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.


Bio: Bill Laberis is founder and president of Bill Laberis Associates, an IT consulting and publishing company in Holliston, Massachusetts. With more than 20 years as an IT editor and publisher (including 10 years as Computerworld's editor-in-chief) Laberis is a noted columnist, commentator and keynote speaker on IT and business issues and trends. He invites readers to visit his Web site: http://www.laberis.com/.


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