Determining the value of e-business is not about isolating the benefits of a single application. It is about assessing the impact of the Net on the overall business once it has been transformed through e-business.
Traditionally, ROI has been measured with metrics such as Gartner's Total Cost Ownership, which is designed to reveal a project's impact on productivity. But measuring the ROI of an e-business application is more challenging. Harnessing your operations to the Net can critically affect strategy—beyond the improvement of processes and productivity. For example, e-business can fundamentally change the customer experience, a company's products and even its business opportunities.
Last year, North Vancounver, B.C.-based North Shore Credit Union, with $820 million in assets, made a large financial bet on CRM, with an implementation from Pivotal, Inc., a Canadian software company. The hope was to increase assets, customer loyalty and the productivity of its account managers.
"We are an extremely targeted community provider, and to continue to do that effectively, we have to manage carefully our customer relationships," says Chris Cutliff, North Shore's president and CEO. Among North Shore's goals: to generate a digital data profile of every customer within a year, and an even more detailed one for its high-profile customers.
Says Elaine McHarg, the former senior vice president of marketing at North Shore and the business owner of the project: "We needed to attract younger customers who were earlier in the financial life cycle, and we wanted to be able to give them more targeted advice, based on their individual financial profiles. We needed to secure more of the share of those high-profit, high-profile customers. And we needed to manage that across all of our touch points and products."
The firm was able to leverage its popular online "financial wellness" check—a Web-based data profiling survey—into a tool for collecting more detailed customer data for use by marketing and sales staffs.
And the ROI: The CRM project has boosted the productivity of North Shore's customer relationship managers significantly. "The preliminary numbers show the account revenue from our financial managers is up 18 percent after five months," says Cutliff. "Our loans have grown 20 percent on an annualized basis, and our retention rate has gone from 74 percent to over 90 percent."
Using the old way of measuring ROI, North Shore would have overlooked a majority of the CRM system's potential and real benefits—including the bank's ability to attract an entirely new type of customer. Instead, they would have focused on comparing the costs of implementing and managing the new CRM system with the old way of doing things. The result: the CRM project may not have gotten funded at all.
The advantage of the new ROI metrics is that they view the IT department as a value center. The new metrics (see Building Metrics) focus on the value a particular IT investment can or will bring to a variety of yardsticks the company considers vital: the price of a company's stock, its corporate revenues, its profits, costs and customer relationships, business process improvements, cycle times and productivity—even the potential for corporate growth over time.
Each new way to measure ROI has a different focus and usefulness, but choosing the right one requires CIOs to ask a couple of key questions. First, should the new ROI method be used to supply the data needed to justify a one-time cost, or should it also provide CIOs with the tools needed to manage the entire e-business system? Some ROI tools, for example, are best suited to helping CIOs justify their one-time costs, select vendors and develop a business case for an e-business technology that links it to company strategy. But CIOs may also need to think further ahead.
"The companies with dramatic success are those that don't see the ROI effort as purely for justification and then leave it behind," argues David Kohar, director of e-strategy for Pivotal. "Instead, they align the proposed investment with company goals and then use that case to guide implementation and drive the initiative with clear metrics, goal posts and strategy."
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