By eweek  |  Posted 2003-11-07 Print this article Print

CIO Insight: I have a question. Is ROI, in general, a symptom of a bigger kind of problem: a lack of trust between the business side and the IT side, and [of] being able to prove that a technology investment is going to return something to the company? If there was better communication, perhaps there wouldnt be so much focus on that. Is it a reflection of that, or [of] something else going on in the enterprise?
Barkley: Id like to get into that first. To quote one of our former presidents of our company, hes always fearful of "the system that ate Chicago," because systems tend to grow. So youre right, theres a fair mistrust. Theres a fair mistrust of the financial analysis capabilities of information technology people. Dont take that the wrong way. And theres a fair mistrust of the technical competence of the financial people, which is one of the reasons theres now people like me in our information technology [organization]. Because at the end of the day, the CIO and the CFO have to agree on the strategy, agree on the costs, and agree on what were going to deliver. But theres a fair amount of mistrust.

Murphy: I think the trust issue goes beyond IT and finance. Our finance group requires ROIs for any capital expenditure beyond $150,000. That includes building a new ship, which is a little bit like putting in a custom application. Its hard to nail it down. Its a physical asset, but it has a tendency to morph and grow and become more expensive as people have new, clever ideas, and a lot of it comes down to effective process and project management. I think the trust part comes in that once I, as CIO, have established that I have a methodology, and my team has process and discipline, for doing these things effectively, that changes the conversation. But I dont think thats any different than any other business unit that has significant capital requirements to do their business.

CIO Insight: Asiff, you had a comment?
Hirji: I think the sentiment in that question [about lack of trust] is right. I think IT professionals probably brought this upon themselves in some way. There was a study about how many major systems initiatives actually deliver, and the vast majority of systems fail. When I was a consultant, it was not uncommon to have projects of $200 million to half a billion dollars in size, the vast majority of which failed. Forget didnt deliver ROI, didnt get turned on. [Projects] got three-quarters of the way through implementation, and didnt get turned on. So it was easy to calculate ROI on that-zero. I think those days, thankfully, are dead, and that we collectively have learned a lot. But if you have a process by which your business allocates resources, checks progress on the projects, makes effective decisions about whether theyre proceeding or not proceeding properly, reallocates and delivers shareholder value or earnings per share or whatever it is youre aiming for, it doesnt matter if you use ROI or not, it doesnt matter what tool you use to do that, so long as the process is working and you as the management team are working effectively with it. I think ROI is great for vendors, and I dont blame them for using that. Its an effective mechanism. But if youre going to use it, you better use it in context of the way your organization makes decisions and in alignment with the way your organization makes decisions. Its like code: Its only as good as the inputs. You can write the best code in the world, if you feed a bad input, youll get bad output. So, theres too much emphasis on ROI as a measurement mechanism, and theres not enough on whats it about. Go back to that study that I think our friend from Forrester, Bobby Cameron, was quoting, he said top-tier companies do track ROI and they do track return on investment and so on. But I think CIO Insights study said that people have different definitions of ROI. So my takeaway from that is companies that set some goals in advance, measure the projects process, then measure against those goals what the project actually did, they learn and they get better. It doesnt matter whether you use ROI as part of that or something else as long as you are setting some goals, doing the project, checking it against the goals afterwards. And in our experience at Ameritrade, the more you shorten the lifecycle of that, the better off you are. We will not do anything that is longer then 12 weeks. If we cant do it in 12 weeks, its dead. It doesnt get off the ground. Why? Because as bad as we all are at estimating, if were estimating from six to nine months out versus six to nine weeks out, well take the risk on six to nine weeks. Its just human nature.
Barkley: Let me just pick up. We worry about delivery. Once we approve the project, ROI [is] one of the indicators, but were more interested in the alignment and technology for our strategy. Were interested in the delivery of the project in the budget, and dont be late. We worry about those two things more than anything else. The other thing we started to do this year is every time we develop or design a new application or a new project, we put a metric in there so we know if its working. Let me give you an example. If you build an application thats going to do policy issuance and its supposed to be able to issue a million policies a month and you run it and it issues a policy, [people] say it works. Well, it doesnt work. It only issued one policy. I want to see it issue a million policies. Then I know it works. We have not in the past had operational metrics. When we install them, we started to improve our delivery in our continued operations, and the value, by the way.

Fletcher: Well, a couple of thoughts. I think that there was a comment made earlier about specificity and what goes into the equation is kind of a little bit random. Id like to answer that. In my view, ROI is a good tool as long as it is used consistently throughout the company for all kinds of different decisions, whether its marketing, HR or anything else. You cant just say IT goes the ROI way but marketing does its own spiel. That doesnt work. Second, I think ROI is a very useful tool for allocating funds if you have a lot of demand for those funds, and you have to make a judgment call between one [demand] versus another. If you dont have that kind of situation and you have all the funds that you need in the world, I think free cash flow is a much better tool. It too, though, is subject to some of what we call lack of specificity or subjectivity because, lets face it, were all human, and were all going to do projections, and we all make the projections from the time in history of which we are living right now. If you ask people to make a projection now about revenue growth, theyre going to give you one kind of projection, which would be very different from anybodys projections three years ago. We never have the ability to forecast cycles. Its always a straight line from whatever point were in, or a hockey stick. Where Im going [with that] is I think the most important thing is always a strategic driver. Why are we making this investment? Is it because we want to increase knowledge? Okay, thats great, we want to have certain kinds of efficiency. Lets not kid ourselves that we need to have a return on investment. But if I have only $100 million dollars and I have to decide whether Im going to go with Attis project or Im going to go with a marketing guys project, and they each want $80 million, I cant give them $160 million if Ive only got $100 million. So Ive got to make some kind of an allocation decision. But if I dont have that challenge, as long as its free cash flow positive, lets go do them both.

Next Page: Getting ROI through people.


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