Measuring ROI For The Top Line Of The Business

As the role of the IT organization in nearly every business is shifting from supporting back-office operations to being a key driver for a successful corporate strategy, IT managers are focusing their efforts on impacting the top line of the business, rather than the bottom line.

In the past, IT organizations used to be viewed as a necessary expense for a business. But today, they are often viewed as an important strategic asset to a company's future success. While many businesses are focused on cost control, IT groups are often focusing on how to generate growth for their business by funding projects to help their company reach new customers and work more efficiently with its existing partners and suppliers.

As IT groups evaluate which projects to prioritize in their budgets after they have addressed tactical issues such as Y2K compliance for critical business and management systems, they are no longer looking at the traditional set of metrics for measuring return on investment. Traditionally, IT groups justified investments in management solutions that impacted their own bottom line by showing the hard dollar savings from automating labor intensive processes. These investments were often based on direct cost savings for IT in labor, rather than indirect savings in less downtime or degraded system performance that could cause a drop in worker productivity.

As the role of IT becomes increasingly strategic to the success of a corporation, however, a new set of metrics are being applied to its investments that attempt to measure IT's ability to enable increased revenue or faster growth for the business. For instance, if an investment improves the time to market for a critical new product or service, it could be said to have added revenue to the firm. In many situations, getting to market early results in a big advantage both in terms of more overall revenue in the life of the product or service and in a period of higher margins before competitors force you to lower your prices.

Other companies are using IT to enhance or differentiate a company's products and services, and are subsequently able to charge customers more for them. These investments in IT are not so much about growth (although there is some additional revenue) than about increasing their margin on goods or services sold, which translates into higher profits. Shipping companies that provide online package tracking services for customers, and banks that provide customers with the ability to go online and manage their accounts from home, are increasing their margins, which is translating into higher profits. These enhancements in customer service via investments in building an interactive online presence are impacting the bottom line not through cost savings, but through getting higher prices.

Also, in an effort to further leverage the Internet and improve the timeliness and accuracy of information available to customers, a number of technology companies are currently moving all of their paper-based documentation online.

One leading networking vendor said that as it has moved to online documentation and stopped sending out printed manuals, it has saved hundreds of millions of dollars. In addition to the bottom-line savings, its customers are now able to access the most up-to-date information via the vendor's Web site. Moreover, this vendor has started to embed Web-based agents in all of its devices that can automatically link an engineer to the Web site's device-specific URLs for detailed documentation and current software upgrades and patches. By leveraging the Internet and Web-based technologies, this vendor has been able to provide customers with more self-service options in configuring, operating and troubleshooting their equipment, as well as cutting down on the number of calls to the help desk to answer basic configuration questions.

The challenge for IT in trying to measure an ROI on business-driven investments is to start defining and measuring key metrics before a new solution has been implemented. In the case of the vendor that moved its documentation online and embedded intelligent Web agents into its equipment, the IT group was able to capture all the associated costs for printing and distributing their documentation, as well as detailed help desk call records.

Based on an analysis of both the publishing, distribution and ongoing costs to revise documentation in hard copy, along with looking at the most frequent types of calls that came into the help desk before and after the documentation was made available online, IT could easily show a direct impact on shareholder value worth hundreds of millions of dollars.

Overall, e-business and e-commerce investments can save companies lots of money by allowing them to manage their inventories more effectively, or by purchasing better or by other ways of speeding up business processes or reducing the amount of handling of physical things.

Strategic IT investments that improve the overall efficiency of the enterprise will make the business more productive--and that saves money and improves the responsiveness of the whole company. It is hard to really quantify these administrative automation savings. These investments often don't get much attention, but they can result in big savings that can have a direct impact on the profitability and overall effectiveness of a business.