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Eye on ROI:
Useful ROI Metrics Vary by Technology Category

online columnist The Gantry Group     Column published in DMReview.com
February 24, 2005
 
  By The Gantry Group

Each year DM Review and Gantry Group design and conduct the Annual DM Review Readership Survey, to get a pulse on market attitudes, spend patterns, needs and preferences for technology solutions in the "data management" technology category. In 2004 the technology categories included:

  • Servers
  • Storage
  • Data Quality
  • Data Integration
  • Databases and Data Stores
  • Business Intelligence
  • Collaboration
  • Data Administration
  • Analytic Applications

For the first time in the history of the annual study (conducted since 1998) the 2004 survey questionnaire presented respondents with some questions about the use and importance of ROI in measuring the business impact of IT investments. The results are intriguing and in this month's column, we will share our findings.

Performance Metrics Choices

Some of the most insightful findings resulted from responses to the following question:

"Which of the following performance metrics would be most useful to your organization for measuring the business impact of your IT investments?"

The question was presented in multiple-choice format. For each of the nine technology solution categories with which a respondent was familiar, possible performance metrics were offered, grouped by a set of key cost areas that could potentially be impacted by the solution:

  • Revenue
  • Sales
  • IT/Communications
  • Product Development
  • Accounting/Finance
  • Supply Chain/Manufacturing
  • Administration/Operations

The choices of performance metrics offered for the functional areas are shown in Figure 1.

Figure 1: Preferred Performance Metrics

Of the nine technology solution categories, business intelligence (BI) and data quality had the greatest number of performance metrics selected, 23 and 13, respectively. The technologies with the least number of performance impacts selected were analytic applications and collaboration solutions. This does not mean that these categories do not have a business impact on the enterprise; rather, it reflects the number of ways (metrics) that the business impact can be measured according to the respondents. The following bullets show the results of the top five key metrics that respondent would find to be most useful in measuring business impact for each of the nine solution categories:

  • Business intelligence: total revenues, repeat business, IT TCO, new business revenue, new customer acquisition rate
  • Data quality: total revenues, repeat revenues, IT TCO, internal IT labor cost, implementation/custom development cost
  • Servers: total revenues, IT TCO, internal IT labor cost, redundant IT infrastructure cost, network costs
  • Databases and Data Stores: total revenues, IT TCO, data storage costs, new application deployment cost, internal IT labor cost
  • Data integration: total revenues, IT TCO, internal IT labor cost, implementation/custom development cost, improved product/service quality
  • Storage: data storage costs, IT TCO, total revenues, internal IT labor cost, redundant IT infrastructure cost,
  • Data administration: total revenues, repeat revenues, IT TCO, internal IT labor cost, new application deployment cost, product development life cycle cost
  • Collaboration: total revenues, IT TCO, new application deployment cost, repeat revenues, internal IT labor cost
  • Analytic applications: total revenues, IT TCO, repeat revenues, avoided lost revenues, costs for new application deployment

The obvious pattern is that respondents believe that the business impact of all these technology solutions should ultimately be reflected in total revenues and IT TCO - the two sides of the ROI equation (ROI = Benefit (increased revenue) - Investment (IT TCO)). The second most common useful metrics were repeat revenues and internal IT costs which mirrors the same pattern of both benefits and costs.

While the data should not be interpreted to mean that these respondents were actually using their selected metrics to measure business impact, they do suggest that ROI is top of mind. But perhaps the strongest finding is that business intelligence is by far expected to have business impact across the enterprise, from revenues to sales metrics, product development costs and IT costs. Further BI solutions are seen to have an impact that is tangible - more than any other technology category.

The BI finding was not actually so surprising. BI solutions are meant to be enterprise-wide, consisting of data integration, data warehousing/storage, data analytics and information presentation. So it is not unusual that companies would assume that its impact should be as wide as its implementation. What is more curious is that the individual components that comprise BI solutions are associated with fewer business impact metrics, suggesting that, at least in the minds of the study respondents, the "whole is greater than the sum of the parts."

In 2005 the Annual DM Review Readership study will include more questions on the topic of ROI. We hope you will respond to the survey when you receive your e-mail invitation.
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For more information on related topics visit the following related portals...
ROI.

Dawna Paton and Dale Troppito are managing partners of the Gantry Group. Paton has helped guide the Gantry Group's rigorous ROI best practice models based on a 25-year career as chief executive officer, CFO, sales and marketing executive, and venture capitalist in high technology companies. You can reach her at dpaton@gantrygroup.com. Dale Troppito, company cofounder, believes that the technology leaders of the future will be those that understand the crucial role that a market-validated, value delivery strategy and compelling ROI play in shaping corporate competitiveness and customer satisfaction. You can reach her at dtroppito@gantrygroup.com.



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