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Return on Value (ROV) - An Imperative for NextGeneration ROI in High Tech Executive Summary
Uncertainties over the ultimate shape of ebusiness and the U.S. and global economies have put revenue-generation and costreduction at a premium. Competition in customer-centric marketplaces continues to escalate, and globalization, acquisitions and deregulation conspire to ratchet up the stakes in practically every industry. Information technology is now a mainstream part of all business endeavors, so valuesensitive, risk-averse executives and managers are rightly demanding that nextgeneration IT solutions provide maximum benefit with minimum cost. Evaluating the return on investment (ROI) of any vendors technology solution is now paramount. Many efforts by vendors to illustrate their ROI have focused principally on financial calculations of the tangible benefits that such an investment could be expected to deliver against the cost of developing, deploying and maintaining any new system. In this white paper, Globalinkage, a consultancy that focuses on helping high tech vendors enhance their global performance by improving their sales effectiveness, will outline the means by which high tech vendors can rethink and refine their ROI models for more accurate measurement and faster payback. ROI a financial calculation that depends exclusively on quantifiable benefits falls short of providing a complete picture of the ROI that an organization may realize from any flavor of IT solution. The chief limitation of traditional ROI modeling is that it accounts only for the quantifiable benefits derived from an IT implementation, such as software development dollars saved, hours reduced or reports generated. It is not designed to assess less tangible and yet farreaching business benefits better and faster decision-making, enhanced sales effectiveness, organizational learning, improved competitive advantage, strengthened customer loyalty or greater productivity and flexibility to respond to rapidly changing markets. With the benefit of experience, vendor and customer lessons learned and its ROI knowledge base, Globalinkage has undertaken to develop a next-generation ROI methodology called the Globalinkage Return on Value. Its goal is to account for the important intangible benefits that are characteristic of the broader, more diverse contours of the changing business world.

ROV Research Methodology

In evolving this model, Globalinkage relied heavily on work with five clients and their customers in four high tech sectors: data warehousing, CRM, wireless web and analytic applications. In data warehousing, our research included an extensive review of the data warehousing experiences of 134 customers of a leading-edge provider of business insight networks. In CRM, it involved the tactical experiences of 10 customers using a new customer information management system, as well as several brainstorming sessions with the IT vendors management team. In analytic applications, we conducted detailed interviews with 19 people across 11
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Are Traditional ROI Measurements Good Enough?

Globalinkage has been at the forefront in helping its high tech customers evaluate the ROI of their technology solutions for quite some time in a wide variety of software market segments. As a result, Globalinkage has developed a substantial knowledge base of the benefits that customers of vendors in data warehousing, CRM, wireless web and analytic applications derive from these technologies. Our continued research has made clear that the traditional means of

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customers involved with e-business analytics. We also reviewed case studies with several different customers of a provider of supply chain performance management applications. In the wireless web, it involved close analysis of success stories detailed in the press during the spring and fall of 2000. In addition, Globalinkage has relied heavily on the business performance measurement system known as the Balanced Scorecard. Developed by a pair of professors, Robert Kaplan and David Norton, in a series of Harvard Business Journal articles in the mid-1990s, Balanced Scorecard establishes objectives and examines performance from four perspectives Financial, Internal, Customer and Organizational Learning. As illustrated in Figure 1, this process provides a holistic view of benefits that transcends the strictly quantifiable.

ranking based on the number of Balanced Scorecard metrics used and the extent to which their metrics were quantifiable rather than anecdotal. These results were then plotted onto an ROI/Payback Map similar to that in Figure 2. Customers in the sweet spot those with higher ROI and faster payback -were those with lots of Balanced Scorecard metrics and a combination of both anecdotal and quantitative content. Multiple Metrics Single Metric

Sweet Spot

Anecdotal

Quantitative

Figure 2 Important Return Conclusions on Value

Figure 11

The Balanced Scorecard

Financial Perspective
Measures the ultimate results that the business provides to its shareholders.

Customer Perspective
Focuses on customer needs and satisfaction as well as market share.

The key conclusions that have been reached in this research are: 1. Vendor customer formal and/or informal business value assessments is going mainstream both before IT purchases and after implementation.

Internal Perspective
Focuses attention on the performance of the key internal processes which drive the business.

Organization Learning
Directs attention to the basis of all future success - the organization's people and infrastructure.

2. Enterprises are moving beyond IT and

adopting a more enterprise-centric approach that tries to define both qualitative and quantitative performance metrics that measure the broader strategic contribution to the firm, rather than just the impact on IT development costs, resources and strategies. Those vendors that have invested in a comprehensive customer information management system, such as that provided by Truis Corporation2, are much better able to build the foundation of quantitative and anecdotal metrics to illustrate the Return on Value of their technology.

