ROI Hammer And Nails

Software vendors are building ROI into their sales pitches, but IT executives are wary.

InformationWeek Staff, Contributor

August 2, 2001

4 Min Read

Now that you've invested millions in new technology, wouldn't it be great to have a tool to figure out just how to make that technology save the company money? That's the message most software and hardware companies are sending to businesses looking to cut costs and post hefty returns on IT investments.

But while many vendors are building ROI into their sales pitches, IT executives are wary. An online InformationWeek Research survey of 200 managers, conducted in June, found that 38% aren't influenced by vendor claims of ROI, 54% are somewhat influenced, and only 8% put a lot of faith in what vendors claim.

For example, Garrett Grainger, CIO at Dixon Ticonderoga Co., manufacturer of the omnipresent yellow No. 2 pencil and other writing instruments, recently had to block a network company salesman's E-mails from penetrating Dixon's firewall.

The salesman was bombarding Grainger with lengthy E-mails--sprinkled with details about Dixon's various businesses--in an effort to show he had done his homework. He made promises, too: if purchased, the product would provide a return on investment of $100,000 a year.

Problem is, the $100 million Heathrow, Fla., company spends only $95,000 of its modest $2 million annual IT budget on that aspect of its network, which showed Grainger the salesman was making wild claims that lacked credibility. When the salesman didn't get anywhere with the CIO, he pestered the chief financial officer and the chairman with E-mails until Grainger locked him out entirely. "He was the most obnoxious person I've ever dealt with," says Grainger.

Obnoxious perhaps, but the opportunistic salesman is unquestionably savvy to the quest for ROI. Vendors are not only promising ROI; sometimes they're offering online ROI calculators that attempt to calculate the value of their products to the bottom-line business. In addition, a cottage industry for ROI tools has developed, and most of those companies offer sophisticated calculators to estimate investment returns. But the ROI vendors also hope to sell more of their E-commerce software and build trust with potential customers, says Louis Columbus, senior analyst at AMR Research. Columbus says at least four companies stand out above the rest: Click Commerce, Comergent Technologies, Entigo, and InterWorld. Of the four, Columbus says InterWorld has the strongest tool. "These aren't cheap pieces of software," he says, estimating the average price at $800,000 to $1.4 million. "These are whole-platform plays, multichannel based architectures to streamline distribution channels."

The idea is that before a business or IT manager makes buying decisions on a software package, he could sit with the ROI tool and in a browser-based interview process (much like Turbo Tax), answer a series of questions about customer retention, inventory costs, customer service costs, order processing costs, and other areas. This process could take 30 minutes to two hours to complete, if using InterWorld's more sophisticated ROI tool. In most cases, the tool calculates ROI, net present value, and an internal rate of return, and generates a report that can be exported to Microsoft Word or Excel.

With help from Deloitte & Touche, InterWorld developed its ROI Estimator in late June to compute the potential cost savings of adopting a suite of enterprise commerce software such as the InterWorld Commerce Suite.

But even the company adds some caveats. "This tool isn't designed to say 'Here are all the things you need to go through to make this project a success,' " says Jed Alpert, director of business development for InterWorld. "We can help guide you. If [people] want something more accurate, they need to do some rigorous analysis, some time-management studies--how many keystrokes does it take to key in an order; how much time are people spending [doing a certain task]?"

Few companies are buying ROI tools yet. InterWorld, which Columbus says has "a very complete application," has no customers signed on. "The fact of the matter is, [ROI tools] are like icing on the cake," he says. Managers still have to do much of the homework by themselves.

Still, there can be benefits to getting vendor assistance. That's why Grainger actually paid attention to the pesky ROI vendor--until he read the bogus numbers. "I don't have the staff or resources to do a full ROI," says Grainger.

Now Grainger approaches ROI claims the same way he approaches requests for proposals. Says Grainger, "If you take three vendors and allow them to do ROI for a particular project, you have the basis of evaluation."

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