The 4 Pillars of Value Framework: How to Improve a Business Case for Technology Investments

Did you know that over 72% of product/service innovations fail to deliver on expectations.*  No matter where you are in your budget cycle, using a framework to tell the budget’s business benefit / strategic value story can simplify decision making and ensure alignment of stakeholder expectations.

Two days ago I shared an article that analyzed the recent pivots in Microsoft’s strategy. One of the observations that most caught my attention was the #1 problem: “Irrelevance to Business Decision Buyers.” (Link to article here) This resonated with me because it gets to the heart of a for-profit companies core mission: to generate value for shareholders. So, as technology becomes an increasingly larger portion of a company’s budget, investment decisions are being elevated to senior business decision maker levels and evaluated through the lens of an owner.

Historically, these decisions have been based on roadmaps, features, functionality, price, TCO, etc. But when we take a shareholder view of the impact of these decisions, we can see that all of these items point to business value creation. So how do the top tech firms help their customers make a business case for investments in technology? Surprisingly, they are increasingly borrowing frameworks from Wall Street...

During my 8 years on Wall Street I had the privilege to work at some of the top firms where I learned about Bear Stearns' 4 Pillars of Value in analyzing a company for underwriting. So when I began building business cases for platform technology investments, I re-imagined this framework and have continued to iterate on this for the benefit of my customers. 

Compelling business cases for investment in anything, at the senior business decision maker level, require strong value storytelling, and this necessitates a framework that simplifies arguments into the audience’s language. Since my time on Wall Street, the re-imagined Bear Stearns 4 Pillars of Value framework has gone on to become one of the go-to-frameworks across the cloud and business application ecosystems. 

Recently, I was with a former Bear Stearns colleague of mine, James Macedonio, who is now a leader in Cloud Economics at AWS. During that lunch, I was delighted to learn that James had also had the same idea ages ago and had evolved his version of the 4 Pillars framework into a slightly different flavor: 

These frameworks became the foundation for value storytelling (i.e. business cases) at Microsoft and Amazon Web Services because they addresses the inherent “jobs to be done” for a project’s stakeholders, both internal or external. 

For my re-imagination, I took inspiration from many of the innovation tools popular in the market today, particularly in how they address these “jobs to be done” by grouping them into one of three motivational categories: functional, social and/or emotional. Motivational categories are important because they will make or break a project’s success through the various stages of adoption.

Functional Motivations (ex. Getting from A to B)

Functional motivations are all about getting from point A to point B. For the internally focused portion of your business case, this means increasing revenue and decreasing expenses. While this may seem obvious as the first two pillars of value, the devil is in the strategic details.

Pillar #1: Revenue growth

1. Volume: Sell existing products to more customers (market share)
2. Volume: Sell more product/service to existing customers (wallet share)
3. Price: Sell or bundle products at higher price point
4. Renewals: Sales vs Revenue

Pillar #2: Cost reduction

1. Productivity: Same headcount doing more
2. Productivity: Less headcount doing same
3. Sales velocity: Shorter sales cycle time consumes fewer sales & marketing resources
4. Renewals: Increased renewals lowers incremental customer acquisition costs
5. Avoidance: Elimination of hardware refresh and maintenance programs
6. Agility: Cost base elasticity
7. Scalability: Lower gross marginal cost of revenue growth

Social Motivations (ex. Impressing friends and colleagues)

Social motivations are classically about ego. Who among us doesn’t want to be known as the most knowledgeable expert in their field? Have you ever met a company that doesn’t target being more agile and innovative? For the externally focused portion of your business case, this means showing that the course of action your business case is recommending is the best of all alternatives both in the near term and the long term.

Pillar #3: Maintain Market Share or Competitive Differentiation

Best alternative in market today:

1. Minimizes pains: Negative outcomes customers hope to avoid
2. Maximizes gains: Positive outcomes customers hope to achieve

Best alternative in market tomorrow:

1. Optionality: Cost of build vs buy options in future
2. Future-proofing: Minimizing potential wasted spend of replatforming
3. Perception: Innovative business partners

Emotional Motivations (ex. Gaining peace of mind)

Emotional motivations are about gaining peace of mind in a world of unknowns. Abraham Lincoln once said, “The best way to predict the future is to create it.” We create the future through innovations both big (e.g. moving from on-prem to the cloud) and small (e.g. time savings from automating a single function). Articulating a clear value proposition of any size innovation includes quantification of risk mitigation benefits.

Special note: many in the technology field like to separate “Speed to Market” as it’s own category and, while I understand the general sales pitch here, I think that we are missing the key emotional motivation that drives quite a few investment decisions: FOMO. 

Fear Of Missing Out (“FOMO”) can be applied in a business sense when you consider the implications of a first mover advantage. To willingly miss out on the first mover advantage, a company potentially is giving up the power nodes of brand recognition, switching costs and economies of scale… This is why I recommend including it in the risk mitigation pillar (as opposed to giving it it’s own category). I have seen plenty of companies greenlight a platform investment when they attempt to quantify what FOMO means for them, and I have seen relatively few companies greenlight new budget just for the sexiness of “speed”.

Pillar #4: Risk mitigation

1. Speed to market
2. Punitive cost of failure (ex. SLAs)
3. Brand impact of inelastic capacity
4. Negative ROI
5. Unanticipated TCO (ex. Latency, stakeholder mindshare, data clean up, burst capacity)
6. External hidden costs (ex. Integration, regulatory reporting burdens)
7. Increased business agility (ex. Reduced time to market, innovation velocity)
8. Cash constraints, tax implications and shareholder pressure

In summary, deepening your articulation of stakeholder’s unspoken motivations will help bring clarity to your business case. Key to framing the benefits requires grouping them into logical pillars of value with simplicity:  1) How does this help us make money? 2) How does this reduce our costs? 3) How does this make us different? and 4) How does this minimize our risk? Now those are questions that any stakeholder can understand.

If you have an innovation or technology project that you are trying to make the case for, I encourage you to use this outline/checklist in building your case. The elegance of the 4 Pillars Framework will help you articulate why investing in your project versus a competing project will create more value for your team, customers and other stakeholders. 

Did I miss anything? Would you like to go deeper on any particular pillar? Please comment below and I will include your thoughts and requested topics in future articles.

*Source: Simon-Kucher & Partners

Lora Lindsey is a Value Innovation Strategist that provides thought leadership and consulting services to hundreds of organizations considering the economic value proposition of large scale platform technology investments. In addition to her experience as a value engineer in technology, she has also advised Boards & CxO’s on mergers & acquisitions and other transformational transactions requiring value expertise during her time as an investment banker at Goldman Sachs, Bear Stearns and BofA. Please feel free to reach out directly through LinkedIn if you are interested in collaborating on future projects or requesting Lora for speaking engagements: https://www.dhirubhai.net/in/nyclindsey/