Rethinking ROI

SCOTT PREBLE HAS A name for when he appears before his company’s top echelon to present his IT investment plans. He calls it “going for the gold.”

Preble, senior vice president and director of technology architecture and strategy for Ballwin, Mo.-based CitiMortgage, a division of financial services company Citigroup, is doing what experts say is essential during the flat economy of the last 18 months — taking the lead in devising strategies to both help the company run efficiently and to generate increased revenues.

For CTOs, projecting ROI, the ability to converse in financial terms, and showing the payoff of IT investment to senior management is almost as important these days as technical skills, experts say. “You have to put things in a business perspective that [other executives] can understand,” says Preble.

Max Keeler agrees. The CTO has to be involved with developing and communicating a successful, overall ROI strategy, says Keeler, CTO of Alexandria, Va.-based financial content provider The Motley Fool. “You really have to be right there with the business people in sizing up the problems,” he says.

Partnering with the business side of the company, Keeler says, helps integrate IT goals with overall corporate vision. “Everyone in the company is working for that result,” he says. “The technology can’t be a black box. It’s got to be a transparent part of the company.”

Putting financials in focus

“In the go-go period [ending in 2000], no one worried about cost justification. Now you need to develop IT investment strategies,” says Tom Pisello, president of the IT consulting firm Alinean in Orlando, Fla., and author of the book Return on Investment for Information Technology Providers: Using ROI as a Selling and Management Tool.

C-level enterprise leaders focus on quarterly financial reports when making strategic decisions, and CTOs must adjust accordingly. “CTOs need to speak the language of the board of directors and of the CFOs,” Pisello says. “It’s the language of the invoice statement and of the balance sheet.”

In other words, CTOs need to understand the basics of the CFO’s unique perspective on spending and corporate financials. “[CEOs and CFOs] are after quantifiable metrics,” Pisello says. “CTOs have to understand these metrics, like ‘How will IT impact revenue?’ ‘How will IT help key performance indicators?’ and ‘How will it help improve market position?’ ”

Making the case for IT

CitiMortgage’s Preble understands and appreciates the measures used by CFOs and CEOs. The senior vice president lays out his IT spending plans as a strategic outline for the senior management. “I’ve got to find the biggest bang for the buck and show them I’m going for the gold — where the money is,” Preble says.

At Heathrow, Fla.-based pencil maker Dixon Ticonderoga, Garrett Grainger also rates his ability to relate to senior management as a top skill in developing an effective IT ROI strategy. “The issue is being able to sell the idea [of a technology investment strategy] to the business unit,” says Grainger, executive vice president and CIO. “You just have to justify the business expenditure.”

Grainger has reworked his approach to ROI. With concerns about the economy, Dixon Ticonderoga executives have tightened oversight of the budget process, he says. Grainger now outlines IT spending plans to show a quick return.

“We want to be able to put money in and get returns in 120 or 180 days,” he says. “We are pushing the technology argument to [management] and getting buy in on that technology — on the idea that it’s going to enhance their business.”

Emphasizing the technology investment

CTOs need to keep in mind that IT projects should generate an improvement reflected in the bottom line, either on the revenue or cost-savings side, experts say.

In the case of CitiMortgage, Preble has successfully lobbied in the last 24 months to expand the browser-based automated loan process available for customers on the company’s Web site. The senior vice president saw a potential to increase revenues, despite the project’s complexity.

The automation — with many steps and costs — was not simple, explains Preble. “[Senior management] needs to understand the strategy — where we are going [with this project]. I break down the project into modules and start out with what can first get the biggest bang for the technology dollar. … I have to decide what steps to do first to get the biggest ROI.”

In other words, Preble says it’s up to him to win support for new IT projects by showing return and how project success is defined. “If the strategy is to go through the process of automating mortgage loans, then how [is the IT department] going to take the steps to get us there?”

Making a direct connection to results is not always easy to communicate. Dixon Ticonderoga’s Grainger fought to win support for a Web site upgrade. “The sales and marketing people liked it, but it wasn’t producing value for the company,” he says. “I had to get them to buy in on the change. I just had to beat them up and sell them on the positive results they would see from the project.”

ROI nuts and bolts

Before seeing top management, CTOs must work out the nuts and bolts of their own budgets. CitiMortgage’s Preble, for example, determines unit costs and sets priorities accordingly. “Once we decide that IT investment is important, we have to figure out how much we have to spend on new projects versus just keeping the lights on,” he says. “Then we have to figure out how to keep the lights on while saving money for our new projects.”

Consultant Pisello says that the CTO needs to figure out how to align projects with financial and strategic goals. He says CTOs need to ask: “What are the key performance indicators you would like technology to impact and how can you measure that impact?”

“The CTO needs to work closely with the CFO to put in place company standards,” Pisello says. “They need to sit down with the CFO and see how the CFO wants [budget] presentations done and see which financial metrics are important.”

The good news is that CTOs are increasingly seen as crucial players in the ROI debate, and companies now recognize that they can’t formulate a revenue-generating business strategy without factoring in the technology that will make new business initiatives possible.

Source: www.infoworld.com