them to the benchmarks. Leverage this information by taking advantage of the Enterprise Health Check (this tool is discussed in more detail within the value selling curriculum) Step 3: Using the data collected in the previous step to identify the key areas for business improvement Step 4: Create your business case using the information collected from the previous steps, and take advantage of Value Lifecycle Manager (or VLM, another tool which is discussed in more detail within the value selling curriculum). 24

25 Agenda 1. Introduction to Business Cases 2. Buying Process Changes 3. What Is in the Business Case? 4. Simple Business Case 5. Business Case Example 6. Summary SAP 2009 In conclusion 25

26 In Summary A business case can: Increase sales success Motivate the do nothing decision-maker to take action Give customers the justification they need to secure project budget In summary, the business case can: Increase sales success Motivate the do nothing decision-maker to take action Give customers the justification they need to secure project budget. We have explored the benefits of engaging customers in discussions that produce value business cases. Using an value business case increases the likelihood of sales success and fends off the potential do nothing decision-maker. SAPs processes and tools can provide a framework and structure to identify benefit areas and follow through with the automatic production of impressive board-ready proposals using professional language for client consideration. 26

27 How to Build a Value-based Business Case: Unit Summary You should now be able to: Describe how you should assist a customer in creating a business case Define the key sections of a business case Explain how to personaize the benchmark driven engagement into a customer specific engagement Identify where to source detailed information on specific business KPIs Articulate what a value based business case is and how it is used to make decisions Now that you have completed the unit on building a value-based business case, you should be able to: Assist a customer in creating a business case Define the key sections of a business case Personalize the benchmark driven engagement into a customer specific engagement To source detailed information on specific business KPIs and Articulate what a value based business case is and how it is used to make decisions. 27