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December
2003
IT vendors have accepted the fact that closing deals today requires
proving that their solutions deliver substantial value. But with some
budget relief in sight for 2004, it’s tempting for vendors to become
optimistic about the return of easier sales, and loosen their commitment
to ROI-based selling programs.
Unfortunately, most of 2004 IT budget increases will not materialize
into a spending windfall, and scarce dollars are already allocated to meet
backlogged demands and cover key compliance, security and infrastructure
projects. The most forward-looking IT vendors will continue to improve their
value selling methodology and use tools to help sales professionals and
partners quantify ROI pre-sales, and implement ongoing ROI service level
agreements.
In
a recent study by Computerworld, 80 percent of
buyers rate financial justification as important for IT purchase approvals.
However, more than 65 percent of buyers revealed that they do not have the
knowledge or tools needed to do ROI calculations. As indicated, ROI is
required for purchase approvals, but vendors focused on closing deals can’t
leave the ROI analysis up to the client for three major reasons:
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Prospects do not have the product feature/benefit insight, financial
modeling knowledge or analysis tools needed to quantify the value of the
proposed solution
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It
may take months to perform the justification, prolonging the sales cycle
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And they’re not able to quantify the differentiating value and TCO
advantages of the proposed solutions vs. competitive solutions
This is reinforced by a recent Ernst & Young study, in which 81 percent
of buyers expect IT vendors to quantify the value proposition of proposed
solutions, and 61 percent of buyers rate a vendor’s ability to quantify its
value proposition as important in the selection process.
The new ROI selling requirements for vendors represent a real and
lasting shift in the way solutions are bought and sold. In this new era of
corporate accountability, buyers will remain in control of purchasing
decisions. Companies are becoming more decentralized in their
decision-making and more stakeholders are involved in every purchasing
decision. Quantifying value is vital to helping prospects rationalize their
decisions to other stakeholders, competitively analyze and align each
purchase decision with all other opportunities, and prove value delivery on
an ongoing basis.
To date, success-minded vendors have implemented several types of ROI
tools to help meet the new ROI selling requirements. These include:
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Web-based
ROI calculators primarily used for basic analysis, education and lead
generation
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Spreadsheet-based selling tools, typically developed by an in-house,
financially savvy marketer or consultant
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More
advanced software which encapsulates the spreadsheet models into a better
presentation and report-building package
Working with eight of the top 10 IT vendors worldwide, Alinean has
helped companies develop first- and second-generation ROI selling solutions
throughout the past 12 years. To date, the solutions have been responsible
for justifying more than $31 billion in IT purchases, reducing sales cycles
by 30-40 percent, and boosting competitive advantage by 60 percent. However,
the increased focus on fiscal accountability and attenuated decision-making
requires more detailed ROI capabilities.
To reach a new level of competitive advantage, sales and marketing
executives will need to view ROI selling as an enterprise initiative; this
shift will dominate selling strategies in the next decade. Successful
vendors will deploy a standardized selling toolkit that addresses each step
in the sales process with credible value quantification, and seamless
integration into current CRM solutions and selling methodologies. Just as
other solutions have migrated from simple tools to enterprise applications,
these leading vendors will move their ROI selling programs beyond
point-based ROI solutions, and view ROI as an integral component of a
successful enterprise selling process both pre- and post-sale.
As
part of this evolution in ROI selling, Alinean announces EnterpriseROI™
Selling Solution, a suite of integrated software tools that allow vendors to
take their value-based selling initiatives to the next level.
The ROI Selling Process consists of six steps, from lead generation
through post-implementation auditing.
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Interest
(Lead
Generation)
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Opportunity Analysis and Benefits Research
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Solution Selection and Value Proposition
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ROI Evaluation and Proposal
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ROI SLA Management (post-implementation audit)
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The process helps to
generate more qualified leads, reduce sales cycles, increase competitive
advantage and improve post implementation up-sell and cross-sell
opportunities. Click here to learn more:
http://www.alinean.com/roiselling.asp
IT budgets are expected to increase 5 to 8 percent in
2004. However, much of the budget will be consumed by regulatory
compliance initiatives, security and long-awaited infrastructure upgrades
– leaving little to address the growing backlog of business unit requests,
or innovative programs to address the market recovery.
After the 20 percent decline in U.S. IT spending from 2000
to 2003, the expected 2004 budget recovery is seen as a boon to most CIOs.
However, two troubling trends are on the horizon:
The Hidden Tax on IT
Much
of the budget increase will be consumed by three initiatives, each adding
little ‘real value’ to the business. These ‘hidden taxes’ include:
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Sarbanes-Oxley:
To ensure compliance and meet reporting regulations, organizations are
overhauling financial reporting systems and business processes.
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Enterprise
security infrastructure and compliance:
Many companies’ were struck by a wave of attacks this year, costing
organizations millions in lost productivity and business. As a result,
companies are forced to bolster security tools, delivering little ‘real
value’ to the organizations’ market share or business.
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PC upgrades:
In preparation for the Y2K issues, many organizations invested in PC and
other infrastructure upgrades, but now these investments are four years old,
and organizations need to upgrade again. (Visit
http://intel.com/business/bss/products/client/pcrefresh/roi_tool.htm to
calculate whether the upgrades can reap rewards for your organization.)
Shadow/Rogue IT
The
formal budget shortfalls and growing backlog is causing a remarkable
increase in shadow IT spending, also known as ‘rogue IT.’ Business leaders
have been gaining stealth approval for technology spending, wrapping
equipment purchases, applications and development projects within other
business investments.
The shadow/rogue budgets are estimated to be 20 percent
of total IT spending in most organizations. Shadow projects come at a steep
cost, when centralized IT needs to support and integrate the solutions back
into the mainstream.
Steps
IT Executives Should Take
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Ensure that
compliance, security and infrastructure upgrades are well funded, but do not
consume all of the 2004 budget increases
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Examine and
possibly undertake Web services, RFID, e-business and business intelligence
projects that will be important to have in place when the recovery is
underway
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Work with
the CFO and business unit executives to understand the level of shadow/rogue
IT spending, and get a handle on it
Steps
IT Vendors Should Take
· Realize that
the IT budget increase will mean very little relief to already over-taxed
prospects and customers. Decision-makers will continue to face growing
internal demands on strained IT budgets, external compliance and security
“tax.”
· Proposal
approvals will still be won and lost based on compelling and credible ROI
analysis and quantifiable value proof points.
· The winning
vendors will help the IT executives to “do more with less,” and help assess
the stack ranking of proposals with other vital spending priorities.
70% of CIOs find it difficult to calculate the ROI of planned
projects, while 73% don't calculate the ROI on projects after
they're completed, - CIOInsight 2003
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