ROI is King

[#1]

Phil Soffer is Vice President of Product Marketing at Lithium Technologies. He has held a number of positions at the company influencing the direction of the platform, most recently running Product Management.

He is active on Twitter as @phsoffer and is a regular contributor in the Lithosphere where he is PhilS.

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Hello Everyone,

The return on technology investments is a subject of some fascination to everyone from CIOs to software marketers (cough) to economists. In 1987, the Nobel Prize-winning economist Robert Solow remarked jokingly that, "We see computers everywhere but in the productivity statistics." In other words, lots of investment, little return.

But by the end of the 1990s even Solow couldn't get away with a joke like that. There emerged some consensus that the noteworthy US productivity gains over that decade owed at least something to the application of information technology, especially in sectors that applied such technologies intensively. In other words, lots of investment, finally some return.

At the macro-economic level, at least, you can do studies for years without seeing any return on a technology investment, then the returns pop up like mushrooms.

At the level of the individual technology initiative, there is a related paradox: we talk most about ROI at the early stages of the adoption curve, which is -- from a financial perspective -- when we actually have the least definitive things to say about ROI.

If you'll forgive this misappropriation of Gandhi: first they say it's a science project, then they demand ROI numbers and laugh at them, then they admit there might be some value to what you're doing, then the technology becomes so pervasive that no one asks about ROI any more.

So we spill a lot more ink about the ROI of social media projects than we do, say, about Microsoft Exchange. In other words, in terms of social media projects, we're probably somewhere in the "they demand ROI numbers and laugh at them" stage.

Not that I'm complaining at all, mind you. That's actually the best stage of the technology ROI lifecycle, because when you're at that stage, you're actually able to talk to the business about the practical application of what you're doing in terms that everyone in business understands.

Which brings us to a feature of our new Engagement Center: the Support ROI application. Matt is blogging about the feature in some detail elsewhere, so I won't go into that.

But I do want to say a few things, and perhaps to spark some discussions.

First, since we're at the "laugh at your numbers" stage of the adoption curve,

I want to say proactively that no one here thinks that the numbers our tool spits out are going to be definitive. Nor would the numbers pass muster with your finance department. Matt knows that -- he even went to a business school where they make you do math.

Why bother, then? A few reasons:

• To show that this is not a science fair project, and that there are ways to estimate its value. We know that there are far more sophisticated models, and if you are interested in them, you can engage with the great work done by Natalie Petouhoff, Francoise Tourniaire, or Kathy Herrmann. But many customers will not have the time to engage with those models every day, and even those customers want to have a sense of the value that they're creating.
• To hold ourselves to a standard. As an industry, we've predicted 134 of the last 3 revolutions. By holding ourselves to a standard that says, effectively, that we want there to be some measurable gain from what we produce, we're trying -- in our own small way -- to back away from the hype and keep it real. We're betting that you'd rather do business with a company that thinks that way than a company that is breathlessly proclaiming the 135th revolution.
• To help our customers. Shockingly, when you sell to large businesses, the people who use your service sometimes have to give PowerPoint presentations to their managers and colleagues about what they're doing (curiously, no ROI studies are demanded about PowerPoint). These folks aren't asking for much, and anything that makes their days that much brighter is something we'd like to try to do.

We know that there are a lot of other ways to think about the ROI of Social CRM, and we'll be exploring those in future posts and future versions of the software. But we think this is a nice start.

What do you think?

[#2]

Hi Phil,

Congrats on Lithium's new Support ROI app. Go you!

You bring up good points about the changing nature of the ROI as a project matures. 

The highest risk of any project is going to occur during the strategy and planning phase where everything is still an idea. 

As implementation occurs and the project gains steam, then the ROI will start to close in on a truer reflection of the project's value. If you've been realistic in your planning and prudent in your implementation, then hopefully the ROI at project maturity will be nicely positive for you.

The key to zeroing in on ROI in the early stages is to couple defendable assumptions with appropriate risk. If you do that, then you'll determine a reasonable starting ROI because the risk will help manage the uncertainty.

And I always recommend looking at multiple business cases. If your ROI is positive under a highly conservative case, then it enhances its value.

[#3]

Phil,

Great perspective - humorous and profound.

Ah, PowerPoint ...  I'll add that sometimes it's the ancillary technologies that can change the way we use something to improve the ROI so much that we wonder in hindsight why we ever did things the way we used to. 

For example, in the 90's I digested a lot of data and then made presentations to try to convince organizations that changes should be made.  That was my job in a nutshell.  In those days, we made presentations using an overhead projector like they used to use in schools, and we called each slide a "foil".  I'd make my presentation in Freelance or PowerPoint, and then print them out on an inkjet in color and take them down to the foil machine and thermally transfer the ink image onto the plastic film foil.  I'd stand in front of people in a room and manually flip through one foil after another on the overhead projector - no laptop needed.   Such were the days.

When I got my first laptop and could hook it to a projector, things sure changed.   Revisions were fast, gone was the bulky overhead projector, and gone was all the waste of printing, transferring, presenting, and ultimately recycling plastic foils.   In hindsight, the whole process seems absurd.

Mark

[#4]

Great feedback, guys.

@Mark - when my dad was professionally active he did a lot of slide presentations with real slides, which he would store in a carousel and take with him. Just last year, his alma mater asked him to give a talk during their 55th reunion, and he was introduced to PowerPoint for the first time. He was over the moon! "Do you use this program?" he asked me excitedly. "It's the most wonderful thing." Meanwhile, I'm slogging through my tenth PowerPoint presentation of the week, wondering if I'll ever be able to write again using anything other than bullet points and "big animal pictures." But it does remind one not to take for granted some of the advances in technology.

@Kathy - good points. Just out of curiosity, do you see a risk of people talking themselves out of projects at an early stage because the numbers are too conservative? One of the phenomena I've seen over the years that I've been at Lithium is that a project will start as a skunk-works initiative, championed by one person with a crazy vision and put together on a small budget against conventional wisdom, and then two years later that person is a hero and is no longer challenged on the value of the project. @mark, you can feel free to weigh in on that as well.