Value realization is quickly becoming a widely used term across industries, but the concept is far from new. Despite its lengthy lifespan, this concept is often confused with value creation as businesses in various industries continue to adopt it. So, what is value realization and how can it work for you?
It’s vital that your business understand the differences between value realization and creation before beginning. Creation is an effort that produces a quantifiable benefit. Realization contains that same definition, but it accrues to a stakeholder. Easy to mix up, right?
An example of value creation would be a department within your organization creating greater efficiency for itself. Realization, on the other hand, would see that efficiency lead to increased profitability for the entire company in a very tangible way.
While creation might see a ten-percent reduction in a department’s operating costs, which is great, realization takes that to the next level. The finance team adjusts departmental budgets, the line management team reduces its spending, and accounting is showing reductions in the P&L. That’s value realization.
Now that you know what value realization is, how can you implement it? The first, and most highly recommended, step is to gather the right tools. There are plenty of top-notch enterprise value management platforms at your disposal that can see you through from start to finish. They’ll help you find your starting place, plan out metrics, and analyze results.
Those tools are also vital for the initial step of convincing your stakeholders. You’ll need to identify who they are as well as their interests, then help them understand any changes you plan to implement in a way that spells out what’s in it for them.
The easiest way to do this is to tell a story. Your story tells why the change should take place in an easy-to-understand way, builds credibility using the data collected from your tools, and is compelling enough to get stakeholders onboard. If you get stuck, stay focused on explaining the potential value realization for your company.
Telling the story helps clarify the vision of value realization while making it sound compelling, which it is. However, quantifying those benefits is how you speak a stakeholder’s language. Show the outcomes with quantified data, tie them to the metrics behind growth from revenue to customer retention, and pitch the increased profits.
You might want to showcase metrics such as average revenue per unit, cost per year, and gross production margin. However your organization currently quantifies data is how you should as well. So long as you tie them together with your mind’s image of value realization, you’ll do great.
Raise the Bar
Finally, it isn’t uncommon to see requests that initiate funding for programs, especially around the following year’s budget. Like the rest of them, yours faces the primary challenges of competing priorities and conflicting personalities. Making the pitch to stakeholders isn’t always easy, no matter the request. So, how can you ensure the benefits of your initiatives are realized by all?
The answer is in the term itself. Most of those requests focus on value creation, but your focus extends beyond a single department or even a handful. Value realization benefits the entire organization in a highly tangible way, raising the bar placed before your stakeholders. Stick with this concept, and you’ll find it more compelling in a stakeholder’s eyes than its competitors.