The use of business cases is widely adopted in organizations to support stakeholders in decision making during the process of funding project initiatives. The conventional wisdom is that it helps to clearly assess the benefits and the risks associated with a project proposal. The assessment of the benefits and risks that determine the feasibility in the business case generally involves findings related to the fit with the business strategy of the firm; the expected economic value; efficiency improvements, and quality improvement for example.
However, developing and using a business case can become a daunting experience when dealing with innovation. Project proposal with the potential to deliver business value on the long term generally fail to successfully proceed through the investment decision making process because of limited data available to support the business case. Many studies have also revealed that even project proposals with a positive business case sometimes fail during the execution phase. Based on our experience we raise two issues to address the need to change the conventional approach on using business case in execution of innovation:
1 – Does the current approach to develop business cases fit the challenges organizations encounter executing innovation?
Intangible values are determinant for success
Measuring tangible values using a quantified cost/benefits analysis tends to dominate the discussion in the development process of the business case of innovation projects. But, addressing how to deal with organizational implications including new capabilities, skills and changes that are generally the source of unexpected delays and high costs during the execution phase are in many cases not sufficiently captured in the business case. Our finding is that the current approach to develop a business case does not fit the challenges organizations encounter during the execution of innovation.
Leveraging the governance process
The value of implementing and the managing of the governance process should be part of the business case. If implemented and managed properly, the governance helps to moderate the decision making and the management of changes during the execution. Effective decision making and management of changes account for intangible values that in turn have positive effects on the ability of organizations to mitigate the risks.
2 – Is the business case used in the right way during the initiation and execution process of innovation?
Recognizing the differences
Innovation projects differ not just in term of the type of products and services that are developed, they also differ in the level of complexity, changes and expected outcome regarding the values to be delivered. But, many organizations fail to assess and appreciate the implications of these differences in the way the business case is applied during the initiation and execution process of innovation. Our experience reveals that indiscriminate use of business cases frustrate the innovation process and lead to waste of resources in organization.
Incremental innovation projects that focus on small improvements on existing products and services provide the opportunity to quickly assess and quantify the potential business value. However, multi-year major innovation projects with the purpose to achieve business transformation generally deal with a high level of complexity.
Adapting to the type of innovation project
We apply a business impact analysis framework and a technology impact analysis framework to first assess the type of innovation project to be executed, the degree of complexity involved, the potential value as well as the risks and mitigations in the initiation phase. In a situation where short cycles of small innovation projects are executed and there is a need for fast decision making, the use of business impact analysis and the technology impact analysis increases the efficiency of the decision making. They are alternatives to the business case that may require a longer development process. However, in large and complex innovation projects/programs, we develop the business case in phases in order to deal with uncertainties, better understand the potential value and mitigate the risks. In our view, the purpose of the business case is not only to support the ‘go/no go’ decision for a project. Especially in complex innovations, the business case is continuously reviewed and refined during the life cycle of the project/program in order to support execution and a realistic view of the value creation.