IDC and Alinean have launched the ROI Selling Program, designed to help technology vendors close sales more quickly using customized business case tools, ROI analysis, and industry research.
This strategic partnership provides a framework for enterprise-class vendors to speak to C-level executives, by pinpointing and communicating how new technology investments will directly affect their companies’ financial performance. It also adds recognized and credible third-party validation, which until now, has been the Achilles heel of vendors’ ROI analysis.
The program addresses two increasingly pivotal sales trends in the technology industry: the absolute demand for credible ROI on any investment, and a growing move among customers to use a broad ‘asset allocation’ strategy to make funds available for projects that deliver impressive value, even when official budgets are frozen.
“And as surely as Mr. Carr rushes to refute it, I will affirm that business technology has never mattered more than it does now, and that it will matter more and more in the coming years. Because just as the old DP/MIS described a world of mainframes and punch cards, so, too, does the current term of business technology embrace the twin themes of processes AND technology, inseparable today in a world where every market and every industry are increasingly turning to these tools to enable the innovation and behaviors that drive competitive advantage.”
– Bob Evans, editor-in-chief, InformationWeek
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.
CIOs face a catch-22 when evaluating new IT investments: Quantifying the ROI of proposed projects is being mandated, yet the IT staff is already stretched thin by managing day-to-day operations. Meanwhile, CFOs are holding budgets tight, in part, because past projects may have fallen short of expectations.
As a result of this circular problem, more than 80 percent of IT buyers now rely on vendors to help them quantify the value proposition of solutions. In fact, many CIOs now elevate the ability of a vendor to proactively justify their solutions to one of the top five most important selection criteria.
Yet CIOs remain skeptical – based on years of ROI business cases with magical 1000 percent-plus returns, immediate payback periods, drastic overestimation of benefits and underestimation of real costs to implement and own the solution. As a result, fewer than five percent of buyers say vendors succeed at quantifying their value propositions, and fewer still find vendors’ analysis credible.
How can vendors step up and meet CIOs’ requirements for credible ROI?
Set the stage First, strive to minimize up-front analysis time, even while driving a quick, yet thorough, business case to help the team pinpoint and communicate the value of proceeding. The more credible this preliminary analysis, the more likely the CIO will green-light due diligence.
Get things started with good research Start the analysis with industry research scaled to match the company. Use third-party information to established customized industry-standard costs, and to ensure that the team’s initial analysis is both credible and accurate. Leverage third-party data.
Justify and document the cost and benefit assumptions Thoroughly document these industry costs, often known as ‘defaults.’ Then estimate the organization’s “as-is” costs – those prior to project implementation – to include how those defaults are customized and what research forms the basis any modifications. Next, document all benefits to include new features, key performance indicators and the source of savings.
Allow no stone to be unturned Document and simplify key calculations so all stakeholders can easily understand projected results. Equally important, the CIO must be able to modify defaults to further customize the business case, and adjust anticipated savings and costs.
Include strategic benefits Projects may be implemented for specific financial benefit. Some projects are strategic – undertaken specifically to improve future performance. C-level executives rank strategic or intangible benefits as equal to or more important than projects that focus primarily on hard-dollar cost-savings.
Scale the analysis using realized benefits and project risks Business cases often underestimate costs and overestimate benefits. One cure is to scale the business case results with an eye towards project risk; another is to scale back the anticipated bottom-line contribution of soft, or indirect, benefits. One common gauge is to discount these benefits 10-to-40 percent of their original value.
Pass the “sniff test” If the business case is unrealistic, it will not pass a board of directors’ review, and may damage the entire team’s credibility. Document how promised results are already risk-adjusted and the benefits are well within reach.
Commit to the partnership with an ROI SLA An ROI service level agreement establishes target ROI and key performance indicators, against which the team tracks progress. A portion of a vendor’s compensation can be based on meeting key performance metrics. This reduces the customer’s risk, and underscores the vendor’s commitment to success.
For the vendor, a cost-justification report and business case increases the likelihood of a project’s approval by 60 percent and reduces the sales cycle by 30-40 percent, according to IDC, the research firm. Strategically, providing this detailed ROI analysis gives CIOs a vendor who is also a partner, committed to the realization of promised value – reducing risks, increasing rewards and improving the bottom-line.
Getting Control over ‘Shadow’ IT Budgets
Slim IT budgets have struggled to keep pace with demand over the past three years. The modest IT budget growth predicted for 2004 doesn’t begin to correct the issue either, because of the exponentially increasing requirements backlog – which will grow another 30 percent next year.
As a result, business units no longer willing to wait for IT to get on board are driving their own initiatives and purchased the requisite servers, PCs, applications and networking. These ‘shadow’ IT budgets represent an additional 10 to 20 percent of official IT spending, and in some companies, even more.
The long-term effects are particularly dangerous because of the lack of visibility and governance for these purchases. It’s inevitable that the business units will eventually turn back to IT for maintenance and support, imposing still more responsibilities and overhead on IT.
As 2004 IT budget planning moves forward, CIOs must be on the lookout for this rogue IT spending and collaborate with the CFO to put a plan in place to restore controls.
At the most basic level, investments in information technology are made to improve how efficiently business is done. However, in the past seven years, this streamlining hasn’t happened.
Alinean’s newest research finds that IT investments have largely missed the mark – regardless of the economic climate – because companies are focusing on the wrong cost-reduction goals. Core administrative expenses, a key measure of business efficiency reported as SG&A costs, have remained constant through periods of high IT investing and the more recent budget tightening.
IT is a Relatively Small Expense
What’s at fault? Companies are focusing on reducing IT total cost of
ownership (3% of the corporate budget), when they should be focusing
investments to slim the SG&A ‘fat cat’ (more than 20% of the budget).
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