What is Value Realization and Why Does it Matter?
As we head into 2022, Value Realization is a hot topic within the B2B SaaS industry. When it comes to the value a business provides to its customers, to its employees, and eventually to its shareholders, it must be quantified. Value, however, is more than return on investment (ROI)- it goes beyond dollars and cents. As we’ll explore, value can be anything from the ease of use software provides to your company, the partnership with your vendors, or how quickly issues are remedied within your internal and external operations.
This article will explore what value realization is, the value realization framework that supports B2B taxonomies, why value realization is a universal best practice (although not a common practice), and how companies of all sizes can begin to measure value realization.
What is Value Realization?
In simplest terms, value realization is the ability to track the quantified value a business or stakeholder receives from a solution implemented within the company. Value realization provides a tangible way to track the actual business impact that solutions have on customers, business operations, and ultimately shareholder value.
Why Does Value Realization Matter?
Apart from every business’ need to grow, scale, and succeed, measuring value realization is essential to support, analyze, and refine actual solution performance. Monitoring value realization proactively reacts to the totality of a customer’s experience. It provides businesses with early-indication warnings of the accounts at risk, candidates for upselling, and candidates for cross-selling.
Examples of Value Realization
Value quantification is not always dollars. Like many customer value management ideologies, value realization is dependent upon the business model and its industry. A residential remodeling firm or a company like Uber will market and manage their services differently than Boeing or Intel. Simply put, the type of relationship between the business and its customers will affect its value realization framework.
There is, however, an undercurrent of personal customer satisfaction that runs through both frameworks. Although elements like service quality and acceptable price points are valuable to all consumer-based relationships, each has different aspects of value. For example, B2B value elements may include a company’s regulatory compliance record or risk reduction methods. In comparison, a B2C value point might be along the lines of reducing effort or avoiding hassles or more subjective elements like providing an innate sense of affiliation and belonging.
Take this chart, for example, which highlights two areas of value realization: functional and emotional.
B2B Value Realization Framework
In the Harvard Business Review (HBR), researchers from Bain & Company, the global management consulting firm, analyzed dozens of quantitative and qualitative customer studies to determine 40 elements of value in B2B offerings. These 40 elements, often inconspicuous and even unassuming in nature, fall into five categories:
What Bain’s expert framework does is reclassify B2B value realization in a range of elements, ranging from complex emotional feelings to the nuts and bolts of a business’s operations—structuring these elements into a pyramid (similar to Maslow’s hierarchy of needs).
These elements create a scale of sorts between an operation’s objective and subjective parts. Objective factors, items like pricing, product specifications, etc., can be found at the bottom of the pyramid. In contrast, other personal, subjective elements, like reputation perception, social responsibility initiatives, and how a business engagement makes someone feel, reside at the top of Bain’s framework.
Bain argues that most B2B companies focus their energy on the pyramid’s functionality and table stakes section. Elements within the third level make it easier to do business; some provide purely objective types of value, by, say, increasing a customer’s productivity (time savings, reduced effort) or improving its operational performance (simplification, organization).”
HBR notes that the third level is where we encounter the “first set of elements that involve subjective judgments from buyers.” These elements may concern good cultural fit, a seller’s pledge to the customer’s organization, or any perception of value that enhances the relationship between the two parties.
As the stakes rise and the buyers involved in transactional relationships begin to rise in stature, so does the importance of subjective elements. Reduced anxiety, the importance of personal relationships, and the ability to network, for example, may come into play.
- Table stakes
- Ease of Doing Business
HBR argues that businesses who identify the subjective elements of value will benefit from a less transactional relationship with their customers, strengthening their position in the marketplace and in the minds of the buyers it interacts with.
Value Realization: Advancing from a best practice to a common practice
There is no hotter topic for B2B technology providers than Value Realization – the process of quantifying and communicating the business value customers recognize through leveraging the provider’s products and services.
Customers no longer make significant upfront investments that marry them to a provider in today’s as-a-service economy. A signed contract on its own may not introduce any customer investment. For software providers, it is not until customers consume licenses when revenue is recognized. For appliance or cloud infrastructure providers, revenue is metered by the speed and scale customers transition from legacy environments.
Every day customers decide if they will expand or lessen the use of a provider’s services. The former is only viable if there is an appreciation of value.
According to IDC and Ecosystems’ inaugural benchmarking survey on Value Selling Excellence, 42% of leaders found that one of the largest challenges for their B2B sales organization is the inability to articulate and quantify their unique business value. Which begs the question…
Why is Value Realization a universal best practice, but not a common practice?
The answer relies on the provider’s ability to navigate the following people, process, and technology challenges:
Suppose your company is interested in a 5% productivity improvement in your sales team. How do you measure this? Short of following them around with a clipboard, it’s critical to understand how this metric is achieved. Is it time-saving changes? Productivity metrics using tools? Regardless of how the company decides to change its outcomes, it is essential to have tangible, actionable metrics to compare against that will determine whether or not those initiatives have been successful.
Strategic, Operational, and Experiential [$ and non $]
Value realization platforms allow organizations to have healthy, credible conversations with their customers and stakeholders. While tools like NPS can assist in understanding value at any given time- high-level value realization frameworks allow companies to avoid creating an artificial level of significance. The data model will speak for itself, monetizing impacts and providing a more credible way to prove value.
The number of stakeholders and their roles within a company doesn’t always create an environment for a ‘one size fits all’ data set or platform. As companies of a specific size can attest to, stakeholders evolve. This is especially true for companies involved in M&A (mergers and acquisitions). Stakeholders vary (and may change) from presale to post-sale. Value realization platforms allow companies to map out outcomes that each stakeholder cares about the most, creating personalized initiatives for stakeholders every step of the way.
‘As Sold’ vs. ‘As Deployed’
As business owners know, operations are not always as straightforward as intended. This is especially true in the presale process. Value realization allows companies to be flexible (and agile) when comparing metrics presale and post-sale. Value realization platforms enable organizations to keep the big picture of total value close while allowing for fluctuations or digressions in data based on the company’s position in the sales process.
Customer Engagement [Joint Success vs. Provider]
Although significant ROI is of utmost importance for any business transaction, customer engagement is the most crucial metric a value realization framework can utilize. Do your customers believe in role-based collaboration? Are they part of your journey? Getting your customers to buy into value realization helps advance the model, further propelling quantified customer value realization.
Value Realization FAQ’s
How Can I Measure Value Realization?
The functional elements at the bottom of each pyramid are relatively easy to measure, analyze, and optimize. The more subjective aspects of each framework, however, are harder to quantify. While a company can make a product cheaper, deliver it faster, or update its features, it isn’t as easy to isolate the way a product makes someone feel or how a superior product affects the marketability or reputational assurance of a company.
While large companies can employ advanced data specialists to assess quantifiable value, software programs, like Ecosystems, allow companies to monitor and quantify value realization efforts with intuitive programs, allowing for tangible, scientific analysis of previously intangible, emotional elements.
Example of Ecosystems Value Realization Platform.
This chart demonstrates the monetary value of various elements.
What is Net Realizable Value?
Net realizable value is the benefit minus the associated costs of a solution. Otherwise known as net revenue retention, net realizable value is the value realization element after the investment in the company, product, or service. The benefits must outweigh and offset the cost of the solution to justify its investment.
How to Find Net Realizable Value
The net realizable formula is fairly simple. Benefits – associated costs = net realizable value.
On-Demand Webinar: Evolving Your Quarterly Business Reviews (QBRs) to Value Reviews
Could your company benefit from value realization software? We invite you to visit our learning center or schedule a demo.