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It Payoff : A Dialog
Bob Graham has been the chief information officer (CIO) of a $ 2 billion manufacturing conglomerate
corporation for 5 years. He is getting ready for a meeting with the CEO, Patricia Donahue, to request
approval for a $ 14 million project leading the corporation’s seven strategic business units (SBUs)
and the corporate office into the next generation of telecommunications and computer networking.
With the profit margins decreasing, Bob proposes to cut computing costs by centralizing financial
and planning operations, along with information services, to the corportate office. However, Patricia
is concerned with the return on investment (ROIs). Times are getting tough; reenue is increasing but
profitability continues to shrink. Recently she read about companies outsourcing their IT to manage
increasing costs of IT operations. Intuitively, she knows that investment in information technology is
strategic and will pay off in the long run, but she is wondering how she will get the Board to approve
this request given that it approved a $ 4 million system upgrade just 2 years ago. At he next board
meeting, she is also taking capital expenditure proposal to upgrade current computer-assisted
manufacturing systems for one SBU and a customer relationship management (CRM) system for
another.
“Pat, I recognize that we have not done a good job of demonstrating ROI. I also know that there are
changes in our business coming down the pike, and I am asking for this funding so we are prepared
for the future,” empathizes Bob. Pointing to the number at the bottom of the top page, Bob makes
his case: “This investment will allow hifh-speed access to financial applications for all our SBUs while
giving the corporate officers data to continue company-wide oversight. With the development and
maintenance functions at the corporate office, we can spread the overhead across our member
oganizations (MO) and improve quality and reduce costs. “
“How long will it take to implement this system?” asked Pat
“Eighteen to 24 months for the development and implementation,” replied Bob
“And when will the corporation see the impact of spending, given that we will continue to incur
costs of our existing system until the new system is fully operational?”
Loiking puzzled, Bob replied “Well, it depends upon how long it takes the finance department to
train the SBUs, and how quickly the marketing department can utilize this information to negotiate
favorable contracts.
“Do you have an ROI on the $ 4 million infrastructure upgrade project we did 2 years ago?” asked
Pat. “We know that the speed issue has been resolved and SBUs can run reports much faster than
they used to. The number of complaints is down. In addition, we are doing a lot more Web
applications through our Internet,” replies Bob, sensing the uphill battle.
While nodding her head in agreement, Pat cannot help but think about the Board members aking
her the question, “How has this helped business productivity, profitability, or added value to our
customers?” at almost the same time Bob was thinking, “I wonder why information resources is
being asked to justify the value of the investment. We are the conduits that enable business
processes. It is the functional areas that need to develop a strategy, improve processes, and justify
that they are working smart.”
Does this soudn familiar? If you have not been in on this conversation, chances are you will. Each
one of us involved in using or deploying IT will probably face the question of this justification issue in
one form or other. It is really no different than the questions we ask ourselves wen buying a home
PC, or that Palm Pilot htat we want to invest in after we missed a new appointments. In business
organizations, the stakes can be significantly higher and those asking these questions do not buy the
argument that it would be nice to have this new information technology. Technology solution
providers and consultants also confront IT payoff by their clients who expect to see evidence of
benefits from new information systems. An enterprise resource planning (ERP) software vendor or a
consulting company has to convince the client that the investment is likely to pay off. Clients will ask
for projected benefits to justify the expense.
These scenes are played in the mahogany row and strategy rooms in many organizations. Business
are looking at IT investments, holding them up to the same scrutiny as other lines of business or
acquisitions, looking for ROI. The budgetary belt has been tightening in a capital-constrained
business environment. Conflicting fundings on IT payoff combined with recent shakedown in ebusinesses has further expedited reevaluation of the investment in IT and the resulting payoff. What
are the reasons for the senior management to question the IT payoff? Is this a recent phenomenon?
How can one frame the correct questions to get to the heart of the question? Is it worth investing in
information technology? Or does information technology make a difference?