The Gantry Group

Confidence to make Critical Business Decisions

Gantry Group Newsletter Issue No. 15, September 2002

This email is never sent unsolicited. You are receiving this email because you have opted in to receive news and updates from us or one of our affiliates. If you don't remember opting in, or you think someone else has opted you in against your wishes, please follow "Unsubscribe" instructions at the end of this newsletter. Issue Insights: Qualitative value claims must be supported by quantitative analysis to be credible. Use focused research across all the role groups in your customers' companies to capture different priorities and investment decision methods. Listen to your customers to articulate your ROI value proposition and include both tangible and intangible benefits. Create and refine your ROI benchmarks by collecting  new data and establishing average values. Take the time to examine whether an apparent intangible benefit can actually be measured indirectly.       Now Available Gantry Group's Mobile Solutions ROI Report for Palm, Inc. Gantry Group has just published a white paper commissioned by Palm, Inc. that reports on our ROI study of a particular mobile solution application. This report details the development of the application-specific ROI tool and includes three case studies. Please CLICK HERE to download the white paper. Scroll to the end of this newsletter for more content information and details.

ROI Series Snapshot Getting the Dogs Back on the Chow   Leading With ROI: Fact Not Fairytale   Homing in on Your Market's Business Metrics   Quantifying Your Value Proposition   Tangible Marketing Messages   Selling with ROI   Quantifying Your Value Proposition So, which is more important -- quantitative ROI or qualitative ROI?  Based on its interview of 225 C-level executives earlier this year, InformationWeek noted disagreement across executive role groups (CEOs, CIOs and CFOs) as to the appropriate measurement standards for determining Return-on-Investment (ROI) and the accompanying priorities of those standards. As a result of this study, Information Week stated that: "the good news is that C-level executives are giving more attention to the importance of soft metrics,  known as intangibles, in determining the business value of IT projects." This finding favoring the use of soft benefits may be even further fueled by the proliferation of "ROI calculators" on websites of all kinds. These high-level sales tools do not disclose underlying assumptions, are not highly customizable, and require only a few inputs to generate return estimates. Typically these tools are so generic that they do not accurately profile any company's business situation, producing high estimates that are simply not credible. Few C-level executives would make a technology purchase decision based on this type of ROI assessment. Finally there has been a plethora of articles written over the past six months asserting the elusiveness of "true" ROI, and the insurmountable difficulties associated with measuring it. More specifically these articles call the reader's attention to the lack of consensus within businesses on how to measure ROI accurately, and concluding that it can never be meaningfully captured.   To those who would point to the difficulties of quantifying ROI as a reason for opting for "soft" intangible benefits only, we respectfully suggest that ROI promises without the ROI proof, is what fueled the failed Dot-Com era of the late nineties. In this fourth edition of the Gantry Newsletter series on ROI, we speak directly on the subject of tangible versus intangible ROI. As you will see, there is a case to be made for having both to maximize your sales effectiveness.  Following the precedent set in the previous three newsletter issues, the content in this document is written for vendors of technology-based products and services.

It seems that everyone agrees on that fact that Return-on-Investment is theoretically a powerful decision support tool. But not everyone agrees on the degree to which this assessment tool can be put into practice. In fact two schools of thought have emerged, drawing a line in the sand between whether quantified ROI is important or not. 

Those who subscribe to the belief that ROI is too difficult to measure quantitatively (and therefore shouldn't be attempted) typically do believe that intangible benefits are the "real key to value". These benefits include customer satisfaction, employee retention, brand value, business relationships, and faster-time-to-market. In fact, all these factors can be measured. But the question remains as to how much of the benefit can be directly attributed to a particular purchase or implementation. Many would have you believe that ROI is therefore a subjective attribute -- more art than science. In the eye of the beholder, if you will. 

The second school of thought takes the opposite view, claiming that "if it can't be measured it doesn't matter". Such ROI calculators either overlook very important and very real benefits, or they attempt to parameterize intangible factors such as brand value or improved business relationships, by applying a "proprietary" approach that magically metrifies the truly unmeasureable. These proprietary algorithms earn the status of commanding their own acronyms like "Return on (fill in the blank)" or Total Cost of (fill in the blank)". 

As usual, the best place to be is somewhere in the middle of these two extremes. In other words, intangible benefits are important to notice and call to the attention of your prospective customers. The appropriate place for this is in your strategic messaging where you promote the unique value proposition of your offering. The tangible benefits (these are the ones that actually can be measured without handwaving) have their place in your value proposition too. The point is, you need both quantitative and qualitative ROI. How you present and distinguish them is key to credibility.

Finally, there is a third school of thought that dismisses ROI (both quantitative and qualitative) as a valid decision support tool. Quantitative ROI is thrown out because of disagreement on what should be measured, and because it doesn't reflect intangible value. Qualitative ROI is thrown out because of its very subjectivity and "softness". Subscribers to this line of thinking generally point out that ROI isn't what is important -- profits and revenues are. [But perhaps they don't understand that ROI is generated from profit and revenue measures!]. According to the executive interview conducted by InformationWeek, cited at the beginning of the newsletter, business leaders in this camp judge investments by the degree of synergy with other initiatives - not by soft or hard benefits.

The thing to keep in mind when considering how all these views play against each other, is that ROI -- tangible or intangible -- is only one decision support tool, not the only one. There is no reason not to consider all of the above including economic and financial benefits, soft benefits, and how well the investment will fit into your current business strategy.

The pressure to demonstrate tangible ROI has not let up -- in fact, the continuing grip of the economy (oops! we mean the "recovering economy") has, if anything, increased the need for technology vendors to answer for the economic impact -- the very justification -- of their offering. IDC reports that some 68% of companies now require an ROI analysis for all IT investments and of those who do not do so currently, 23% expect to implement such a policy in the next 12 months. In light of these and other similar statistics, the importance of having both qualitative strategic value propositions and solid numeric estimates for Return on Investment cannot be over-emphasized. 

The unique value proposition that forms the basis for your brand positioning and strategic messaging, is your promise. Today, promises just aren't enough to close a technology sale. While it is certainly easier for technology vendors to skip over the exercise of quantifying their ROI benefits, prospective customers will assign less credence to your unsubstantiated claims of increased customer satisfaction and other intangible benefits.  The point to realize is that having believable numeric ROI benefits, actually boosts the impact of your qualitative value proposition.

In the current economic climate most executives are skeptical of claims that, from their perspective, are based on a wave of the hands. Assertions about how your offering will reduce costs, create efficiencies, and retain customers must be backed up with (believable) numerics. Some claims are easier to quantify than others. But don't give up on quantification just because at first glance you can't directly measure an intangible benefit. 

Let's say, for example, that your offering automates a previously manual process such as data entry. One of the seemingly intangible benefits might be "greater accuracy". Upon closer examination, you can focus research on determining the average cost per error, or perhaps the frequency of re-work outsourcing due to errors. Knowing the reduction in the number of incidents where work is sent out to a third party for re-entry, and knowing the cost of the third party leads you directly to the savings from avoided cost due to increased data accuracy. 

A more ambiguous example is dealing with something like decreased liability or risk. Since risk assessment is based on probabilities, it is difficult to accurately estimate the impact of a product or service on probability. If however, insurance payments can be reduced or eliminated due to implementation of the offering, then those reductions should be reflected quantitatively to support the qualitative claims of reduced risk.