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May 24, 1999

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Intranet ROI: Leap Of Faith

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Also, according to Phifer, companies often dismiss the cost of maintaining intranets, which can account for a majority of the expense. Phifer estimates that, in general, intranet maintenance costs two to five times the deployment cost over a two- to three-year period. Ignoring such maintenance costs would greatly inflate any ROI calculation, he adds.

Some IS managers say ROI figures are not only difficult to come by for intranet applications, but, more important, they are focused on the wrong reasons for implementing such technology.

That's the thinking of Martin Armitage, director of global infrastructure for Unilever Corp., the $48 billion Anglo-Dutch maker of food, home, and personal-care products ranging from ice cream and tea to shampoo and deodorants. Of the dozens of intranet applications the company is developing to tie together its 300 subsidiaries operating in 88 countries, most aren't justified by ROI but by their ability to improve the flow of information throughout the company and, as a result, improve elements such as time to market or increase local sales effectiveness.

"Most of our intranet is about top-line growth, not the cost reduction associated with a ROI," Armitage says. "Intranet applications often provide a new way of working--and how do you measure that?"

The global infrastructure that hosts Unilever's intranet applications was easy to justify through a hard-dollar calculation, Armitage says. The network, built with Control Data's IntraStore Server and X.500 directory technology, replaces about 400 separately managed network infrastructures. The total savings from a reduction in network overhead is between $80 million and $90 million a year, Armitage says. With the Internet backbone in place, Armitage says, it's relatively inexpensive to deploy all types of intranet applications to meet any business need.

Sometimes those applications show hard-dollar returns as well. One example is Unilever's Global Buying Service, an intranet application that centralizes computer equipment purchases. The application let Unilever consolidate all its contracts with vendors, giving the company far greater purchasing power--and driving down the cost of most equipment by 20% to 40%.

Simple Savings
Unilever's approach to assessing the value of an intranet application is common. Most IS managers reach only for hard-cost savings when calculating an intranet application's ROI, usually finding they don't need to go any further to justify their investments. For example, Kinko's Inc., the Ventura, Calif., copying and small-business-support retail chain, created an intranet document distribution and repository for information directed at its 900 retail branches.

Before establishing the intranet application in October 1998, Kinko's printed out and mailed much of the operational and procedural information necessary for retail personnel. Such mailings included information bulletins on company activities, marketing updates, employee newsletters, policy memos, and 401(k) briefings.

The intranet application, built with Livelink document-management software from OpenText Corp. in Waterloo, Ontario, coupled with an Oracle database, let Kinko's discontinue manual mailings of all those communication items.

Fred Herczeg, VP of systems development for Kinko's, says the cost savings from the intranet were easy to locate in reduced paper, printing, and postage expenses. They amounted to $500,000 per year, giving the company a 50% ROI on the project, which cost $1 million to build. "Sending out an inch of paper to 900 locations every week adds up," Herczeg says.