The Softer Side of ROI
By Jeff Welsh, President - STAR BASE Consulting
It would be easy to forgive IT managers today for wanting to pull their hair out at the mention of ROI. It's been a rough year or two, and the bruising drive for ultimate operational efficiency has just about obliterated all direct routes to hard ROI benefits for most IT organizations. The ROI topic grabbed our attention because of our recent Pulse Survey of IT leaders. We asked the question, "Does your organization analyze the ROI of IT expenditures and projects?" More than half of the respondents, 58%, said they do not.
The fact that a solid majority of IT leaders said they are not measuring ROI had all of us at STAR BASE wondering what analytic approaches they do use. We took the question directly to our customers and most were not at all surprised by the survey response. As one IT executive explained, "Many businesses tend to measure returns in "softer" ways rather than looking at revenue numbers." Our informal polling process revealed that a great many IT leaders are relying on more soft and indirect ROI measurements as they make strategy and purchasing decisions.
Hard benefits are usually more attractive to executive teams and boards because the business rewards are quick, direct and measurable. Examples of hard ROI benefits in the world of IT would include automating a system to reduce the costs of manual tasks or consolidating systems to reduce infrastructure support and operational costs. The savings, in each case, are easy to quantify and give leaders a hard measurement to savor.
However, soft benefits—things like improved customer experience, greater competitive advantage or increased client satisfaction—are still important to ROI measurement. In fact, STAR BASE would argue that no ROI analysis would be complete if soft benefits were not measured along with hard benefits. And in some cases, especially today when there is no more fat to trim, soft benefits might be all you have.
To help IT leaders make the best case for investments and projects, STAR BASE offers a few quick guidelines for providing a more complete ROI picture.
• Make blended measurement the goal - Aim for ROI analysis to have a blended business case. An analysis that can explore anecdotal business factors—like customer satisfaction, improved cross-selling, competitive advantage and greater flexibility—as well as hard numbers that you see from projects like automation, consolidation and the creation of revenue streams, will allow you to build a business case that will be hard to beat.
• Package enough soft benefits to make them hard - When you don't have any hard ROI benefits to measure, don't throw in the analysis towel. Instead, pull together as many soft benefits as you can. The truth is, most soft benefits eventually do lead to hard benefits. It just requires a winding path to get there. Take for example, a soft benefit like improved employee satisfaction. It might look downright sentimental on paper but eventually more satisfied employees will lead to higher retention, reduced recruiting costs and, possibly, even greater productivity.
• Involve business and IT teams in the process - Involve everyone in the ROI analysis process. While the IT organization will understand the costs, fees and skills required best, business teams will have insight into the benefits that reach across the organization and fuel productivity, flexibility, satisfaction and the bottom line.
ROI analysis is not easy work, but it's good work that helps both IT leaders and executive teams better understand and monitor the contributions of IT projects and investments. With most things, the more you do practice, the better you are at it. We at STAR BASE encourage IT leaders to embrace the soft side of ROI measurement because it will harden your business cases.