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All Hail the ROI

Technology sales now hinge less on features and functions -- and more on finance.

When Jeff Stewart, CFO at Clarkston, an IT consulting firm in Durham, N.C., went shopping for a big-ticket software package last year, he had no intention of being swayed by technological gimcrackery. His focus was on payback. “Times are tough,” he says. “These days our board won’t even entertain an offer for a large project unless the return on investment [ROI] looks absolutely solid.”

Many CFOs know the feeling. In a recent survey, Forrester Research found that the CFO is once again playing a very active role in technology acquisition, largely because few companies are willing to cut checks for new systems unless they feel confident that they’ll earn back that money in a hurry. Technology vendors have been quick to respond to this call for more-rigorous ROI, if only because such analysis creates a drag on sales cycles. They now offer everything from “Top 10″ lists of ways in which their products pay off to independent seals-of-approval from consulting groups. Some of those efforts are useful, but few companies accept them at face value. Taking the charitable view, Stewart says that “technology vendors can’t see far enough into an organization to get the full picture. That’s where corporate finance comes in.”

It’s not an unfamiliar role for the CFO, but at most firms the Y2K crisis and subsequent rush to E-business nipped a previous push for more-stringent ROI analyses in the bud. Now the CFO has (re)emerged as a front-line player, one whose analytical skills and focus on the bottom line don’t simply augment decisions, but determine them. “Do the math” is now the battle cry, says Meta Group analyst John Van Decker. Perry Keating, a senior vice president at KPMG Consulting, agrees, saying, “People are not investing in technology in pursuit of top-line growth, but they are scrutinizing everything that might impact the bottom-line savings.”

“We now deal with F&A [finance and administration] people at almost every prospective client we approach,” says Kimber Lewis, president of Cramer Systems Inc., which makes software for the telecom industry. To make its ROI message more compelling, in fact, the company hired F&A employees from several telcos as consultants, in order to get an inside look at the financial ramifications of telcos’ software purchases and craft a compelling message. “We can now go to a prospective client and talk about eight different EBITDA [earnings before interest, taxes, depreciation, and amortization] drivers,” Lewis says, “which in turn allows us to talk about which of nearly 200 metrics matter most to their particular market.”

Technology vendors have almost universally embraced ROI as the central tenet of their marketing campaigns, which has, predictably, led to some eyebrow-raising claims. “We’ve heard of some companies claiming 1,000 percent ROI in just a year,” says Carl Frappaolo, executive vice president and co-founder of consulting firm Delphi Group. “Our own analysis at client companies has never turned up anything better than 700 percent over three years.”

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