Strategy Clinic: How can I justify my e-business initiative?

New e-business initiatives are difficult to justify under normal "return on investment criteria". With the board running a slide...

New e-business initiatives are difficult to justify under normal "return on investment criteria". With the board running a slide rule across all forecast expenditure, how can we make the best case for funding these critical projects?

Chris Edwards , Cranfield School of Management
The question you ask is relevant not only to new e-business initiatives. We have had to deal with the issue of justifying risky yet strategically important investments for quite a while.

The classic answer to this question would be to suggest you factor the forecast incomes and expenditure by the probability of those incomes and expenditures actually arising. However, this approach becomes very difficult with projects that contain such high degrees of uncertainty.

So, I would suggest you begin by having the board assess how critical these projects are to their business strategy.

You can present the facts - but they must assess how critical to the future of their business they are. This is often not a matter of return on investment in the short term for that project, but one of the business existing in the longer term.

Second, try to have knowledgeable individuals assess a project against the expectations of the stakeholders of the organisation. If a project addresses many critical items for a collection of important stakeholders, then clearly it is much more critical than one that addresses no expectations of any significant stakeholders.

You will be surprised how powerful having senior managers undertake this analysis can be.

Roger Marshall , Elite
Why should IT be exempt from the normal business rules that apply to any other kind of investment? You say the initiatives are critical but difficult to justify on return on investment criteria. We have been saying this kind of thing since the days of heavy-metal mainframes. We were accused then, rightly, of being complacent with our business cases, relying on highly paid computer salesmen to convince the board, of using the "unholy trinity" of fear, uncertainty and doubt in place of reasoned argument.

If the projects are truly critical yet they do not stack up against the investment criteria then those criteria are wrong. The implication is that your business only invests when there is a cast iron guarantee of an appropriate level of return. Yet any business that operates this way in competitive markets will fail, because there are no guarantees. Competitors will be willing to take calculated risks and win the business, ruining your finest return on investment calculations.

The key to your business case is likely therefore to be risk. What are the risks if we invest in these initiatives, what are the risks if we don't? The downside risks will be critical, based on predictions of market share and competitors' behaviour. This may all sound like a return to fear, uncertainty and doubt. But they never actually went away, they just got wrapped up in more acceptable pseudo-scientific language.

A failure to answer positively on any one of these considerations will result in any initiative being culled. As one senior executive said, "You can tell what is important in this company by looking at where the best resources are allocated."

Klaus Elix , AMS
The best justification for e-business initiatives is presenting a good business case that realistically shows significant returns in a short period of time.

Not only have many business cases for e-business not worked out, but the overall climate for IT investments has changed in many companies over the last six months.

You can control the situation to your advantage by generating and presenting better ideas than your competitors and then providing your board with serious evidence that your business case will work.

This can often only be achieved by using an incremental approach to e-business build up. The principle is to invest a little and prove the value of your company's investment, then invest a little more and profit more. These gradual steps will incrementally facilitate a gradual build up of the e-business.

Although this approach takes longer, it will allow you to ask for a smaller initial investment from your board. Once you've demonstrated the predicted success of the small investment, it is easier to ask for more. Also, this approach will enable you to make changes to the project's approach and concepts based on early feedback, thereby actually significantly reducing the risks inherent in the project.

Roger Rawlinson NCC Global
All projects need a business case. They do not, however, have to provide a return on investment in the first year. It all depends on what you wish to achieve.
In recent times there was much talk of the new economy and it has been said that new business initiatives should not worry about profit. Today, this view has taken a back seat in light of the "technology crash". The reality is that this scenario is nothing new, there are well-documented parallels with the Industrial Revolution.

The issue is being clear about what you want to achieve, and the amount of investment required. You need to be close to the business plan: for example, is the agenda to increase the client base to new channels? Do you need to cut the cost of the supply chain, improve stock control, or enable your customers to help themselves via your Web site? The important point is that the benefits of e-business initiatives are both tangible and intangible, only the business can determine the value of that benefit.

When you clearly understand the true value of the benefits, identify the key performance indicators, produce a budget and business case and sell it to the board. Also remember that the key to e-business success is robust project management and a strong management team, if these are weak a good idea will fail.

David Taylor , Certus
Now is the time to make investments in e-business, while your rivals are doing exactly what your board wants you to do. Ensure that you have the chief executive - and perhaps two other board members - onboard. There are many examples of successful investment in the e-world and the trends of the Internet will turn again in the autumn, so, in particular:

  • Ensure that your personal relationships are strong

  • Check your company vision - or chief executive's personal vision if the company one is unclear

  • Relate the investment to meeting this vision and work out specific returns

  • Play down words like technology and Internet, use terms like business advantage - indeed do not even say how you will achieve these things - the Internet is merely a way, not a justification in itself

  • Find other peers who have done the same thing successfully

  • Run a slide rule through such investment and you run a slide rule through your future.

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