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  • September 7, 2005
  • Time to give ROI a rest

    I wonder if ROI is about to lose its popularity as a measure of success in implementing expensive IT projects. I am beginning to see cracks in the façade which is whats driving my curiosity.I have been talking about the end of ROI for a while and truth be told focus on it seems to be cyclical and usually follows a period of great innovation and uptake of new products like the Internet bubble.

    You know the ROI drill. The vendor tells you about how much you can save from investing in the latest widget or gadget in the company sales bag, so you buy it. But then you discover that there is a one or two or yikes! three X (and Im not talking Mexican beer here) multiplier for implementation, training, and all the other stuff that lurks below the waterline like the Loch Ness Monster.
    If youre early to the party you never see it coming, a bit later and the industry is up in arms about ROI, demanding it as a precondition of even talking to the vendor. Maybe youve been such a vendor I have and its no fun. Still theres usually a sense of Were not going to get fooled again in the air and it is what it is.

    But why are we always so disappointed in the repeated failure to garner good solid ROI from our investments? I can think of two reasons. One has to do with expectations and the other with the reality of infrastructure building. Lets start with infrastructure because Im a guy and Id rather deal with that concrete reality than with expectations and feelings at least initially.

    I was doing research for a book a few weeks back when a friend recommended that I re-read Geoffrey Moores Inside the Tornado and I am glad she did. Its all there the discussion of infrastructure that is and its one of those things that I had so thoroughly internalized I thought I had dreamed up half of it. Tornado adoption of productslike CRM, ERP, data warehouses, even putting PCs on everyones desks, require massive infrastructure build outs and the massive investments that go with them.

    If you want to gauge real ROI you might have to wait years for your ship to come in. Take a look at the investment in PCs that started in the 1980s. It took a decade and a lot of network development and stringing cable throughout buildings before the payoff happened. But sure enough, by the mid-1990s the economy was robust and we were discovering thatwe had reached a new level of productivity thanks to technology investments one that enabled us to have growth without a lot of inflation.

    Of course, there are details that I am merrily skimming over but the big point is infrastructure you need lots of it and it aint cheap but once you get there the results and the ROI can be dramatic. Just dont expect to see the ROI next week.

    Ok, so now lets move on to expectations because its here that the most work needs to be done. We have painted ourselves into a corner with a mind set I call actuarial thinking, the idea that we can apply accounting principles to every aspect of business and that somehow we have a right to expect results to fit neatly into our quarterly and annual reports because, well, thats the accounting period after all. But as the foregoing discussion of infrastructure shows, the financial payback might easily lag the investment by years plenty of time to ruin the career of the Bozo who thought computer networks were a good idea or CRM for that matter.

    Its actuarial thinking that ultimately drives this need for ROI. The opposite of actuarial thinking is what, hopefully, moves a decision maker weighing an investment in infrastructure. Many, if not most, of them are smart enough to know that investments in infrastructure take time to mature. And when dealing with something new, its often hard to figure out what the right time frame is. The opposite that I am thinking of lacks a good term and usually boils down to doing something because, intuitively forget the spreadsheets and the accountants intuitively, you know that getting PCs on every desk or CRM systems before your competitors do is smart and really, really good for the bottom line.

    Right now we seem to be coming out of a period of cost cutting and consolidation within many enterprises when all the technologies bought during the bubble were implemented and, yes, infrastructure was built. But we cant go on forever counting our nickels and dimes of cost savings. Growth is on the agenda again and thats when you can expect to actually see the ROI on all those earlier investments.

    Published: 18 years ago

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