The Gantry Group

Confidence to Make Critical Business Decisions

Gantry Group Newsletter Issue No. 18, January 2003

This email is never sent unsolicited. You are receiving this email because you have subscribed 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: Few enterprises realize a high return on IT investments. Corporate performance impact of IT solutions should guide IT investment -- not cool technology and features. It's critical to link corporate performance metrics to IT investments. First define success. An effective IT strategy defines the ROI value drivers and metrics to be achieved.   Having a clear understanding of these is required prior to shopping vendors. Tap into readily available market data. Your users -- internal line groups, partners, customers -- will prioritize their needs and quantify the desired outcome for you. Analyzing enterprise industry experience with deployed IT solutions under consideration can realistically guide you as to whether the technology is aligned to your performance goals and payback timeframe. Almost 60% of companies may be misleading themselves by measuring their ROI in-house, often generating "false positive" results. Get ahead of the IT solution vendor. Create your own ROI and TCO calculators to ensure consistent ROI performance evaluation of vendors solutions. Happy New Year! We wish our readers a winning 2003!   Participate in our Survey! Exploring IT Investment Experience If we could have one minute of your time, we would like your perspective on your company's IT Investments. We would like to explore your satisfaction level, interest areas and procurement criteria. Please click on the link below to enter the survey. The survey results will be revealed and analyzed in next month's newsletter issue. Thanks for participating! Enter Survey

Enterprise IT ROI Series Editorial Calendar Getting a Handle on Your Enterprise IT Investment How to Buy with ROI - It's Not Just for Sales Pitches Any More Setting Realistic Payback Goals on Software Investments Field Guide for Continual IT ROI Measurement: The Backbone of Today's Enterprise Understanding the Real Cost of Owning Software Where Customer Intelligence Pays Off Determining the ROI Rewards of Business Intelligence Streamlining Supply Chain Automation: Is It Payback Time? Quantifying Customer Service Automation ROI Impact Measuring the ROI of Mobility Technology The ROI of Knowing What You've Got: Enterprise Asset Management Buttoning Down the Hatches: Cost/Benefits of Security Web Application Services: Cool Technology-- But Does It Deliver ROI? The Value of Making it All Work Together: Enterprise Application Integration Economic Impact of Business Process Management Software   Getting a Handle on Your Enterprise IT Investment It's now 2003, and there continues to be considerable fanfare about ROI. Much of it revolves around getting technology vendors to pay more attention to stating their value proposition more clearly... and in fact, quantifying it. This is one giant step in the right direction. After years of hype and frivolous buzz marketing, massive marketing program realignment in the technology sector is definitely in order. A refreshingly simple market premise is now prevailing: Tell customers and prospects exactly how, and by how much, you  can positively impact their businesses. But how are enterprises coping with all this carefully crafted statistical ROI data from vendors? How do the buyers of this technology, assess this performance metric data? How do enterprises assess the payback of their current technology acquisitions? And how do enterprises apply ROI to make prudent future technology purchases? This process is quite overwhelming for many enterprises. Most are drowning in ROI and TCO data, without a clear, tangible means to interpret, assess and compare the IT value proposition claims between bidding vendors. However, now more than ever, CEOs are mandating that CIOs demonstrate how IT investments will increase shareholder value. In fact, according to Information Week,  "82% of IT decisions now require an ROI analysis." With all good intentions, many enterprises have taken it upon themselves to wade through and analyze this data for themselves. Unfortunately, according to a recent Jupiter Media Metrix study, almost 60% of companies may be misleading themselves by attempting to calculate ROI in-house, often generating "false positive" results. The problem in these "do-it-yourself" ROI assessments stems from unconscious bias, and inconsistent definitions of ROI metrics, in an effort to prove out positive results. This makes it quite difficult to realistically justify those technology initiatives that should be funded from those that should be closed down (or not made in the first place). The morale of this story is "wishing does NOT make it so!" But it wasn't long ago that ROI was not even a consideration in the procurement process. Let's take Customer Relationship Management (CRM) (now re-named "Customer Intelligence" to protect the innocent) as an example solution sector. META Group has found that only about 10% of organizations have done any sort of ROI analysis for CRM systems. Commensurate with this data point, CRM project failure rates are quite high, ranging from 25% to 77%. Tight budgets have spurred executives to shift from a "leap of faith", "competitive, me-too" technology purchasing strategy, to quantitative ROI justification. In this age of full disclosure, ROI not only keeps the sales pitch honest, it also aids supports fiduciary responsibility that IT executives must now take on.

