Imagine that you are one of the Executives of a large company, and want to achieve a range of goals such as revenue growth, earnings per share, new sales. Usually, there will be many different people and teams suggesting ideas and wanting funding and resources for their projects. It might be to create a new product, to address customer support issues, to replace an old and dying billing system. The list can be endless. The problem is that you cannot afford to do everything. You have to make difficult choices and to decide which projects will best achieve the company’s goals.
Most companies use business cases to decide what projects to fund. The business case allows the executives to compare projects: their costs and benefits, return on investment, payback period, etc. But there is a problem of size and scale. Large companies often have many markets and hundreds of business cases. A global company may segment segment its total market and investments into 15 or more areas, and each sector may have over ten business cases. This gives a total of over 150 business cases, and can be overwhelming. Each requires careful reading to understand the opportunity, but as an Executive you just don’t have the time or the mental bandwidth for all the business cases. Consequently, you rely on gut feel and the financial metrics in the summary. However, the metrics aren’t perfect. It is tempting to think that you can just score the business cases on for example NPV, IRR and Payback Period and decide to invest in the ones with the highest score. The problem is that the metrics vary depending on what the business case is trying to achieve. The parameters for developing a new product are very different to those for replacing the company’s ageing billing system because one will earn revenue, and the other is a cost. However, both may be vital.
One part of the solution to the scale and complexity problem is to take a step back and look at the context: the market segments or the internal transformations. This approach reduces the complexity because there are far fewer markets than business cases. As an Executive, you can focus on understanding the market segments. What is a market’s statistics? It is growing, flat or declining. How much revenue is the company earning from this market? What is the company's strategy and plan for this segment? At this level, you might already have decided which markets offer growth opportunities and which are static or declining. Consequently, you can eliminate business cases that promise to deliver growth for markets you have already decided is a declining. By first focusing on the market segment level, you also create a context for judging the remaining business cases. If the market is showing healthy growth, you can be more confident in the growth business case. However, if the market is flat, then you might ask more questions and decide to shift resources to a growing market.
Also, for the people writing the business cases, if they know the market level plans, strategy and decisions then they can align. Fewer business cases will be created that don’t fit with the company’s strategy etc. Also, the business cases will be shorter because the writer knows the Executives already understand the market segment and have the top-level market data. All of which add up to better and more efficient decision making and ultimately this drives the bottom line and progress towards the company's goals.