Definition
One way to look at business value is by using the Business Value Pyramid (See Figure Below). In this approach we start at the bottom, with the more basic, or functional benefits, and we build towards the more transformative values. Note that in this example we are looking at benefits in terms of the customer only, not in terms of the business. For this reason, if this is used, it is most likely used in addition to other more financial and risk-oriented methods of measuring business value.
The Business Value Pyramid serves as a fundamental framework to help organizations prioritize their initiatives based on their impact on business value. This model emphasizes aligning business activities with the overarching goals of value creation, ensuring that every project or task directly contributes to the strategic objectives of the company.
Watch the video
Understanding the Business Value Pyramid
The Business Value Pyramid is structured to categorize business initiatives into levels based on their strategic importance and potential to drive business value. This hierarchy is designed to guide decision-makers in focusing their resources on activities that yield the highest returns and align closely with the business’s core objectives.
Starting at the bottom of the pyramid, we begin with the functional elements. These are things that, for instance, save time or simplify, reduce risk, cost, or effort; or connect, integrate, and organize things more effectively.
These include essential day-to-day operations that ensure the business runs smoothly but are not necessarily strategic. Examples include basic compliance, operational efficiency measures, and standard HR processes.
In the next step in the pyramid, we have the emotional elements. These include things that are fun, rewarding, or attractive. Or things that reduce anxiety or increase wellness, as well as those things that are well-designed and attractive.
In a business context, this might involve optimizing existing processes, reducing costs, or improving product quality. These enhancements are important but typically do not transform the business model.
The next step are life-changing elements. These motivate and provide hope, or promote belonging or self-actualization.
At the top of the customer benefits pyramid are those items that transcend an individual customer and provide global or societal impact or good. While not every product or decision can do this, it is a good exercise for businesses to undertake as they calculate the business value of their work.
In a business context, these are projects and strategies that have the potential to significantly impact the company’s market position. This could involve entering new markets, launching new product lines, or significant technology upgrades that offer competitive advantages.
At the top are social impact or transformational activities. These initiatives are focused on fundamentally changing the nature of the business. This might include digital transformation projects, major mergers and acquisitions, or pivoting the business model to adapt to new market realities.
The Value of the Pyramid in Strategic Planning
The Business Value Pyramid assists leaders in prioritizing projects that align with the strategic vision of the organization. By evaluating where an initiative falls within the pyramid, decision-makers can allocate resources more effectively, focusing on projects that not only offer the best return on investment but also strategically position the company for future growth and success.
Key Benefits:
- Resource Allocation: Helps companies allocate financial and human resources to projects that provide the greatest value.
- Strategic Alignment: Ensures that all levels of the organization are aligned with the strategic goals, enhancing coherence and efficiency.
- Risk Management: By prioritizing initiatives, companies can manage risks more effectively, focusing on areas with the highest strategic importance.
Implementing the Business Value Pyramid
To effectively implement the Business Value Pyramid, businesses should start by clearly defining their strategic objectives and understanding the current state of their operations. This involves an assessment phase where all current and planned initiatives are evaluated and categorized based on the pyramid’s structure.
Following this, it is crucial to communicate the framework throughout the organization to ensure that every team member understands the strategic priorities. Regular reviews and adjustments may be needed as market conditions change and new opportunities arise.
The Business Value Pyramid is a strategic tool that provides a structured approach to prioritizing business initiatives based on their potential to create value. By focusing on activities that align closely with the strategic goals of the organization, businesses can ensure that their efforts are not only efficient but also effective in driving long-term success.
Related
- Business Value Realization Formula
- Business Value
- Key Performance Indicators (KPIs)
- Business Lifetime Value (BLV)
Resources
- Article: The Business Value of First-Party Data Strategies
- Article: Understanding Your Unique Value Proposition
- Book: The House of the Customer (2023)