This new ROI newsletter series is targeted specifically to enterprises wishing to evolve performance assessment and purchasing practices of software assets. The series will examine best practices for applying such an ROI, performance metric-based model to the purchase decision. Being the first issue of this new series, we would like to whet your appetite with the upcoming topics. It would be impossible to discuss ROI in the context of every category of software investment that your enterprise might be considering. Therefore, we have selected, based upon Gantry Group's extensive client experience and research results, the Top 10 software investment areas that are of greatest interest, regardless of the enterprise's industry or market segment.

So here's the rundown on what's to come!

Getting a Handle on Your Enterprise IT Investment - Considerations for how to get started taking inventory of current software asset performance and shoring it all with future investments.

How to Buy with ROI: It's Not Just for Sales Pitches Anymore - Details the software evaluation and purchasing process that is powered by ROI assessments calibrated to your enterprise business performance metrics.

Setting Realistic Payback Goals on Software Investments - The do's and don't for creating enterprise benefit scenarios that you can count on. An assessment process for determining what vendors can really deliver and when.

Field Guide for Continual IT ROI Measurement: The Backbone of Today's Enterprise - Recommendations for setting realistic performance metrics that can be practically measured at regular intervals.

Understanding the Real Cost of Owning Software - Practical Total Cost of Ownership (TCO) approaches to truly understand your total investment level.

Where Customer Intelligence Pays Off - How to apply ROI thinking to the procurement process of sales analytics, customer analytics, campaign analytics and customer relationship management software.

Reaping the ROI Rewards of Business Intelligence - Identifies the evaluation process and critical ROI performance metrics for business analytics and decision support software.

Supply Chain Automation: Is it Payback Time? - Discussion of the possible facets in which ROI can be delivered from sourcing, procurement, supplier intelligence and supplier relationship management software.

Quantifying ROI of Customer Service Automation Impact - Does it pay to invest in that online self help desk? Or how about making your enterprise's skill and know-how assessable to your customers through an integrated knowledge base on the self help site? This issue discusses what delivers value... and what does not.

Measuring ROI Benefits of Mobility - Mobile Devices have transformed how enterprises communicate and coordinate with their field forces. This issue imparts which best practices will deliver top ROI.

The ROI of Knowing What You've Got: Enterprise Asset Management - Tracking your enterprise's tangible and soft assets can bring significant savings through a streamlined upgrade and troubleshooting process.

The Cost/Benefit of Buttoning Down the Hatches - ROI of creating a secure enterprise environment is a top issue for any U.S. company.

Web Application Services: Cool technology-- but does it deliver ROI?   - Investigates the realistic investment costs and when to expect value.

The Value of Making it All Work Together: Enterprise Application Integration - The dream is a totally seamless integrated corporate infrastructure. Can EAI make this reality? Comparative solutions and purchasing criteria are unveiled.

Economic Impact of Business Process Management - How to measure the value drivers for BPM software.

So who cares about IT ROI, if there is no ROI spending?

Given the droning economic conditions and "ain't it awful" media coverage from the past couple of years, it's easy to reach the conclusion that enterprises simply are NOT investing in IT to improve their business processes. IT infrastructures and budgets are frozen! But this simply is not true! According to Aberdeen Group, total tech-sector revenues -- including hardware, software, and IT services increased 4.3% from $446.1 billion in 2001 to $465.3 billion in 2002. Software sales climbed from $93.7 billion to $181.4 billion. Software infrastructure will continue to be a key element of enterprise agility. So large IT investments indeed are happening even if not at previous rates. However, the mandate has never been stronger for IT investment to be performance driven.

Companies are allocating their IT budgets on advanced software that will improve and optimize business operations. In other words, prudent purchasing decisions are being made to acquire "shoe fit" software investments that deliver surefire ROI. Reinforcing this conclusion, Chasm Group reported (10/02) that custom software still wins out over packaged applications by 10:1. This statistic comes as no surprise.

