A few weeks ago I bumped into a colleague with whom I’ve not chatted in a while. Over the course of our typical catch up (weather, sports, chasing the kids, juggling life), it came up that his sixteen year old daughter had just completed Driver’s Ed. “It will be great,” he said enthusiastically. “She can drive her brothers around now, which takes a huge load off my shoulders.”
From the perspective of a harried parent with multiple kids at home, it was a logical argument. Invest time now to teach the daughter to drive, and reap the rewards later via the sibling taxi – what they jokingly named the late model car purchased. In that equation, the time to teach and the cost of the automobile, insurance, and gas was well worth savings gained through load sharing efficiencies. Or, in a simplistic approach: (value of time*hours teaching) + (cost of ownership)/(value of time*hours returned) = value of investment.
In a very simplistic way, this is a speed to value equation. For his family, based on the return of time, the financial investments were worth the effort. For a small family like mine where there is only one terror ruling the roost (I joke, he’s a good kid), that value equation would not look anywhere near as attractive because there aren’t as many hours invested in shepherding to and from activities.
Therein lies the organization rub of the whole concept of speed to value. What works for one organization might not always work for others. The example regarding children and driving is a pretty spot on way to make the point. We, as stakeholders, may have similar needs, such as retaining customers or extending engagement. The difference is not only in how we measure and quantify the metrics over time, but the inputs that help form them, such as infrastructure and execution requirements to take action on the need. Let’s play out two use cases as examples:
- Use Case One: a telecommunications company is facing intense competitive conquest pressure, and must shift its focus from acquisition to active retention of high value customers via rapid response, cost effective channels.
- Use Case Two: a retail bank is introducing a new suite of loans, targeted at millennials.
Both companies will focus on the use of technology to reach their target audiences, and let’s assume that they would build out targeted one to one channels, heavily leveraging digital technology to reach the appropriate customers at the right place and time. However the variables that will inform success will differ greatly, and therefore demand different success criteria to evaluate success. The first use case will require retention statistics and lifetime value in near term, and will need to gauge how quickly the telecommunications company can reach a rate of return long term. With limited windows, such as likely tenure with the company, and fluctuating program costs, that window may be short (four or five years) as compared to the potential for acquiring a millennial and convincing them to expand their banking portfolio. In theory, the first use case might command the larger budget due to risk, but the payout and reward of the second use case could drive significantly better investment based on long term value.
Or more simply: (number of customers with high lifetime value*predictive lifetime value) + (number of customers retained in first twelve months)/(cost of investment) = twelve month speed to value. In this case, it’s the predictive lifetime value which changes the game, for the evaluated rate of return is often the ‘low hanging fruit’ or what a company can net out in a short period of time, as opposed to thinking about the long game of customer impact, be it a window of four or forty years.
Yep, it’s like the earlier driving analogy. If I’m the telecommunications company, and my colleague is the bank, his speed to value is going to be more significant than mine (in this example, both short term and long term) as the investments he makes in an automobile can continue to trickle down and support multiple siblings who can help balance the family travel load. In my case, it will be a singular investment with a relatively limited rate of return. Those are the intangibles that you have to consider when looking at speed to value, which will extend well beyond the first six or twelve months when the capital expenditure are made.