The New ROI

In the EMC marketing world, I'm known as "that technology guy".  In the EMC technology world, I'm known as "that marketing guy".  Actually, I'm not really good at either :-)

What I really enjoy is interacting with EMC's customers and partners.  They are some of the most astute IT practitioners on the planet, and they've always got something worthwhile to share.

And, in that spirit, I'll offer you a nugget I picked up from one of them a while back ...

ROI -- The Red Herring?

In our industry, it's almost like we've been brainwashed by MBAs.  It's all about the ROI -- the return on investment.  Show me the money.

The theory is simple -- every course of action is measured by its ROI.  You put money and effort into something, and ideally there's a quantified payback over time. 

Any business has a finite amount to invest in different opportunities, so -- as the thinking goes -- arrange all of your investment choices by ROI, and pick the ones that offer the best return.

And this is where business school thinking might lead people the wrong way.  Because -- as far as I can see - that's not how the real world works all the time.

First of all, any forecast payback is uncertain, because -- after all -- you're attempting to predict the future, and that's always a risky business.

Second, things tend to change between the time you study a problem, and the time you implement your solution.  Not only does the context of the problem tend to move quickly, but -- especially in our industry -- the "best answers" tend to evolve very quickly indeed.

Third, this sort of analysis looks at problems and opportunities in isolation, and doesn't attempt to exploit the connects and synergies found in the real world.

And there's a more pragmatic side to this. 

Think, for a moment, of all the really big decisions you've made in your life.  Going to college.  Getting married, perhaps.  Taking a new job or role.  Having children. 

The "ROI framework" doesn't work too well, does it?

The New ROI

I was in a customer meeting a few years back, and an interesting debate broke out between the senior guy in the room and one of his staff.  On the table was the proposal to do something pretty dramatic with the IT infrastructure -- lots of change.

You could tell that the staffer did not like the proposal on several levels -- his body language made that absolutely clear.  He insisted that nothing could proceed unless a detailed ROI study was performed, and -- of course -- that was going to take time and effort, and -- well -- who was going to do that?

His boss (actually, I think it was his boss's boss) was listening patiently for a while, but you could tell that his body language wasn't all that good either.  I could tell that the dam was about to burst, and it did.

His classic rant: "You're obsessed with Return On Investment.  Well, I'm obsessed with Risk Of Ignoring.  Big things are moving and shaking in our world, and I'm very concerned -- for all of us -- that we're moving far too slow to be relevant to our business for much longer!".

Long silence.  How do you respond to something like that?

I, and the rest of the EMC team, realized that now would be a really good time for us to shut up, and let this play out.

Fast Forward To Today

Over the last few years, I and the rest of the EMC team have been putting increasingly more controversial proposals in front of our most valued customers and partners.  As a result, we've seen many more similar "moments of truth" between different levels of IT leadership play out in our meetings.

Fully virtualized environments. 
Private clouds. 
New management frameworks. 
New security frameworks. 
External service providers. 
New relationships with the business. 
New operational models. 
New organizational models. 
New governance models.
Even new ways of valuing IT -- and the people who work in IT.

No shortage of potential for sharp-edged discussions that provoke a "show me the ROI" response.  Which, increasingly, provokes a "you're thinking about it the wrong way" from someone with a broader perspective.

I, for one, am pleased that EMC can put these sorts of propositions on the table, and do so across an incredibly broad swath of the IT landscape. 

If we provoke a hot response by doing so, let me be the first to apologize in advance on behalf of EMC.

But, seriously, we believe we owe it to our customers and partners.

Comments

[Scott Waterhouse]

Chuck;

Let me give you another example of where ROI just doesn't work. Consider the case of a service provider--an organization that provides "outsourced" IT services to dozens or hundreds of customers. They currently back up to tape. Individual tape drives cost $10-15k, and all back up is a "shared service". Meaning that no individual project ever pays for a new infrastructure; at most they contribute to an incremental improvement to existing infrastructure.

So, a new project or a new customer comes along, and they add half a dozen tape drives. $50k to $75k. Cheap. And far far cheaper than investing in a new technology. Because that new technology requires a big initial investment before you can begin to leverage this with lots of smaller follow-on investments.

So, left to their own devices, the service provider will (literally) never end up doing anything different than what they are now. And slowly, incrementally, they will end up owning infrastructure that is completely outdated and irrelevant by modern standards, requirements, and unable to meet any reasonable SLA. A sort of death by a thousand cuts.

But it is all perfectly justifiable if your only metric for evaluating a technology decision is ROI.

[Justin Warren]

You said it yourself here: "You're thinking about it the wrong way". It's still ROI, you're just taking a bigger picture view of the Return. And yeah, it's hard to do well. That's why you get paid the big bucks if you can.

You still have the same issue as always: convincing people that the Return is worth the Investment. Risk vs. Reward. Some people are OK with taking a leap of faith based on some vague assurances that everything will be Just Fine. Some people like a bit more analysis.

Nothing earth shattering.

[Chuck Hollis]

Justin

I agree. It all boils down to how you frame the problem, doesn't it? Some people are comfortable thinking at multiple levels and in multiple dimensions.

Others need to see a two-dimensional spreadsheet.

I guess I'm encouraging more of the former, and less of the latter!

-- Chuck

[Doug]

It’s an interesting discussion. The challenge with financial analysis is the building out of assumptions and honestly, in my opinion, some financial staffs take great pleasure in the creative aspects of modeling all of the potential “what ifs”. And this modeling takes time when it is precious. This is not to dismiss the importance of ROI or NPV, it should be done, but there is a balance. I think what we are witnessing today is the role of CFOs and their key leaders changing. Many no longer sit isolated from other parts of the business. They are expected to understand, in detail the business, often thinking at the same caliber as the CEO and COO for their particular industry. Many CFOs have had responsibility for product segments in previous assignments. Just look at David Goulden’s resume. With that comes a much quicker technical appreciation for what is being proposed and why it is strategically important. Sure the financial analysis is and should be done, but we now increasingly have technically savvy financial leaders who can grasp what is being proposed, see the relevance to their business and can expedite the analysis by having their teams focus on assumptions that matter.