"Custom developed applications account for $152 billion (62%) of the $244 billion spent on software in 2001, while only $15.6 billion (6%) was spent on enterprise packaged software applications (ERP, CRM, SCM, & PLM )."

Most enterprises are tired of waiting for technology payback. Many are tired of floundering without a way to even keep score on such investments. Enterprises have simply run out of patience. Today, the modus operandi is Rapid ROI.. RROI... payback in twelve months of technology deployment. Perhaps the pendulum has swung a bit too much to the right. Such payback goals are highly aggressive -- and for most technology requiring customization and implementation services -- unrealistic. Setting such short-term goals can cloud an enterprise's path to meeting really important longer-term goals. For the most part, this new ROI mandate has been created in the absence of knowing what the business performance metrics for the corporate infrastructure goals actually are.

Our recommendation: SLOW DOWN! We have all already seen what speed can do to your company. Remember the results of going at "Internet speed?"  When it comes to your IT investments, take the time to develop a strategy to guide your IT purchasing decisions. Make sure that your corporate objectives and the benefits of an IT investment are not orthogonal to each other. ROI thinking is a key part of it and this will require thoughtful and honest assessment across your firm.

Incomplete or improper IT strategy contributes to over 30% of the problem -- the problem being low return on IT investment. Enterprises must take the time to ensure that corporate strategy and performance metrics are aligned - before making IT purchases. Unrealistic goals, deployment schedules and budgets lead enterprises down the path of disappointment, serving only to postpone inevitable failure. It's better to know the the accurate payback scorecard going into the project. Your company may decide to postpone the project, but at least you won't be forced to waste investment on partially implemented programs or overspend.

Companies may be wrestling with ROI for one of two reasons:

    1) The enterprise is considering a new software investment to streamline business processes.

    2) The enterprise has already made a considerable investment in a particular software component which has not proven out. They are in diagnosis and recovery mode!

No matter which group you fall into, take the time to stop and consider what you think the particular technology category can specifically do for you.

Has your firm experienced a disappointing IT purchase? Well, you are far from alone. Many companies wish they could revisit their IT decisions and  purchases. There are several recurring themes -- or symptoms --  that reveal why IT ROI is not achieved.

High IT Spending with Intangible Performance Goals - Many enterprises suffer from high IT annual expenditures, with seemingly low corporate performance impact to show for it.   Usually this is a clear indicator that that IT is not guided by clear business performance metrics. Prior to making an IT investment it is absolutely essential to understand the following in order to link IT expenditures to corporate performance:

• Who are the Business Groups that will be impacted by the investment?
• What are the solution requirements for this Business Group?
• Specifically -- and quantitatively -- what does the company wish to achieve with the IT investment?
• What are the key performance metrics to be considered for the IT component under consideration?
• What is the cost justification for a make versus buy decision?
• What approach have other peer companies taken to achieve the solution? Were they successful?

Dissatisfaction with IT by Business Group - If the Business Group is unhappy with their solution, it's usually for at least one of the following reasons:

• Poor communications between IT and the Business Group.
• IT didn't have a clear understanding and articulation of the Business Group needs.
• IT didn't build the right solution.
• Expectations were generally unaligned between the two groups.

"Arms Race Mentality" Guides IT Investments - This "me too" purchasing posture had its heyday during the 1998-2000 period. Artificial, unsupported claims were made by analysts and press that your enterprise would be left in the pre-Internet dust cloud if you didn't jump onto the "technology du jour" bandwagon. The problem with adopting this IT investment policy is that:

• Investment conforms to what others are spending WITHOUT examining the extent of success or failure.
• It's not tied to what is required to achieve corporate goals and objectives.

Many large investments have been made by enterprises over the last few years simply based upon the belief that the infrastructure had to "gear up" to be competitive.

IT Vendor ROI Claims Were Unclear - ROI claims can be elusive, open to situational interpretation. Intangible benefits that span multiple departments can be difficult to translate into predicable tangible outcomes.

