The Alinean ROI Report - November 2003

November 2003

Alinean has teamed with Callidus, the Enterprise Incentive Management software company, and created an ROI Calculator that measures the benefits of more effective sales compensation plans and employee performance management programs. More on the program can be found here: http://www.alinean.com/PR-Callidus.asp

IN THIS ISSUE:

FEATURE STORY:
Managing IT According to a Hierarchy of Needs�

Measuring the �Intangibles��

Quote of the Month

�[IT] Portfolio management is like Olympic mud wrestling. It�s nasty, difficult and high-spirited even in the nicest of organizations. But it�s well worth it in the end, for the discipline and clarity it can produce.�

- Dave Clarke, VP of enterprise technology services at the American Red Cross, who has 10 years� experience managing portfolios at W.L. Gore & Associates and General Motors, as quoted in CIO Magazine


	About Alinean Today�s rapidly changing economic climate supports the renewed need for information technology cost-justification. Alinean aligns IT and business performance through research methodologies and customized software tools, which measure and quantify the value of technology investments. For more information on Alinean and its tools for both vendors, consultants and CIOs, call 407.382.0005 or visit www.alinean.com.

Managing IT According to a Hierarchy of Needs

If you�re involved in IT decision-making, what are the most important considerations for 2004 budget planning? There�s no easy answer � it depends where your company stands in its IT maturation, and what it is trying to achieve.

Assign priority to IT initiatives based on whether they meet �basic� needs or more strategic goals. This maps to Maslow�s hierarchy of needs, which initially focused on critical elements for human development (including food, shelter and sleep) and has been influential in shaping economic policy, especially in developing countries.

Applying this model to IT provides a framework for the full portfolio of investments, and can identify where resources should be allocated to deliver bottom-line impact and competitive advantage. In every case, each new level builds on the preceding one, and is generally much strategic in focus and promised benefit.

Most companies have their basic IT needs covered. With networks and core systems, maintenance and cost-control are priorities, because these are commodity investments that deliver little competitive distinction.

Following the progression, companies can invest in meeting more highly developed needs. These initiatives deliver strategic advantage, typically by optimizing business processes or taking a new approach to information management.

Alinean�s IT Hierarchy of Needs for corporate computer investing highlights the progression of focus from the acquisition of computing assets through knowledge capital management � and beyond.

Our IT hierarchy of needs models this progression for need fulfillment with a four-level investment and marketplace evolution:

The Nuts and Bolts � Computing Infrastructure: The prior era of IT focused on infrastructure needed to boost individual and corporate productivity and reducing overhead. Trillions of dollars have been spent to implement data centers, networks, personal computers and personal/business applications. This infrastructure has now become a commodity.

Relationship Building Blocks � The Internet and Enterprise Software: The advent of the Internet and enterprise software moved the strategic focus of IT investing upstream to enhance productivity across the entire value-chain. Customer-facing applications and the supply chain integrated relationships into corporate computerization, becoming more effective through business process optimization. These needs are not yet fulfilled within every corporation, but markets have begun to commoditize, as evidenced by the consolidations in the ERP space this summer.

Turn Information into Revenue � Knowledge Capital Management: The newest IT battleground focuses on the �information� in IT, rather than the technology. Today�s true innovation is providing the primary means for maintaining and extending the value of a firm�s most valuable resources: its knowledge capital.

Emerging solutions that will manage the rapidly exploding accumulation of scientific, research, customer, engineering, property and intellectual assets include data warehouses, enterprise portals, analytics and business intelligence. Companies that collect and apply such knowledge to impact the bottom-line will achieve competitive advantage over the next decade.

A Strong Offense � Information Warfare: Once the basics of knowledge capital management are covered, the focus will move upward again, shifting from reactive information analysis to the proactive control of information as a competitive weapon. The battlefield of this futuristic era of information warfare is ambiguous at this point, and takes its lead from military research and application. Solutions will enable information distortion or denial, as well as the countermeasures to fight such attacks. Several expected components include hacker warfare, where computer systems are attacked; psychological warfare, where information is used to change the minds of friends, neutrals and foes; and economic information warfare, or blocking information or channeling to pursue economic dominance.

The IT hierarchy of needs helps companies understand how to categorize various investments � and how to assess what is most important to solution decision-making. As this model dictates, lowest total cost of ownership is the most important consideration for commoditized solutions. Where innovation still reigns (with the higher needs), value vs. cost matters most, and competitive differentiation can be gained with the right projects and spending plans.

Measuring the �Intangibles�

Intangible benefits are often a critical component that drives investment in a new technology, yet aren�t reliably quantifiable in absolute monetary terms. Ignoring these softer benefits means companies may see just part of the picture � and inadvertently reject valuable projects that could deliver significant strategic benefits.

Some intangible benefits that should be considered when evaluating and measuring the performance of a project include:

Brand protection or advantage
Strategic advantage
Competitive advantage
Intellectual capital
Organizational advantage
Risk avoidance

In all cases, intangible benefits should be scrutinized to determine if they can be made tangible by quantifying the potential savings or profit gains. However, if the team is �stretching� to accurately quantify these, it may be better to keep the benefit as intangible, rather than undermine the credibility of the ROI analysis.

If monetary quantification is impossible, then the team should seek to define a key performance indicator for each intangible benefit � a measure that can be used to predict an improvement or advantage. These metrics can include customer satisfaction and brand affinity rankings, which provide benchmarks for tracking and accountability.

Did You Know?

IT executives indicate that a traditional cost-benefit analysis of purely financial gain is not the only reason to implement various IT projects. In recent surveys, almost 70 percent rank intangible benefits as being equal to or greater than tangible benefits in project assessment and decision-making.

Source: InformationWeek ROI Study of 200 IT professionals