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Revolutive IT |
Value, Software and ROI -- Why measuring returns is not so simple By Bill Laberis Show me the money! W
ith apologies to the movie Jerry McGuire, this demand
could easily serve as the battle cry in organizations today when it
comes to approving new projects or expanding existing ones. The
continuing economic doldrums have sharpened the focus of senior
executives on return on investment, or ROI. Simply put, they want to
know, "If we invest a buck, how many bucks do we get in return, and
when?"
In the information technology world, ROI is most often associated
with software purchases and deployments. Why? The answer is that
hardware is not very useful without the software that drives it.
Whether deployments are operational, including back-office
functions, or strategic, including business intelligence, it is the
ROI of software that is ultimately measured.
By its very nature, software is complex. It is much more than
lines of code. The effectiveness of software deployment has many
drivers, with the deepest roots going way back to the initial
deployment plans. A brilliant deployment that goes online without a
hitch is relatively meaningless if it didn't spring from a plan to
tie the application to some organizational goal in the first place.
Consider, for example, deployments of customer relationship
management (CRM) applications, which are so popular today. Some
industry watchers claim that up to 70 percent of CRM deployments in
the last several years have failed to live up to expectations in
delivering ROI.
I will tell you that in almost every case, there is nothing wrong
with the CRM software. More often, planners fail to consider the
pervasive nature of CRM applications, which cut across several
departments and organizational units. To maximize ROI of these
applications, staff from each of these departments must be involved
intimately in the planning process.
But too often, this planning for CRM occurs in a vacuum.
Organizations fail to reach a consensus on the business goals of the
application. Training for end users gets short-changed. The ability
of the existing infrastructure, particularly the network, to support
the new applications is not properly calibrated. Any one of these
failures, or any combination of them, can sink ROI, and none have
anything to do with the software itself.
So you have to then ask, is it reasonable to assume some sort of
honest ROI calculations can be made, given the complexity of
enterprise software deployments? The short answer is "yes," provided
both you and the executives demanding an ROI calculation take the
full view of software ROI.
For example, at the Computerworld Premier 100 IT Leaders
Conference last May, an electronic poll of the senior IT managers
there revealed that an impressive 84 percent of those who try to
calculate ROI include non-financial "soft" measures. These
intangible measures are by no means a replacement for hard-core
financial justifications for projects. But they are extremely
important, because the fact is that not all benefits can be
quantified, including some of the most vital ones.
There is another reason why developing a cogent, comprehensive
ROI plan is particularly important today. Recently the Standish
Group, a research company, determined that "faulty software" is
costing businesses nearly US$80 billion per year. But as I pointed
out earlier, the problem with projects that fail to live up to ROI
calculations is seldom the software, but a host of other factors.
Starting out with a solid ROI model can help mitigate some of the
problems that may crop up later when management says, "Show me the
money."
Thus, it's best to look at ROI in as many dimensions as possible.
Here are a few:
The ROI of e-commerce applications. If senior management
believes the Internet will change your company's industry, that
belief alone ought to justify the upgrading of applications that
give the company a 360-degree view of customers and suppliers
through the Web. After all, this is apparently what the competition
will be doing. You have no choice. Over time, real cost savings
ought to accrue from such applications, particularly those in the
supplier relationship area, where significant real costs can be
driven out of the purchase cycle. But a big piece of the ROI
equation in this case is simply the need not to get steamrolled by
the competition as they move to e-commerce applications, and that
costs money.
The ROI of enterprise portals. These are increasingly
popular, and they are by no means a fad. After all, portals simplify
end-user access to corporate business data and other information.
But can you put a value on building, deploying and maintaining them?
Yes and no. Properly planned and implemented, portals can lower
expenses by creating more self-service for customers and suppliers,
meaning information does not need to be fetched for them. Portals
should give a positive lift to revenues, too, but tracking that
impact can be difficult. The ROI of portals for the time being may
be best sold on the basis of their ability to empower customers, to
educate employees as well as outsiders, and other soft but no less
valuable measures.
ROI tools and gizmos. Some tools and gadgets have surfaced
as a way of essentially metering the value of installed software to
develop hard ROI data. These analyzers and calculators are supposed
to prove that the software is worth more than what you pay. You
should approach these with great care. Even if they work, they set
up an expectation that the ROI of software can be measured in
precise, empirical terms. That is simply not true.
There are many components of the value of software. Try to
educate senior management to think less in terms of return on
investment, and perhaps more on a return on intelligence. Software
and applications can be key drivers of changes in corporate culture
to accommodate new ways of doing business. Certainly leading-edge
applications can bring a level of personalization between a company
and its customers and suppliers that is unprecedented, and anyone
can see that as a positive step that ultimately can contribute to
revenue generation.
But perhaps most of all, software -- and in particular business
intelligence software -- can be brought into crisp alignment with
the overall business strategy, both supporting and driving that
strategy. This is particularly true for organizations moving to the
e-commerce platforms and methodologies that will define business
activity in the 21st century. I don't see how it's possible to put a
hard dollar figure on that kind of achievement, or question its
tremendous value.
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