By Jodi Mardesich
Regardless of whether company budgets are flush or tight, CIOs are constantly on the lookout for a strong return on investment from IT initiatives. In the next year, IT budgets are expected to grow 7 percent, according to technology research firm IDC. This modest gain means CIOs need to consider new ways of thinking about ROI when seeking additional expenditures or selling in a new initiative to their peers.
The most common measure of return on investment is financial. However, it's not enough to consider the impact a product or solution will have on improving the IT department's own bottom line. The most successful strategies will look beyond the needs of the IT department alone and aim to align with the overall company's business goals.
It's an approach that generates real results. Companies that correlate IT objectives with other departments' goals and overall corporate aims achieve a higher financial ROI than companies that don't, according to the 2004 Technology Issues for Financial Executives Survey. The report found that 24 percent of companies that kept business and IT goals aligned realized a high rate of ROI, compared to only 10 percent for companies that didn't make alignment a goal.
Furthermore, the biggest barrier to job effectiveness for IT managers is unrealistic or unknown expectations by corporate-level peers in other areas of the company. According to the 2004 "State of the CIO" survey, by CIO Magazine, this lack of understanding and two-way communication is a more serious roadblock than inadequate budgets, underscoring the importance of aligning business goals and IT. CIOs must learn to understand the business side of their enterprises, and take into account those goals when planning and executing IT purchases.
Successful alignment begins with communication at the uppermost levels of the company. To better understand shared and individual business goals, there must be clear communication among the CEO, CIO, and CFO. Each must understand the others' needs. Knowledge of other departments' plans helps CIOs make better decisions, and offers metrics that help determine the ROI necessary for the program to be deemed successful. "The ROI of an IT investment should be based on the impact it has on key business performance metrics," says Dawna Paton, managing partner with the Gantry Group, in Concord, Mass. CIOs should use the same goals that the entire company uses to measure its success.
Essentially, CIOs must learn to think in terms of corporate ROI, not just technology ROI. They should ask: How will the technology change the way the company does business? "Think outside the IT organization," Paton says. "Successful ROI benefits take an enterprise view."
Not all costs of a solution are up front, or easily measured in dollars. After purchase, if a solution needs to be integrated with other systems, or customized in any way, CIOs need to factor that into the total cost of a system, and how that affects ROI. In addition, if a solution requires a department to upgrade its computer systems, that could detract from the total ROI.
IT department interests remain an essential part of corporate ROI. As part of an overall assessment, CIOs shouldn't forget to consider the positive and negative impact of a new program on critical IT resources, such as the help desk or the existing infrastructure. These are equally important components of corporate ROI.
Technology investments can be leveraged to deliver better returns by taking into account the entire business's needs. Ultimately, a corporate view on IT expenditures will lead to an efficient organization where information is secure and available, business is continuous, and company performance is improved.
Jodi Mardesich writes about business and is a former staff writer for Fortune.