In a world where companies are rushing to harness their operations to the cost savings and speed of the Internet, a strategic e-business system can have a big impact on how you're doing competitively in the marketplace.
Just ask Ricoh Corp., the West Caldwell, N.J.-based copier company. Because it had a customer relationship management system that could help it identify its customers' specific needs, it was able to snare a $200 million, 10-year contract to be the sole provider of office automation equipment to the U.S. Postal Service. "E-business is critical to being a player in our industry," says Joseph Vallorosi, vice president of IT at Ricoh.
But what separates Ricoh from many other companies is that it realizes it's no longer enough to have e-business systems in place. You've also got to know their precise impact on the company's bottom lineand the potential dollar pay-off to your customers, old and new: Ricoh's winning bid convinced the Postal Service it would save $7.4 million a year using Ricoh's products. Says Vallorosi: "Knowing the impact of e-business to the customer's bottom line was the critical difference between us and our rivals."
Sounds like common sense, but the truth is that not many CIOs get it yet.
And no wonder. Up until now, the rush to harness operations to the Net has left CIOs little time to analyze the business need for e-business systems before they install them. Further, traditional methods of calculating return on investment have been, for the most part, ill-suited to measuring the strategic impact of e-business on a company's bottom line. Such old methods rarely showed the application's true value to the business. Indeed, say e-business experts, very few companies have properly measured the impact of their e-business systems, either before, during or after installing them.
CRM is a good example. According to Stamford, Conn.-based research firm Gartner, Inc., through 2004, only 35 percent of companies planning to install a CRM system will adequately develop the tools they need to evaluate their new system's potential business pay-off. And of those, less than 20 percent will use such tools to evaluate the success of the installation over time.
Is ROI dead? Not at all. It's simply changing to meet the sobering new demands of the digital economy. Indeed, the tightening economic climate is helping to fuel a new emphasis on ROI. "Regardless of industry, people are asking for more rigorous cases that illustrate both the short-term impact and the long-term benefits of a potential implementation," says Randy Hancock, senior vice president of strategy at Mainspring Inc., a Cambridge, Mass.-based strategy consulting firm.
The goal: to develop an ROI approach that not only provides an initial justification for new e-business systems but also establishes a baseline for their ongoing management. Ideally, such an approach will measure the potential value of the proposed system against the business goals of the company.
"You have to assess both the opportunities for increased revenue and the minimized costs of new processes in the company," says Ricoh's Vallorosi. "Once you go live, you've got to ascertain the cost savings and make sure the increase in revenue is measured and attributable."