Rethinking ROI: How IT value measures up

In the world of IT, ROI is king. But should it be? How many approved IT projects have you seen with projected returns that -- in spite of the vetted calculations -- you just didn't believe? And how many projects that were rejected because ROI couldn't be calculated or proved, would have turned your company into a well-oiled machine? ROI can be a great tool, but it's not the only mechanism for judging value.

Let's look at some situations that arise when managing information technology and see how well ROI works in each instance.

The Broad View of IT Value

Figure 1: Achieving IT Value

• The company sets its business objectives (e.g., expand business to two new continents).
• IT sets its own objectives consistent with its mission and with the business objectives (e.g., increase international usability of applications).
• IT designs its projects and services with the intent of achieving its objectives (e.g., three proposed projects for language extension, geographic address localization, and mapping).
• The outcome is changed operations and the concomitant benefits.
• The changed operations drive achievement of the business objectives and the IT objectives.

"Information Technology" -- both the technology itself and the department or team organized to apply it -- is a means to achieve business objectives. Its value is derived from how well it achieves this objective. (Figure 1 illustrates how IT value is achieved.)

Achieving business objectives is a long-term matter if they’ve been set appropriately, and continuous progress towards the objectives often takes the cumulative effect of many projects.

Where is ROI in this picture? If it exists at all, it’s in a project. (It may not exist for some projects, such as foundation infrastructure or technology platform work, for example).

So what's the value of IT? It's in the achievement of its financial and customer benefit objectives (increased usability and use in foreign countries, in this example), and it's in the indirect achievement of the business objectives (increased international revenue). It's not in the ROI calculation of any one project (extend applications to Spanish)

ROI may be illustrative, but it's not a measure of IT value.

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