Contrary to the marketing hype, investment in information technology is less about dollars and more about what makes good business sense.
There exists a fallacy in the technology industry suggesting major spending in IT is subject to an exacting and measured analysis of expected return on investment (ROI). Vendors of IT products, in particular, like to position ROI as a customer motivator. The concept can serve as a powerful selling tool in presenting a strong business case and as a means to entice buyers.
The truth is, yes, a business invariably does seek payback in its IT investment – but not necessarily in a precisely measured fashion, and not just in dollars and cents. Over the years, many of the IT professionals with whom I’ve spoken frankly don’t give nearly as much thought to calculating ROI down to the penny as do the marketing professionals who preach this gospel.
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In fact, the opposite is more often the case. Many businesses are skeptical of vendors’ ROI formulas, seeing these as best-guess assumptions of benefit that may or may not be achieved, and all-too-generous estimates of the monetary value gained by buying a product. Most companies prefer to keep IT real.
For them, spending on computing technology is pragmatic and has a much simpler motivation. Most customers – especially small and medium businesses – couldn’t tell you precisely what the monetary payback of an IT investment was. In my experience, companies seem much more focused on solving a business problem.
A company suffers pain when a business process is failing, so it becomes a problem that absolutely must be fixed. There’s often no close, exacting scrutiny of how much money might be saved or recovered. It’s more important to address the problem and solve it as soon as possible.
This is how the Ontario Mutual Insurance Association (OMIA) approached a recent business process challenge. The OMIA, a trade association based in Cambridge, Ont., that provides administrative, intelligence and reporting services to about 46 mutual insurance companies across the province, needed to modernize its information delivery and report creation. The system in place could no longer be adjusted to fit the requirements of the business.
A largely manual system had been used to prepare quarterly data and statistics that were vital for developing the insurance rate settings required by association members, various brokers and underwriters, as well as insurance regulators. Traditionally the task involved creating paper-based reports. That process eventually evolved into the drafting of PDF reports that OMIA staff had to manually parse into nearly 100 different types of documents.
Robert Stickle, the OMIA’s manager of statistics and information services, says the process required the full-time dedication of two staff members who spent four to six days just generating these reports.
Plus, great care had to be taken to ensure the right information was delivered to the right people, since the data gathered by the OMIA is of a confidential nature. Meanwhile, new information requirements continually emerged and users couldn’t get enough data to feed their needs. Requests for new types of reports, particularly those customized views for specific individuals, were relentless, Mr. Stickle says. “We had business users who were demanding much more up-to-date information,” he adds. “We looked for a solution to generate reports quicker. The primary motivator was the ability to do ad hoc reports.”
Rather than doing a detailed ROI analysis looking for software that was calculated to have the biggest effect on its bottom line, the OMIA simply concentrated on finding a product that directly addressed the problems it had identified in its business processes. It settled on Microsoft’s SQL Server, which featured such tools as Analysis Services for aggregating information in various cuts, and Reporting Services for serving up information in a Web-based environment. No longer was it necessary to manually produce 100 quarterly reports. Instead, OMIA associate members themselves could generate data “cube” views showing information in a multitude of different forms.
Without knowing precisely how much it has meant to the company in pure dollar terms, Mr. Stickle says the new IT-enabled process system has achieved strong payback. “I wouldn’t say we had a hard number that we knew we’d save over the long term,” he said.
But then, he says return on investment wasn’t a primary motivator in making the needed IT system upgrades. No great effort was made, or required, to understand the precise costs associated with the previous manual system of report generation. It was simply understood that the new system would be faster and more efficient.
“Getting data to the users and making it available to all … are really driving the results and quality of that business [the OMIA],” says Darren Massel, senior manager of platform strategy for Microsoft Canada, in assessing the OMIA challenge.
“Making the better decision is a key. That’s something many businesses are engaging in.”
And by choosing the system that would have the most impact on the problems it had identified in its business, the company has scored important spinoff benefits that would not have shown up in a traditional ROI calculation. The important benefits of the OMIA’s new technology-based reporting system are, among others, improvements in the quality of information entry. This overall enhancement has happened naturally, because end users now have a much greater appreciation for the data input: they can see the effect of poor data entry in the output they view.
“You can see right away if you have a data quality problem,” Mr. Stickle says, explaining that users now took much greater care. “The business user gets to see that, so they can see how the entry of data might impact [quality]. Our data quality has increased as a result.”
Monetary payback is a definite factor in helping companies further understand and measure the benefits gained from IT spending. But vendors need to learn that it’s often not the primary motivation for actually making a major purchase.
The purchase happens because a company simply must invest in IT to do what’s absolutely necessary in its business environment, and most know there will be resulting financial benefits. Technology companies should concentrate less on trying to quantify an impressive monetary payback for projects they are pitching – they’d have more success by highlighting the overall efficiencies a product will bring throughout an organization and letting the customer determine what the return will really be.