Measuring RoI

We examine how IT heads go about justifying the investments made in a particular technology and the metrics that they use to arrive at such a justification. By Malabika Sarkar

Your average SMB believes that there is no single technology that suits all of its requirements, and it tries to select technolog(ies) based on certain parameters such as maturity, price-performance trade-off, openness and ability to sustain the platform internally.

The deployment of any technology needs considerable justification. The return on investment (ROI) should be beneficial for the company. Therefore, the IT heads calculate the RoI based on some metrics that help them realize a successful deployment.

While there are ways to measure the success of some, IT related investments, in many cases, the exact correlation between an IT investment and its benefits are not always explicit. For example, a business unit may request a new customer relationship management (CRM) system on the basis that it will improve sales. However, that business unit is probably doing many other things at the same time to improve sales. Isolating the increased sales due to the CRM system from other factors—such as targeted advertising, aggressive incentive plans, and product improvements—can be difficult.

Justifying technology investments

According to Mohar Tiwari, Vice President IT & SAP, Metropolis Health Services Ltd., “We have recently deployed SAP ERP and are currently in a process of deploying a Web-based Laboratory Information Management System (LIMS). Additionally, we have recently deployed a high-end enterprise-class Firewall System, Microsoft Exchange Mail Server and an Enterprise Content Management System (ECM), which cannot be justified in monetary terms, as these are business enablers.”

Alok Kumar, Vice President & Global Head Internal IT, Tata Consultancy Services, said, “We have deployed the Enterprise Service Bus (ESB) platform. This emerging technology supports TCS’ Service Oriented Architecture (SOA), Business Process Management (BPM) and Enterprise Application Integration (EAI) initiatives. By providing a foundation to further our vision for digital business architecture, this platform integrates more than 50 application systems to support approximately 700 business processes across our organization. ESB has become the central platform for TCS for process integration and business process management and is one of the most critical components of enterprise architecture.” Can we put a RoI tag on this kind of an IT investment? The answer is a clear ‘no’.

Kumar added, “The use of collaboration technologies such as IdeaStorm, Social Networking Q&A (Justask), Knowledge Management (KNOWMAX), Wiki (iQMS) and Blogs has given a platform for TCS’ global workforce to collaborate on projects. Implementing a Unified Voice and PSTN gateway has enabled the use of single phone for voice and PSTN reducing administrative and infrastructure costs. The use of a planning and business intelligence platform has provided revenue planning and analysis across geography, industry sectors to the leadership team.”

Companies deploy technologies for various reasons. It could be because of pressing business needs or to increase productivity and to reduce the cost of ownership, which is hard to quantify purely in terms of RoI. Girish Nair, COO, Netcore, said, “For our business needs we have deployed a robust SMS delivery and advertising platform. Currently the SMS advertising platform delivers more than 10 million messages in one day or about 3% of all the short messages sent in India. On the other hand, for our own productivity and with an expanding sales force, we have recently deployed a hosted CRM system to keep track of the sales force pipeline.”

Subhojit Roy, Head-IT, SBI Funds Management Pvt. Ltd., added, “We have implemented various Microsoft technologies and products in the areas where Microsoft has demonstrated high price-performance benefits (such as, Unified Communication, IT infrastructure management on the Windows platform, etc.). At the same time, we have opted for open-source technologies in some of our recent technology deployments for core business applications and our intranet portal.” SBI Funds Management has implemented an enterprise information portal on the J2EE architecture, structured over open-source building blocks that enable a scalable, robust and secure platform. The platform conforms to some of the key architectural requirements including SOA, Web services and AJAX-based user interfaces. It also supports customizable single sign-on with JAAS, LDAP and Microsoft Exchange as well as support for the JSR 168 standard that enables support of a single set of portlets that can plug into any portal product, rather than a separate set of portlets for each portal vendor.

The rationale for technological transformation

Overcoming challenges encountered requires fostering change in business processes, addressing security and scalability requirements, building an intuitive user interface design that can address a multi-cultural user population across the globe.

Talking about such a project and its challenges, Nair said, “For any business problem, [when considering the possible solutions], we take an approach of whether we should build the system ourselves vis-à-vis buying off-the-shelf products or services. For example, the SMS platform, the need to send more SMS at a higher rate and predictability for our ever-increasing subscriber base, led to the deployment. For our ever-expanding sales force, keeping track of the sales pipeline and measuring sales cycle and productivity for timely and critical decision-making, led to the deployment of the CRM system.

Initial hurdles

CTOs classify challenges into two categories, one is for new implementations within the organization as per business demands and the other is for existing applications and infrastructure. In order to meet the new business needs of the organization, companies deploy or implement new projects in line with the business and technology requirements of an organization.

Roy said, “Selecting the right technology platform involves determining the price-performance of the platform, the total cost of ownership over a long period of time, whether the architecture is open or not from the point of view of integration with other applications, scalability, robustness, security, etc. What is also important is to partner with the correct vendor in terms of technical capability, commitment and attitude.”

