What is the Holy Grail in terms of realizing return on investment within a predictable time frame?
A lot of our clients are paralyzed by the whole ROI topic, it's overwhelming for them. We talk a lot about the preparedness for defining ROI and making sure that it's a project. The ROI assessment has to be approached as a project in and of itself. Every company wants to do this but a lot just can't figure out how. It gets pushed aside and then the overall project can't be justified like it should be.
In the progression from defining a business need all the way through to solving a problem, doing the ROI up front has to be a distinct strategy much like any other part of the project methodology. Where do organizations go wrong in approaching ROI?
One area that we see is when it isn't designated as a project in itself, which means it's being devalued or pushed aside to address down the road -- both [are] mistakes. Saying 'we'll just figure that part out' rather than having a methodology to go ahead and do it is a textbook miscalculation. You wouldn't go into choosing a software package without building a process to guide you. It's the same with ROI, it has to be a strategic goal.
In other cases, not putting a set of boundaries around ROI can actually be just as damaging. An attempt to define the ROI model or to identify the costs and benefits can go on forever. You have to define some end points and some steps to gather the information. You have to do your analysis and do estimates before you've got the complete picture. Once that is completed, if you realize that your plan doesn't have enough detail you can go back through that process. But people can get stuck on it for a long time, the project gets bogged down, and in the worst case the ROI approach is abandoned because it has become problematic. We hear a lot about soft ROI. How can a CIO accurately gauge this kind of ancillary benefit and use it to evangelize their project?
A lot of people throw issues like customer satisfaction into the bucket of soft ROI and use it as a cop-out. That's a lazy approach because it says they aren't willing to take the extra time to figure out where business grows or changes as a result of building happier customers. They can look at order rates and competitive issues. Any soft benefit can be fleshed-out with a little determination. It may be difficult to figure out exactly what a 10% gain in customer satisfaction translates to in terms of buying patterns, but there are studies out there that can be used as benchmarks. You see some remarkable business cases that are built along a tiny improvement in satisfaction and retention. It doesn't take a huge leap to justify the investment. It's a matter of having the discipline in putting a team together to take the ROI analysis two or three steps beyond the soft benefits to see if something quantitative can be made of it. Which vendors out there are best at helping customers build an ROI model?
Siebel, unsurprisingly, is about the best. They do a very good job in terms of putting together a model that works with their product. It works if a customer is seriously considering the Siebel products in terms of generating costs versus expense. For companies upstream still trying to decide if they should make an investment in broad CRM applications, it's not as effective.
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Consultants in general historically have shied away from business cases and ROI models if they're not pressed to do it. It's putting themselves on the line. As a whole, the consulting industry probably needs to be a lot more aware of this, particularly in the current economic environment. What can vendors do to help customers be more effective in gleaning ROI? We've heard about onboard ROI calculators, but do these really work?
I think that a lot of software vendors need to develop ROI methodology. That's really in their interest. They can go in to a prospective customer and ask questions and feed that into some model that calculates investment and return. That's a common approach. The major vendors are pretty ambitious and already do a pretty good job of that. As a buyer I might be a little skeptical of that because it's creating a cost justification for the vendors' products. It's not surprising that the vendors are bullish on their own prospects.