Whose ROI is it Anyway? Part Two: Sorting Through Claims

  • Written By: Dennis J. Crane
  • Published On: April 13 2004



ROI claims from technology vendors—the first liar doesn't stand a chance

Confronted by the demands of today's market, enterprise software vendors at the very least play lip service to "ROI selling." For many, this means showing prospects that under some average or typical conditions, implementing the software can lead to a direct cost savings that will cover the software license fee in some specified period. Vendors generally express this by saying something like, "Customers will get a ROI in less than a year."

Some vendors attempt a more sophisticated approach. Perhaps they provide an Excel-based ROI calculator and some "representative" data. They encourage prospects to run the ROI calculation and "discover your payback opportunity."

I'm very leery of vendor ROI stories for enterprise application software. These implementations require fundamental changes in the way a company and its trading partners conduct business. Infrastructure software or Internet technology alone do not bring about those changes, although the right technology can help. But only if skilled practitioners and effective business leadership apply them in the context of well-conceived business initiatives.

Vendors who understand this reality take a "we'll work with you" approach. They help prospective customers construct their own ROI analysis. Then they work to turn the underlying assumptions about the technology into reality. They expect that the customer will take responsibility for their part of the equation.

This is Part Two of a two-part note.

Part One defined ROI.

Pseudo-accurate ROI doesn't help anyone

Consider an ad from Synygy. This vendor provides software and expertise for sales incentive management and sales performance management. Surely many companies—in a wide range of industries—pay attention to performance improvement in these areas. The ad reads, " help you achieve success with a proven 173% return on investment in Synygy software and services." Note that the claim isn't "about 170%" or "nearly 200%," but a very precise "173%". That's very hard to accept or make relevant in the context of particular company. Promises like this undermine credibility. They set expectations—and they set up disappointments. (I'm pleased to note that more recent Synygy ads use the same images, but a more plausible view of benefits.)

All generalizations are dangerous, including this one.
Andre Dumas

So What?

ROI has taken on new importance in examining business initiatives and programs that often involve deployment of enterprise software and information technology. In some cases, "Show me the ROI" has become a smokescreen for "Let's wait and see" or, "Go away. Don't bother me."

Executives complain to technology vendors that customer relationship management (CRM) and sales automation software, "don't deliver the promised ROI." In the next breath, they say their sales staff is too busy to use the software. "We can't force our best sales people to spend time with the software." Well, duh! No wonder there's disappointment. Where's the leadership that believes the company can—indeed must—make their customer-facing processes more effective and their sales activity more efficient? What commitment have they made to changing business processes and attitudes? Without that leadership, it's not surprising that the software just sits there.

And the CRM software vendors are no better. They invite criticism and disappointment from customers by providing pseudo-accurate and generally inflated, ROI projections.

It's a vicious cycle. Vendors hear, "Our CFO insists on greater than a 50 percent ROI." So of course the vendor says, "We've got to show them a great ROI, or we're dead in the water." And the vendor starts making up numbers. Or pretending that what happened at Company A would be a good indicator of what Company Z should expect. Some creative vendors whip up a ROI calculator for their web site—or even hire a specialized consulting firm like ROI4Sales or Alinean to do it for them. Liars' Poker.

If the vendor thinks a ROI calculator will "give customers the answer they need"—the justification to buy—both will be disappointed. But like any good tool, a ROI calculator may have a place in the customer's buying process. Note: we said customer's buying process, which is very different from the vendor's sales cycle.

When a vendor and a customer agree to work through an ROI jointly—for a clearly articulated business initiative not just for a software product—then good things can happen.

ROI: Do You Have what it Takes?

  • Take time to think—about the business initiative behind the investment

  • Take it with a grain of salt—when reviewing ROI analysis and experience of other companies

  • Take ownership—as a customer and as a vendor—to turn the assumptions behind the ROI analysis into results

As part of this collaboration, the vendor should concentrate on providing critical information that an individual customer cannot easily generate. This could include

  • A distribution curve of the ROI that resulted from similar business initiatives involving the software. Averages—mean, median or mode—don't provide much insight for this kind of analysis.

  • Enough detail about these previous experiences for the prospect to determine which are relevant to their situation. Is there something that makes the current initiative similar to other cases with the highest returns? Or the lowest?

  • Variance between the projected and actual ROI associated with other projects. Is there a bias to over- or under-estimate? (You can probably guess the answer)

Whether you are a vendor or a customer, the next time you hear the term ROI bandied about, recall that the abbreviation can stand for Results of Initiative as well as Return on Investment. Combining these two perspectives delivers a better outcome.

About the Author

Dennis J. Crane is the President of Business Navigation Group. BNG assists clients as they chart a course and get underway with new initiatives—products, markets, partnerships, and entire businesses. Over the past twenty years, Mr. Crane has held executive positions in information services and software firms including GE, AOL, Bell & Howell, and SCT Corporation. He has also advised clients including VeriSign, Safeguard Scientifics, Deloitte Consulting, Software AG and investors in numerous early stage software firms on strategy, precision marketing and sales, and partnerships. He is a graduate of the US Naval Academy and holds and MBA from Stanford Graduate School of Business. Contact: www.biznavgroup.com or djcrane@biznavgroup.com.

 
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