If your enterprise is in diagnostic mode regarding a past investment or is cautiously considering a new IT investment, our first recommendation is to calibrate the IT initiative internally with desired performance metric outcomes, and externally with industry and general enterprise experience. Most companies fail to achieve a positive return on IT investments

• Qualify and quantify any dissatisfaction with  existing IT investments. Identify real causes -- not symptoms -- of IT dissatisfaction.

• Understand the motivations for IT investment. Specifically what problem is to be solved by the IT solution? What financial impact must it have for the IT initiative to be deemed successful?

• Assess the business process(es) to be automated by IT. Understand all points of organizational interaction.
  
• Pinpoint target organization(s) performance metrics and goals. Specifically what do the organization'(s) wish to achieve with the IT solution? How will the solution affect the business' bottom line?

• If a current IT solution has already been deployed, conduct gap analysis of the of requirements and performance goals against this IT investment.

A wealth of enterprise data awaits any company -- it's there for the taking.  By harnessing primary research techniques and the Internet, your firm can quickly tap into your "market's" priorities,  requirements, performance metrics and key value drivers. Whether it be an internal line business, an external business partner or customer, validated conclusions can be reached to guide IT to achieve the desired outcome. Such an IT calibration allows a company to realign IT investments based on exposed skews. The right projects to be embarked upon are highlighted; projects with low performance impact are flagged for discontinuation. Corporate and line business goals are clearly articulated. Only after important calibration step is a company in a position to truly reassess its objectives, judge past IT performance, and consider new IT investments.

Always coincident with the emergence of enabling technology, we have a plethora of new standards, architectures and product categories to contend with. The Internet, cellular networks, voice over IP, data compression, broadband, and widely distributed networks, XML -- to name a few -- have sparked the creative juices of technology vendors in every possible combination and permutation. Seeing the trees through the forest is critical, however. Just because a new paradigm exists, does not mean that it is the wave of the future. Market trends do not necessarily command long engagements. Just look at dot-coms as a perfect example.

IT solution categories should first be evaluated, prior to jumping into the details of brand evaluation and comparison. There is sufficient enterprise performance data available for most IT solution categories to clearly indicate the following:

• Cost of ownership - initial purchase, upgrade and ongoing maintenance
• Quantified value proposition - identification of actual value metrics and performance
• Realistic payback period - just how long did it take enterprises to recoup their investment -- if at all.

Before you do anything, take the time to compare the expected benefit of the IT solution category, with the needs of your organization. If there is no clear way that your business will benefit from switching to, say, a J2EE platform, why incur the cost? Once you understand the true value impact of the category, you can then decide if the IT solution is aligned with your corporate goals and performance metrics.

One of the biggest mistakes most enterprises make, is going shopping for IT solutions too soon without a real shopping list.  This phenomenon is, of course, catalyzed by IT vendors eagerly ready to demonstrate and promote their wares. Good IT investments are not opportunistic -- they are strategically driven, scoped and calculated. Here's some "must-haves" for  the shopping list:

• Clear corporate vision and objectives - Clear prioritized corporate performance goals.

• Clear reading of user needs - Clearly articulated internal/external user needs. Accurate translation of User Needs to Solution Requirements.

• Clear solution vision and objective - Prioritized, realistic objectives based on greatest ROI opportunity and need. Quantified success and payback metrics for company and users.

• Solution blueprint -- a comprehensive IT plan of what to build and buy. This will enable sound make/buy decisions. It will also drive a thorough evaluation of IT vendor brand selection based on corporate goals and user needs -- instead of brand awareness and strength alone.

So now you have a plan... and you know your endgame for the IT solution have convinced yourself . Which vendor or group of vendors can best solve your IT problem? The fact that ROI reigns as the supreme selling tool, at least readies vendors to promote their offerings on the basis of bottom line impact. However, such ROI claims can be accomplished credibly to accurately portray the vendor's value proposition. Or these ROI statistics can be cleverly constructed to mislead. The ROI claims must be carefully examined and validated against actual customer experience. Vendors with good technology are happy always happy to introduce satisfied customers. Take advantage of this opportunity. With the solution category previously validated against your corporate performance objectives, the discovery is now to isolate the IT vendor with the most aligned value metrics and highest ROI. Our next newsletter issue on "How to Buy with ROI" will delve into a methodology that will drive this buying process. So stay tuned...

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