For customers in each market sector, several factors were examined. These included the business problem being addressed, the type of solution deployed, the resulting business value to the customer in both quantitative and anecdotal terms, and the number of metrics used by customers to assess ROI. Each value metric was then mapped to a component of the Balanced Scorecard. Each vendors customer was also given a

Gentia Software White Paper 1998 pg. 4

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Key Next Generation Return on Value Metrics

In short, attention to ROI in a broader context serves as an organic, closed-loop process that in effect renders the whole greater than the sum of its parts. Five key elements have been identified that are used most frequently to measure this broader, next-generation Return on Value. Impact on Cost - One of the most common ways to increase ROI and accelerate payback is to identify and implement costreduction measures, covering both actual and avoided costs. In data warehousing, for instance, standardization on a data integration and analysis platform that provides easy-to-use, drag-and-drop interfaces can significantly reduce the time that otherwise would be spent on tedious hand-coding. This then frees up staff to pursue other tasks. In a broader context, an infrastructure that enables business analysts to spend more time on data analysis, or makes it easier to respond to customer service queries, enables the firm to reduce time and expense associated with data collection. Impact on Revenue This second, more direct metric is used to assess how a technology impacts top-line revenue or overall firm profitability. For many firms, this means identifying new opportunities or better exploiting existing markets. For others, it means identification of more upselling and cross-selling opportunities with customers, launching more effective marketing campaigns, or personalizing products and services after analyzing and segmenting the customer base. Thirdly, technology will frequently enable a firm to avoid revenue loss through customer churn by better identifying and targeting customers. Though its sometimes difficult to pinpoint the precise dollar impact of a new IT infrastructure solution, substantial impacts on revenue can frequently be quantified.

Impact on Relationships In the customercentric economy, companies are striving to forge relationships with prospects and fortify relationships with current customers. An IT investment that enables a firm to analyze and maximize customer relationships can deliver tremendous ROI. In some cases, this strategic value also provides a new perspective on the business or improves decision-making capabilities. Though it can be difficult to translate levels of customer satisfaction and loyalty into dollars and cents, it is clear that they exert a profound influence on the business and may rank among the top impacts of investment in IT. In situations when a customer is defined as an internal user of an IT system, it behooves companies to measure usage, satisfaction and empowerment rates, adapt according to that analysis and thereby boost ROI. Impact on Productivity A beauty of the Return on Value process is serendipity the semi-accidental discoveries and opportunities that organizations invariably encounter as a result of taking specific actions that lead to other processes that in turn result in reduced costs and higher sales, as William McKnight, of McKnight Associates Ltd., said in a May 1999 Information Week article on data warehousing ROI. Those other processes often involve organizational productivity, including timesaving, repetitive task reduction and new operational efficiencies. Though these improvements can be difficult to quantify and benefits tend to be anecdotal, there is a growing recognition of their importance among both business and IT managers. Impact on Innovation Metrics that evaluate the extent to which an organization is developing new skills and growing through crosspollination of intelligence and ideas are probably the most difficult to define. Those customers able to achieve a higher business value were those that had cultivated strategic visions of organizational learning, rather than tactical objectives. These tended to be companies that had standardized on a common set of tools and processes across their organizations. As a result, individuals were able to learn skills that could easily be used on other projects and could focus on higher-value activities. Those who wanted to transfer to other divisions or subsidiaries could do so easily with little retraining. More importantly, this cross3

Information about this sales effectiveness technology can be found at www.truis.com

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pollination of ideas frequently leads to greater job satisfaction, organizational innovation and management cycle time reduction, such as the time an analyst needs to gather data, or for the firm to complete its financial reporting cycle.

Globalinkage Return on Value Customer Experience

One of the high tech leaders in ROV assessment that Globalinkage has been working with for some time is a leading provider of business insight networks. This company has invested heavily in building a customer information management infrastructure that enables it to track and measure customer experience with its technologies, from both the IT and the business perspective. This vendor has been proactive in building tools that its sales force can use to work with the prospect or customer in evaluating ROV metrics and benefits, and has also invested in marketing programs, such as cyberseminars and ROIrelated white papers, to keep customers and the sales force up to date on new ROI developments. Another company is a leading provider of supply chain performance measurement applications. Since its entry into this market in 1999, it has aggressively built a sales model and professional services methodology that is focused on proving both qualitative and quantitative business value of its technology. Because of the diverse nature of the manufacturing industry, this vendor needed to tailor its initiatives to specific market sectors, while at the same time articulating a value proposition that spans the enterprise. Through this strategy, the company has demonstrated to customers and prospects that its applications can drive top-line growth by helping align strategies and operations, identify opportunities for continuous improvement, and solve business problems as they occur. Third is a provider of professional services and customer information management software that helps business-to-business companies build and leverage partnerships with customers by managing company-

initiated customer conversations that yield qualitative customer intelligence. This vendors senior management team spent significant time building a storyboard and Excel-based tools to help the customer evaluate the value of investing in customer lifecycle management. This included both qualitative and quantitative impacts of such metrics as: Increase in the number and quality of customer references and effective reference management on marketing effectiveness Shortening sales cycles and facilitating high quality, ongoing customer care Improvements to product development cycles by having an aggregated database of customer needs and product use Improvements in the customer relationship development cycle by providing timely customer intelligence to senior management

Conclusion
Business processes and competition are accelerating. It is no longer sufficient to merely count IT dollars and cents associated with any new technology or application, or to examine ROI from merely a departmental or tactical perspective. It is clear that many enterprise customers recognize the need for an enterprisewide ROI examination, and are taking steps accordingly. These leading companies share a growing recognition that the ability to prosper in an increasingly complex environment one of more data, more users and more devices -demands a broader, in-depth assessment of both technology systems and business processes. By developing and implementing a Return on Value model, organizations will not only gain new understanding of the true strategic value of their technology investments, but more importantly can accelerate the payback of these initiatives through enhanced operational efficiency, improved decision-making and sustained innovation.

Things to Remember
Adopt an enterprise-centric approach Build a customer information management infrastructure Track qualitative, anecdotal and quantitative benefits using the Balanced Scorecard framework Build a baseline and then compare metric results of business value to the customer periodically
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