Part one of this three-part series provided an overview of current business trends and the impact on how enterprises are viewing the strategic investment process. The direction of these trends dovetails into the broader theme of digital transformation that has swept across business in recent years. A digital investment governance framework holds great promise for providing the agility and accountability demanded by stakeholders and shareholders focused on employing strategic initiatives and the encompassing management processes to drive sustainable competitive advantage.
Part two of this three-part series will begin to explore the key components required to implement a digital investment governance framework.
These architectural elements include:
- Closed loop processing
This is the most important foundational component of a digital investment governance framework. Most organizations have a governance process that is defined and captured at varying levels of detail using a number of fragmented systems and processes.
Most of this information is captured in offline desktop tools—including spreadsheets, presentation templates, and narrative documents. However, this type of electronic data capture is, in effect, manual and unintegrated. For example, a change in approval thresholds and routing processes must be manually implemented in a narrative document and most likely in a presentation template. Standards around somewhat subjective areas such as capitalization of labor or start of the in-service period for capitalized labor or assets needs to be changed in spreadsheet templates and separately communicated to all stakeholders to ensure the guidelines are understood and the updated template reflecting changes is used exclusively.
Clearly offline electronic data capture should not be conflated with a digital governance framework.
A digital framework institutionalizes the governance process by providing a single point of reference, a single system of record for the entire enterprise that maintains the current state and provides a collaborative work space for all stakeholders—line of business, IT, and finance—to work simultaneously, confident that context for all structured data and unstructured information is current.
With an institutionalized platform in place that allows participants to collaborate with ease and confidence, new opportunities present to wring out inefficiencies and remove friction from the process through automation. While important for achieving scale economies in labor and operations, automation speeds time to business impact by facilitating more rapid review, approval, and adjustment of initiatives that have the most significant impact on results be they financial (revenue, savings, or cost avoidance), business metrics (new account capture, retention, etc.), or intangible results, such as ease of use.
Investment governance framework automation must include robust capability across three areas—rules, roles and routes. The approach employed must capture and process information based on the rules in place. Rules can include automatic presentation of data requirements at the level of detail required for potential investments below or at/above a threshold. Another rule may assign priority to an initiative based on calculations weighing strategic value and ability to execute.
Roles in an investment governance framework are driven by context and defined by access profiles. An analyst may have access to view, enter and edit data through first level of management review, after which data may be available for viewing and new data entry permitted, while rights to modify existing data removed. A system must be able to manage access rights by automatically assigning a user to a role, which is discussed in the third part of this series.
Rules and roles work together with routing capability, automating the process for collaborative, authoring, review and approval. Rules ensure required data are included before a business case in the feasibility stage is routed for review. Other rules enable routing of items for approval sequentially, in parallel, or even to panels allowing for simultaneous voting. A designation of alignment with a strategic objective can automatically route a proposed initiative to the appropriate program executive.
Together with institutionalization, automation accelerates the ability to move initiatives throughout the process and compounds the integrity of the process itself.
A digital framework provides the ideal means to define and enforce standards that form an overall taxonomy appropriate for the investment governance process. Data definition standards are a requisite for timely review and approval of potential investments and to assess performance of investments during the project execution or set-up phase and the overall value period where benefits of all types are measured. Consistency across basic elements, such as the definition of fully burdened labor cost, eliminate variability and greatly enhance fidelity in efforts to provide decision-grade information to drive an automated process.
Standard definitions are critical to effective reporting and analysis, ensuring data are grouped and presented appropriately. To whatever extent possible for an enterprise, a digital framework must support standardization for not only taxonomy but acceptable values for each data type. In addition, a data value in one field may drive acceptable data values for subsequent related fields. Advanced data standardization at this level can prevent common errors, such as the incorrect capitalization of operating expense.
Closed Loop Processing
A digital investment governance framework must extend beyond managing the process of assembling and commissioning initiatives that offer the potential for the highest returns. Increasingly, organizations are reporting progress on strategic initiatives and programs at the board or even the shareholder level. This requires benefits tracking with governance capabilities that goes beyond the typical guesstimates tracked on spreadsheets. Benefits or ROI must be tracked, reviewed and approved in a manner consistent with accountability for verifying and reporting results. Real-time, high-fidelity benefits tracking is fundamental to implementing an effective continuous planning mechanism, as well.
In the final part of this series, the remaining elements defining a comprehensive digital investment governance framework will be explored.