It's time to alter how we think about financial rewards from technology investments--not all rewards are tangible.
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I wonder if ROI will lose its popularity in the new year? It could happen. I have been talking about the end of ROI for a while and I am beginning to see cracks in the facade. Truth be told, focus on ROI is cyclical and usually follows a period of great innovation and uptake of new products--like the Internet bubble. That's what drives my curiosity.
Why are we always so disappointed by the repeated failure to garner good, solid ROI from our software investments? I can think of two reasons. One has to do with expectations and the other with the reality of infrastructure building. Let's start with infrastructure.
I was doing research for a book a while back when a friend recommended I reread Geoffrey Moore's Inside the Tornado, and I am glad she did. There's a great discussion of infrastructure building in it that I had so thoroughly internalized that I thought I had dreamed up half of it. Tornado adoption of products like CRM, ERP, data warehouses--even putting PCs on everyone's desks--requires 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. But sure enough, by the mid-1990s the economy was robust and we were discovering that we had reached a new level of productivity thanks to technology investments 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 ain't cheap, but once you get there the results and the ROI can be dramatic. Just don't expect to see the ROI next week.
Now let's move on to expectations, because it's on them that the most work needs to be done. We have painted ourselves into a corner with a mindset 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, that's the accounting period, after all. But as the above discussion of infrastructure shows, the financial payback might easily lag the investment by years--plenty of time to ruin the career of the clown who thought computer networks or CRM, for that matter, was a good idea.
Actuarial thinking ultimately drives the need for ROI. The opposite of actuarial thinking is what, hopefully, moves a decision-maker weighing an investment in infrastructure. Many, if not most, decision-makers are smart enough to know that investments in infrastructure take time to mature. And when dealing with something new, it's often hard to figure out what the right time frame is. The opposite that I am thinking, which lacks a good term, but usually boils down to doing something because, intuitively--forget the spreadsheets and the accountants--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 are 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, when infrastructure was built. But we can't go on forever counting our nickels and dimes from cost savings. Growth is on the agenda again, and that's when you can expect to actually see the ROI on all those earlier investments.
Denis Pombriant is the founder and managing principal of Beagle Research Group, a CRM market research firm and consultancy. He can be reached at email@example.com
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