Tuesday, February 24, 2009
Making the Case
Recently I have been precoccupied with finalizing up a business case that is on our table, concerning establishing a separate subsidiary to deal with some business outside the core medical device market, namely the dodgy IT and "service" support side... I have no particular experience with this market and has more been working on it from the business side and putting together all the calcs to see if the investment makes sense and is worthy the millions of dollars that needs to be pumped into it in hiring the staff, investing in the new office and developing the systems etc..
After quite a bit of work and some subtle adjustments of some figures I did come up with a version that gives the company a return on investment 5 years from start of investment (which is the requirement we have for making a "go" or "no go" decision). However, all the revenue forecasts from our brand new IT and service offer comes from the "soon to be" president of this new great subsidiary, but since his business skills are not really enough to convince hardened western executives I got involved. I was pretty satisfied with the financial model and the subsequent business case I put together and am ready to face the dreaded head office management full on to argue the justification of this investment.
However, some of the revenue forecasts seemed a bit too enthusiastic and I sat down with the up and coming president to discuss this. The conversation went something like this:
Mr. Salaryman: Seriously, do you really think we can pull off these kinda figures so soon after launch?
To-be-President: (frowning) No, I think it might be a bit too high estimates actually...
Mr. Salaryman: So you don't think we'll reach the targets you set?
To-be-President: (looking concerned) Well, not really, but we'll do our best...
After talking to a few more related people and everyone basically answering the same way "those figures are a bit too difficult" I didn't know whether to laugh or cry.
Here we were, the whole organization ready to put on a pitch for something that no one believes in without no one really seeing it as a huge problem... After a week it started getting to me and I started to change around some of the assumptions and limiting some investments to get it more reasonable and finally ending up with a reasonable return on investment. After showing it around to the related people the response was "yes, this looks much better, this we can do".
I don't think this is only my company that's doing things like this, the plain truth is that most organizations become pretty stupid even if the people inside it basically are smart... But now we finally have a feasible and reasonable plan that people believe in, for some reason it makes me a lot more comfortable to negotiate with the dreaded western executives...