Tiwari said, “We had multiple standalone applications resulting in the duplication of work and resources. Accurate and timely information was unavailable. We were looking for an ERP system, which could take care of our operational needs across Lab Operations (from sample accessioning to report generation and billing) and provide tight integration with support functions like finance, material management, HR, sales, marketing etc. We zeroed in on SAP and LIMS as a platform that would give us a complete ERP. Similarly, for the firewall, we wanted an enterprise-class firewall to support Multiple ISPs, a failover cluster and secure VPNs.”

Praveen Kumar, CEO, Omnia BPO, said, “Integration with third-party CRM tools was hard for us. Apart from that, the challenge of migrating live process from one technology to another and at the same time ensuring minimum impact on services was also quite difficult. Challenges with respect customized reporting out of standardized system were another reason which led us to deploy new technology.”

Factor in user satisfaction

Metrics set by companies for RoI while selecting products or technologies vary from case to case. In certain cases, the need is to upgrade the technology to meet customer demand or operational requirements.

In the case of products or technologies that are for internal consumption, the level of usage of the product by all targeted users can be determined before the deployment takes place. In case it is a completely new product, improvement in the business processes in terms of shorter turnaround time, ability to meet the deadlines and raise productivity are factors.

Measuring RoI for new projects isn't always possible. The best measure remains user satisfaction and adoption of a product or technology by targeted user sets in an organization. The critical parameters are the ability of a new technology to integrate with other applications, scalability and robustness as well as the best manner in which the IT team can take advantage of it.

Align business goals

Commenting on the RoI metrics that TCS has decided upon, Kumar averred, “All the initiatives taken by TCS are aligned to its business goals and priorities based on RoI. The metrics on RoI includes the ratio of estimated savings and benefits, dashboard and scorecard based on capabilities improvements, image and brand building, globalization (qualitative) and infrastructure enhancements.”

Bala Giridhar, Head-IT Global management, Wipro Technologies, said, “Our metrics on RoI depend on cost savings in communication and travel. This will help in future investments in servers needed for application and technology deployment. Savings in space and power are also important factors.”

According to Nair, the metrics used to measure RoI on technologies deployed depend on several factors. Incremental revenue on account of the deployment (that includes the opportunity cost of not deploying the solution), the cost of the product/service, time taken to deploy it, ease of adoption for end users and also ease and total cost of maintenance are the important ones.” 

The CFO’s role

The finance department plays a vital role in determining the metrics for measuring the RoI of any technology deployment, especially large purchases.

“Whenever RoI has to be calculated, the finance department gets involved,” said Tiwari. However, in most cases, the finance department is not strictly a part of the decision-making process for the selection of a new product or technology. The finance department is primarily involved during the exercise of formulating the annual IT budget. It is here that a company finalizes its IT plan for the entire year and formulates the financial budget for all IT investments in the plan.

Kumar agreed that the approval of program budgets takes place at the beginning of the financial year. For special projects, the finance department is involved for approval.

Selling an idea to the top brass

While deploying a new technology platform, management concerns arise regarding how best business requirements can be met and whether the cost of implementation, initial as well as long term, are justifiable.

“It is not purely about technology issues; the business benefits also play an important role in these decisions. The management is always supportive of new IT initiatives and therefore, if one adopts the correct approach in selection of the technology or product, approval from management is not a limiting factor,” added Roy.

Nair seconded this, saying, “It is not difficult to convince the management. The business needs speak for itself. The investment is usually an understood requirement. The specific solution and technology chosen to address the need however has to be explained on its own merit.”  

Managements broadly understand and appreciate the benefits of technology; however until a CIO/CTO can demonstrate the business value arising from the adoption of a technology, investments will not be forthcoming. Sharing the example of one such deployment, Tiwari said, “For SAP and LIMS it required a huge investment and we were the First Diagnostics Company across the World to have gone in for SAP so it took a lot of time to deliberate and finalize.”

Project delays can prove expensive

Many projects are stuck due to a delay in approval from upper management. Therefore, the combination of business and technology benefits is important in gaining quick approval. It depends how the technology decision-makers are able to put across the various benefits to the management approving the implementation of any new project along with the financial approval.

Here Roy suggested that the practice of preparing an annual IT plan and budget is a better approach. In this way, you can present all the planned new IT initiatives to the management for their in-principle approval.

In case of projects, which have direct business impact, it is much easier to convince the management about the financial approval, since there are some business departments that are also the owners of a project. For projects, which do not have visible and direct business impact, one has to prepare a more elaborate plan to make aware the management of the criticality of the issue and the associated benefits, which derive from an implementation.

Assessing the effectiveness of a technology in optimizing costs, simplifying processes, improving efficiencies or changing the business model for better competitive advantage requires RoI measurement. This is how a company can extract the best from a deployment.

malabika.sarkar@expressindia.com