Functional Strategy and Business Case
BA activities must always be based on the business-driven environment, with the management specifying or creating one single information strategy that must be subject to the company's overall business strategy (vision, mission, and objectives).
The program manager of the radio station has come up with a strategic initiative to increase the business's market share from the current 17 percent to 25 percent. The radio station must hold on to its listeners longer. The program manager specifies this strategy as: "From our current record of holding on to our listeners for 15 minutes, before he or she changes channel, we must in the future hold on to our average listener for 30 minutes." The program manager introduces the performance target: average listening time as a new measure or KPI for the production department. The target is that the average listener must be kept on the broadcasting frequency for 30 minutes. The average listening time thus takes its place as a new KPI on the management dashboard.
Target for KPI 3 : Average listening time = 30 minutes
Actual = 15 minutes
Note that this strategic target penetrates right into the core business of the radio station. If the target—to hold on to the average listener for 30 minutes—is achieved, it will mean a bigger market share, increased advertising revenue, and, ultimately, an improved ROE. So, it is expected that an increase in KPI 3 will affect both KPI 2 and KPI 1 positively.
Before launching the BA initiative, the program manager prepares a business case for the project. He expects a larger market share (KPI 2) of up to 25 percent as a result of the increase in average listening time (KPI 3) of 30 minutes. This is expected to improve the pricing of advertising slots, so that the advertising revenues of the radio station increase by $4 million per year. Based on these expectations, he calculates that return on equity (KPI 1) will increase from 9 percent to 13 percent. In addition, he expects that the BA initiative will incur a resource consumption of three employees in four months as well as necessitate purchasing software and consultancy services for $250,000.
Total costs are estimated to be $1 million. The business case speaks in favor of carrying out the project. The reason is an expected growth in the annual cash flow of $4 million from increased advertising revenue, and that the project will cost only $1 million to implement.
Moreover, the payback period is only one quarter, and the project is not considered to entail any risk. Note that if the business case shows a negative result (or if the project looks risky), the BA initiative should not be implemented. Business cases are a good way of evaluating and prioritizing BA projects. We'll cover more about business cases in Chapter 8.
The management of the radio station now has the first elements of its information strategy in place, and it's directly related to the overall strategic objectives of the business.