Time-consuming creation of traditional business cases is a waste of money and energy. In most organizations business cases are created by isolated teams, using their own assumptions and rules, then compared in order to prioritize investments. Put otherwise, they are used to settle arguments. Predictably, they end up being political documents, gamed front to back, and having little or nothing to do with weighing and judging the true sets of options in front of a business.
Innumerate organizations cannot produce well-informed business cases. High-quality business cases are probabilistic in nature; they lay out ranges of possible outcomes based on principles of actuarial science. The business cases most organizations actually produce are not even faintly like these higher-quality ones. Instead, they present a single “ROI” with an air of fake certainty, using static assumptions that have little or nothing to do with reality.
Even when business cases escape the simple numbing dimension of cash-flow analysis, they present “key metrics” in isolation without any consideration of their larger systemic implications. Goals like inventory reduction, faster claims processing, and so on may all make sense from the perspective of a departmental silo. But from the perspective of the broader enterprise, these “goals” may be worthless or even damaging. They are examples of what Goldratt called “local optima” — isolated objectives that may or may not accrue to the benefit of the broader organization. Inventory reduction is worthless if it leads to dissatisfied customers who can’t get what they need in a timely manner. Faster claims processing may makes certain customers happier, but it may also hurt an insurance company’s cash position or cause it to have to liquidate assets at an inopportune time.
Causal chains are complex and every single decision in a chain can have unintended consequences. Siloed interventions in a broader causal chain, even if they appear to be “positive,” will have no effect if they are undone or undermined somewhere further along the chain. A point solution that lets a company, say, package shipments faster, will have no net benefit to the company if there is not enough shipping throughput to get them to the customer faster. In theory companies that have been practicing Lean or Six Sigma for years understand these types of principles. But during the annual business case review, they are almost inevitably forgotten.
The single worst thing about traditional business cases are that they cause overinvestment in tactical improvements and underinvestment in strategic change. Cross-functional, strategic evolution usually cannot be justified with a business case. It is too broad, too sweeping, and taxes the ability of a typical business to analyze and understand a complex multi-variable problem. If a business says that all investments must be justified with a “clear business case,” usually meaning the traditional cash-flow analysis, no sane executive will step up and risk their career to back a complex transformative initiative. While the initiative may be utterly necessary and utterly valuable, the organization’s traditional criteria for making this judgment will be hopelessly inadequate.
Over time, acting on disjointed, one-off business cases, based on incompatible and unlike criteria, turns a company into an unwieldy Frankenstein: a collection of uncoordinated body parts, unable to move nimbly and weighed down by high, unforeseen costs of coordination. Departments develop their own point solutions and siloed thinking persists, now embodied in the practical reality of systems that are in place and which must be relied on for everyday operations.
The opposite of siloed business-case thinking is exemplified by Jeff Bezos’ famous mandate that all Amazon platform owners must develop and publish service interfaces. The mandate, issued in 2002, helped transform Amazon from “a website” into a coordinated network of data, insights, and capabilities, and of course a retail juggernaut. The “business case” for each API could never have been made or justified in isolation — the cost would likely have dwarfed the anticipated benefit in every single instance. Effectively, Bezos’ dictate amounted to a business architecture decision — a stated principle of interoperability that would support a vast number of unforeseen applications.
And business architecture, ultimately, is the framework in which the business case must be reinvented and re-formed. Local decisions should always be framed within an overall enterprise model, informed by systems thinking and a holistic consideration of causes and effects. American executives keep trying to capture the magic of systems-thinking companies like Amazon, Apple and Google. They need to realize that business architecture is the essence of these companies and that their reliance on the traditional business case is the principal obstacle to successfully imitating them.
Rob Lawrence 