ITmanagers who use suppliers' calculations of return on investment
to justify the investment in IT in their organisations now, in
their turn, face being engulfed by ROIBS
Let's face it; at best, you probably view suppliers'
return-on-investment (ROI) calculations with a pinch of salt. While
you may use the figures presented to support capital expenditure, I
suspect you would be reluctant to gamble your house on the actual
return were it to be assessed post-investment. But that's OK,
because until now, most organisations have not bothered with such
post-mortems.
But the recent downturn in economies, and the associated fear that
is permeating boardrooms across the globe, has led to questions
being raised and evidence sought to prove that IT investments do
yield a return.
Our industry is being hoist by its own petard. For having used ROI
to accentuate the importance of IT in the modern organisation, we
have sadly gone overboard in quoting figures and projections that
are, at best, questionable and, all too frequently, plain bullshit.
Have you had an attack of the "ROIBS"?
At times, ROI can be realistically and usefully calculated. In the
1980s, a technology was assumed to be a surefire bet provided it
could be cost-justified within a couple of years or so. Where the
capital cost was sufficiently significant, a five-year payback was
not unreasonable in justifying expenditure.
A modem that delivered twice the throughput would effectively be
capable of reducing call connection costs by 50%. It was largely
irrelevant that, only two years later, reinvestment was inevitable
as a consequence of Moore's law.
The early days for most technologies all have a similar script.
Faster mainframes allowed more data to be processed. Networks,
although atrociously unreliable in the early days, allowed sharing
of central resources. Laser printers appeared to offer massive
efficiency improvements and the cost of consumables has, and
continues to be, overlooked.
Against this background, to my astonishment, I recall last year
reading a document issued by a network management company claiming
independent validation of an ROI within three to four months based
on a capital expenditure of $250,000 (£159,000). Was it really
trying to suggest that, by not giving it a cool quarter of a
million dollars, an organisation capable of making such an
investment would be literally throwing away $750,000 in that same
year?
I didn't need to examine the figures to conclude the calculation to
be subjective rubbish. But I did, it was, and would certainly be
considered so by any self-respecting financial officer. Further, I
couldn't understand why the supporting analyst would sign up to
such rubbish.
I recall being subject to pressure from my own sales force to
conjure ROI figures for network management that would make
investment compulsory. Although it was difficult, I made a case,
but cannot claim to believe in it 100% - no more than I believe in
any other figures that are bandied about these days.
In the glory days of IT, inventors and early adopters relied upon
instinct when determining what would be a good investment.
Admittedly, Moore's Law could be linked to tangible efficiency
improvements. Arguably, in today's broadband world where systems'
capacity is swallowed by fancier, rather than faster, applications,
it has become less obvious where the payback comes from.
Does a flat screen for your PC make you any more efficient than a
traditional monitor? Of course not. Manufacturers might argue that
it frees up desk space, which might be construed to provide some
form of spurious payback. But I fear that increased desk space
simply means more rubbish being piled up in front of you, thereby
inducing the reverse effect.
As technologists, I passionately believe that we need to bring the
pendulum back a bit. Of course, we shouldn't be given carte blanche
to invest purely for the sake of technology. But I suggest that a
certain degree of "gut feel" - as when buying a house - should be
considered an important part of the buying criteria, as it is this
that fuelled the IT revolution in the first place.
Those who search exclusively for ROI, if allowed to continue, will
sanitise our industry and remove the entrepreneurial, technical and
commercial spirit that differentiates our sector from the office
and stationery supply business, and which has really made a
difference to the bottom line.
John Earley is managing director of Xellirate