Tim Yoder – Founding Partner
How does a company prove the value of new business software? Before answering that question, you have to define “business value”. Wikipedia lists a lot of forms of “business value”, including: economic profit, shareholder value, employee value, customer value, supplier value, channel partner value, managerial value, and societal value, many of which are intangible in nature and difficult to measure in monetary terms. The bottom line is that there is no consensus on the meaning or the computation for “business value”. Ideally, it would be great if we could use a single economic measure, like discounted cash flow, to quantify business value. Unfortunately, isolating cash flow streams solely attributed to changes is business software is not always easy or feasible.
I recently heard two stories from the same company about a new software system that they implemented. This company is in the gas and welding supply distribution industry. For years they have mixed, filled, and leased gas cylinders to their customers, and sold “hard goods” or supplies through brick-and-mortar stores. Before the software change, the company decided to start selling hard goods online. They spent significant effort in developing an e-commerce strategy, and they were successful in this new initiative. However, the percentage of business sales attributed to e-commerce was lower than they had hoped. They identified a new cloud-based business software that would replace an aging system that did not meet all their needs. With the new system providing tools to integrate with e-commerce store software and facilitate inventory management and order fulfillment, the percentage of e-commerce sales began to increase. Today, the web sales of hard goods for this company is a significant percentage of their total business sales. So, did the new software provide business value?
The same company found that the new software captured more business data and made it easier to track assets, orders, inventory and revenue, which helped identify mistakes or business anomalies more quickly. For this company, the cylinders that they fill with gas are a capital asset and a significant source of revenue, since they are leased to customers. The number of times a cylinder is filled, leased, returned, filled and leased again is very important. With literally hundreds of cylinders coming and going to hundreds of customers, keeping track of what cylinders are where is a big task. The new business software they implemented provided integration to driver delivery tracking software that identified the cylinders as they were dropped of and picked up at each delivery location. After using this new software and analyzing the data for several months, they identified multiple cylinders that they had “lost”. Their financial department spent time evaluating the financial impacts and determined that somewhere around $200,000.00 could be attributed to finding these “lost” cylinders and reinserting them into the leasing cycle. So once again, did the new software provide business value?
In both of these cases, the argument could be made for a resounding “yes” – the new software did in fact provide business value. While the e-commerce business might have been on a growth cycle because of a well-planned and managed strategy, the company would not have been prepared to handle the growth without the order, inventory and fulfillment management the new software provided. The loss of capital assets and the revenue from the leasing turns is a much more intuitive and quantifiable measure of the business value provided by the new software that help capture the fact that cylinders had been misplaced. New business software should indeed provide business value, and while it might be difficult to measure, it is definitely worth identifying. If in fact, a company can’t identify the business value new software provides, then they should ask themselves, “Why use it at all?”.
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