Last few weeks I have had some very interesting meetings and discussions.
If you follow my writings, presentations, etc. you know that I don’t believe in the need for ROI (Return on Investment) calculations for — well, most of the stuff we buy for Enterprise Software. In my view, ROI is something that is either:
- Asked by an overly careful CFO that does not care what you are buying, as long as there is a return somewhere of something
- Asked by Sr. Management that does not understand what you are buying and want to make sure that if it explodes somewhere down the line they are covered and can say it was not their fault – it was supposed to work.
Neither one of those statements consider the strategic nature of acquiring and implementing Enterprise Software (hardware is a different animal, and a different post). Besides, any vendor worth their salt will have a variety of models you can use, including great historical data from other implementations, to help you show there is an ROI.
There are two problems with using ROI: first, calculations are very simple, for example saying it is the costs minus the benefits while ignoring time-value of money or lost-opportunity costs, and tend to be very wrong. Just because it can be proven on paper does not mean that it will be the same in real-life — too many assumptions go into those calculations to make sense.
Second problem with ROI is that is void of value. Calculations are never made counting for value accumulated or generated, only on the potential costs and benefits that may be created from implementing the software. This is because the calculation of value has been almost impossible to do.
Until now, we did not really understand what Value meant – but that is starting to change.
I will no embark on that discussion right now, I had some posts in the past on the definition of value and it truly gets nowhere very fast, but I will definitely use it – by any definition you want. The change we are seeing: we are moving into a fair-value market where both (organization and consumer) value what they get from each other. Whether its timely feedback to improve a product, help with support, or anything else organizations are starting to recognize there is value in the contributions from users and consumers that goes beyond the traditional ROI model.
On the other hand, consumers and users don’t conduct ROI calculations to give you their business, but they do know value when they see it. Although you could say this is not new, the information and communication evolution we are experiencing makes it very, very different – for both parties.
This fair exchange of value is what is driving this new evolution of business (and what powers the collaborative enterprise). In view of this, making a ROI calculation be responsible for implementing (or not) enterprise software seems silly. No?
This is why I have been having plenty of conversations lately about a “new” concept – time-to-value (yes, I know it is not new – but the way it is being used is).
Time to value (again, without going into a war of definitions) is how long it would take an organization to reach a specific milestone: maybe it is getting feedback from 20% of their customers who tried the new product, maybe is increasing the readership for their blog by 25%. Maybe it is getting new users for their freemium product. The specific milestone does not matter, nor does it have a simple financial calculation attached to it. Whereas it could be used to compute tangible benefits, it works far better for intangible ones. There are too many unknowns and variables that change too rapidly for a financial value to be easily calculated.
In the face of an impossible ROI calculation (at least an accurate one) but a certain value that can be delivered to the business (and that will eventually be easier to calculate in financial terms, once more variables and assumptions are known) we use Time To Value.
I must confess, this is probably still a metric mostly driven by vendors in enterprise software conversations. At the same time, the users i talked to about this metric are very encouraged. In their words (and paraphrasing several conversations into one soundbite):
“With implementations times down to 3-4 months with cloud-based solutions, I can always prove an ROI within 12 months as my CFO demands – but what does it mean? how do we benefit? the concept of time to value is intriguing”
Beyond the infomercial-sounding-paraphrase above — what do you think? Something to consider?