Pitfalls in value realisation success are well-documented. And most software and IT sales proposals now include a value realisation forecast. However, many customers perceive it as a fluffy sales exercise. This perception can result in disappointment and frustration when not executed effectively.
Why is this happening? On average, 70% of transformation projects fail (McKinsey). Digital transformation projects have an even bleaker outlook, with failure rates ranging from 70% to a staggering 95% (Forbes). ERP projects don’t fare much better, with failure rates ranging from 45% to 75% (Gartner). Additionally, only 25% of large enterprise IT projects stay within 25% of their budget, while an alarming 75% exceed their budget by 100% (Infoworld).
But what about value realisation? Do projects deliver the expected value?
Unfortunately, even in successful transformations, only 67% of the promised value is realised, with the average project delivering a mere 37% of the anticipated value (McKinsey).
On average, 50% of the achieved value—whether it’s 100%, 67%, or 37%—is realised within the first 18 months, with the remaining 50% spread out thereafter (McKinsey). This split leaves 59% of executives feeling that the project took too long, while 52% believe that value realisation also dragged on for too long (Gartner).
So, when does value realisation start to fail? At what point does a project experience value loss?
Astonishingly, 55% of the value loss occurs during or after implementation, due to factors such as poor change management, inadequate resources or skills, internal resistance, and a lack of tools. A significant 45% of value evaporates during the target-setting or planning phase, underscoring the importance of setting ambitious yet attainable targets, aligning the sales proposal with the value realisation programme, and meticulous planning and resource allocation (McKinsey).
Is there a silver lining? Absolutely. Slow value realisation can be circumvented. Companies with top-quartile financial performance typically capture 74% of their transformations’ value within the first 12 months (McKinsey).
In the journey towards full value realisation, a mutual partnership between customers and vendors is crucial. To discover the full potential of their projects and avoid the pitfalls in value realisation, they can mutually support each other by prioritising the following:
Establishing a realistic baseline and value forecast
Sales proposals begin with a solid foundation—a baseline and value forecast that align seamlessly with the company’s historical data and future strategies. When value is vaguely defined, strays from company priorities, or if the baseline is set without involving the broader organisation, the risk of losing value increases significantly. Approving sales business cases solely as bureaucratic exercises, with no intention of validation, sets the stage for future uncertainty. When crafting compelling sales proposals, tailored to each unique situation, collaboration between the vendor and the customer is essential. Customers define the value, business priorities, and provide internal data. Vendors, on the other hand, bring their expertise to the table, offering the right processes, value improvement benchmarks, and effective storytelling, to support the value forecast.
Allocating the right teams, equipped with the right skillsets, experience, and access to vital data and knowledge, from both the vendor and the customer sides, is a top priority to avoid pitfalls in value realisation. Poor team allocation can lead to delays and deviations that could hinder both project delivery and the ability to identify and address deviations effectively.
Implementing proven and standardised processes is paramount. Often, it’s the vendor who should take the lead in setting up processes for tracking, quantifying, and remedying value realisation. Vendors typically bring extensive experience from working with numerous customers, offering valuable insights to ensure these processes are effective and easier to manage.
Tools can be invaluable, not only in tracking value but also uncovering the root causes of value loss. While various methods exist, many organisations rely on a select group of experts, who conduct workshops to gather insights and work on solutions. But, in our experience, using tools and processes that allow a broader team to contribute in an organised manner can reveal hidden issues and more cost-effective solutions. This approach ensures that experts from diverse fields have a say in the process, regardless of the size of their domain. Every expert in your organisation deserves a voice.
Communication is the glue that holds a value realisation project together. Establish communication processes that keep everyone in the loop, enabling regular progress checks for all team members. This not only ensures that everyone is on the same page but also instils a sense of accountability and value among team members, speeding up actions and results.
Robust project management
Strong project management accelerates team actions, boosts motivation and engagement, prevents or mitigates value losses, and reduces the risk of both project failure and the loss of an average 33% of value. Regular, iterative follow-ups with the wider team will prevent or mitigate value losses, reducing the chance of failure, and ensuring that you capture the full potential of your project.
Strong internal sponsorship
Without the support of higher management, reluctance to change among IT and software users can hinder progress and even derail the project. To drive the project forward, it’s imperative to secure strong internal sponsorship. Engaging IT and software users early in the process and addressing their concerns is key to overcoming resistance to change and ensuring project success.
In conclusion, for successful digital transformation, it’s essential to be mindful of the potential pitfalls in value realisation. Navigating these challenges is a tough endeavour for both customers and vendors.
Customers must carefully select vendors with the right expertise, to support them through the process. Proven methodologies, and successful track records to guide them through the process effectively, need to be checked prior to the purchase decision.
From a vendor’s perspective, increasing customer success not only opens doors to upselling and cross-selling but also paves the way for acquiring new clients. Even in cases where customers initially appear disengaged, simplified processes and quantifications can rekindle engagement and foster stronger, more enduring relationships between vendors and their clientele. Ultimately, the pursuit of successful technology investment realisation is a shared journey, with mutual benefits awaiting those who navigate it well.
Read more on value realisation in our earlier article, if you missed it!