One by one, they rose to make their pitches to the IT steering committee. As the day wore on, recalls consultant Doug Hubbard, business cases were presented for more than 20 IT projects. Each was framed in terms of the tremendous savings and benefits it would provide for the company, a giant midwestern nuclear-power utility. One skeptical attendee listened closely and entered a series of figures into a calculator. Toting up the promised benefits of each proposal, he announced, “If we signed off on all of these, we’d be able to cut staff by 110 percent.”
Writ large, Hubbard’s tale reflects the past decade’s blind faith, massive investment, and sometimes bitter disappointment in information technology. A recent study by technology research firm Gartner concluded that 20 percent of the $2.7 trillion spent worldwide on IT in 2001 was wasted. Others have found little or no correlation between technology spending and corporate performance. “Let’s face it. There’s got to be some increased sobriety about the value that can be created from technology investments,” notes Christopher Dallas-Feeney, vice president, financial services group, at Booz Allen Hamilton. “It was overblown on Y2K. The ERP [enterprise resource planning] era was a bit overstated, and CRM [customer relationship management] is following on its heels.”
Little wonder, then, that most corporate buyers are searching for new ways to gauge the payback from IT investments. Eager to oblige, vendors and consultants have trotted out a variety of tools that purport to more precisely measure return on investment. The approaches range from self-service Web sites that cough up an ROI calculation based on two or three inputs all the way up to new software programs costing as much as $200,000. Indeed, the mad rush to ROI is beginning to look like a tour bus unloading blackjack players in Las Vegas: everybody’s got a system.
The problem with so much ROI analysis to date is that it’s done by the very parties that champion technology spending, from vendors to consultants to systems integrators and outsourcers. When ROI is done internally, it’s often done by the department that seeks the funding. “There’s a fundamental conflict of interest when the ROI analysis is conducted by proponents of the project,” notes Hubbard.
This is not, of course, news to CFOs, or even CIOs. “We try not to justify things too much on soft benefits and wishing,” says John W. Prosser Jr., senior vice president, finance and administration, at Jacobs Engineering Group Inc. in Pasadena, California. Allan Woods, vice chairman and CIO at Mellon Financial Corp. in Pittsburgh, goes him one better: “We would not calculate productivity [gains] if there were no headcount reduction.” And Ray Seabrook, CFO at Ball Corp., a Denver-based packaging firm, voices the general discontent with soft benefits and the companies that champion them when he says, “Five years from now they’re sitting there with all our money in their pockets and I’m still trying to figure out how to measure something like ‘employee empowerment.’”