Moving Beyond ROI
"Show me the return!"
is the call from executives demanding justification of their application, computing, and networking investments, whether targeted at revenue generation or cost containment. But what kind of company can generate more than ROI from its customer relationships? An engaged business, one that focuses on return on engagement (ROE).
An engaged business is one that engages customers by anticipating the service they require and seamlessly delivering that service, sometimes before the customer is aware of that need. The engaged business allows for a special relationship with its customers, because its customer service strategy extends far beyond reactively providing a service. It leverages applications that are media-adaptive across customer contact channels (in-person, telephone, Web, chat, fax, email), are time-critical, and are anticipatory. Currently, many enterprises only react to customer demands after the complaint is made, are often insensitive to the time-critical nature of customer needs, and are very media-specific in how they communicate with the customer. Although they aspire to offer more to their customers, they have lacked the tools or the success metrics to surpass the status quo.
To go beyond, the enterprise has to develop deep customer relationships that can only be cultivated by offering new services that anticipate customers' needs and create a unique bond. Part of the reason enterprises struggle with this is how IT investments are measured and assessed. This is why a new metric needs to be looked at--one that takes into account the value of a customer relationship, the investment that goes into building this customer relationship and how the IT infrastructure can help facilitate it.
Opportunities for increased ROI and ROE
IT investments in computing, contact centers, voice, and data networks have traditionally been independently evaluated in terms of cost savings using metrics such as ROI. ROI is measured in terms of cost savings attributable to investments and is a simple concept to understand. ROI and related metrics--such as return on assets, return on invested capital, internal rate of return, and net present value--are concepts that are at the core of how IT decisions are made today.
The drawback to ROI is that it does not take into account the value of improved user productivity or customer engagement. ROI tends to favor projects that result in cost avoidance, at the expense of projects that promise revenue growth. It measures only the returns that the company sees within its internal operations, and ignores the value created for partners and customers. Not all return is financial in the short run, though it will eventually impact the financial performance of the company in the long run.
To fill these gaps a new metric is needed: return on engagement. ROE focuses on the return on customer value, in addition to having an ROI component. Return on customer value can be defined as the potential return from repeat and referral business both over time (through the customer's shifts in age, spending patterns, and other demographic changes) and over a broad range of products and services.
Consider the following example: A company debated which of two ways--both requiring an equal investment--it should adopt to meet growing customer demand (for example, more agents or a self-service system). If the return on these two investments is equivalent (for example, retaining the growth business rather than having it go to the competition), and if the investments are the same, the ROIs would be the same.
Using ROE, the analysis was extended to embrace the differing values of the two approaches in terms of increased customer engagement. For example, a well-designed self-service application would allow customers to get basic information they need (for example, status of their order, price of an item, estimated delivery/arrival time) more quickly, which has real value to the customer and ultimately to the company.
ROE = (weighting factor x ROI) + (weighting factor x return on customer value)
This ROE calculation has the flexibility of allowing the enterprise to set the ROI weighting and customer-value-weighting factors to any value between 0 and 1. If the customer-value-weighting factor is 0, then ultimately ROE is ROI. Return on customer value can be as simple or as comprehensive as the enterprise wants. The option that generates the higher ROE is the one that is the better business decision. Measures such as customer and partner satisfaction, customer loyalty and retention rates, response time to competitive actions, and improved responsiveness are examples of soft metrics related to ROE.
Real Scenarios for ROE
ROE is central to an engaged business where the enterprise infrastructure is optimized around customer engagement and offering a consistent user experience. Examining a real-world example helps identify key elements of a business case for Web-enabled contact centers. A major hotel/resort/casino complex moves from multiple automatic call distribution (ACD) systems to a full-fledged integrated contact center and immediately delivers a more prompt, responsive, and highly personalized level of service to its customers before, during, and after their stays. Productivity is improved by 30 percent by directing calls to any available agent with the skill to handle the call. Comprehensive management tools provide management with the ability to respond to dynamic conditions and changing customer needs, while also informing employees of important insights into how to improve service. As a result of matching customer needs with agent skills, morale increases leading to a 20 percent reduction in workforce turnover. This translates into real dollars for the enterprise.
The Engaged Enterprise: Focused on ROE
In today's environment technology investments must be justified on a business case basis--not just internal focused ROI, but a more comprehensive ROE. ROE results in a significant positive impact across the entire enterprise and extends beyond the IT operation. By focusing on ROE and helping the company evolve to an engaged business, IT infrastructure moves beyond being primarily a cost center to becoming a strategic asset for business success.
About the Author
Marie Hattar is director of enterprise and security marketing with Nortel Networks Enterprise Networks business unit. She manages end-to-end product definition and strategy for Nortel Networks security solutions as well as overall enterprise strategic marketing. Prior to this position, she was chief architect in the CTO office. She is chair of the Broadband Content Delivery Forum and has coauthored a book in the field of networking titled Implementing IP Services at the Network Edge