Page 1 of 6

ROI is not a Formula, it is a

Responsibility

Question is, who is responsible?

Jacob Varghese

September 2002

Executive Summary
Excossivo amourl of irk has boor dovolod ir lrado ubIicaliors markolirg
brochuros ard araIysl roorls lo hoI a CIO caIcuIalo Rolurr or
Irvoslmorls Molhods rocommordod ircIudo simIo Cosl orofil AraIysis
IRR Discourlod Cash FIovs TolaI Cosl of Ovrorshi EVA ard roaI oliors
Amorg aII lhis mumbo |umbo of rumbors ard formuIao oro Iosos lrack of lho
mosl imorlarl faclor lhal viII orsuro rolurrs or your irvoslmorls lhal is
AccourlabiIily This aor Iays oul a framovork lo assigr rosorsibiIily for
various lyos of IT irvoslmorls lo orsuro lhal you roaIizo lho ro|oclod rosy
ROI rumbors lhal ary of lho abovo formuIao lhrovs u

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Page 2 of 6
ROI Woes
asirg IT riorilios or ROI rarkirgs is a fooI s gamo a
gamo ir vhich lho biggosl Iiar virs ROI car bo
caIcuIalod ir muIliIo vays mosl of lho molhods
Discourlod Cash FIovs IRR EVA ROO ard so or
aro dorivod from lho furdamorlaI idoa lhal rolurrs
shouId oxcood cosl of cailaI Tho borofils calurod ir
lhoso molhodoIogios como from oilhor ircroaso ir
rovoruo roduclior ir cosls or roducod risks Thoory of
roaI oliors has boor roosod lo covor slralogic
irvoslmorls lhal Ioad lo ircroaso ir orgarizalior s
fIoxibiIily
AII lhoso car al bosl bo rough aroximaliors lhal
shouId rol bo usod lo riorilizo or docido or
irvoslmorls oxcol for lho obvious oxlromos Ir lho
vorsl caso lhoy ircIudo ro|udicos biasos iraccuralo
assumliors ard iIIiloracy of usors
Wilh lho dol com backIash ir silo of ils Iacurao ROI
is ircroasirgIy bocomirg a facl of busiross Iifo vhoro
CEOs CFOs ard ovorybody ir bolvoor irsisl or hard
ROI rumbors ul by roIyirg soIoIy or ROI figuros lo
arovo ro|ocl or docido bolvoor ro|ocls maragors
aro shirkirg avay from lhoir rosorsibiIily of
urdorslardirg hov lochroIogy viII imacl lhoir
busirossos ROI rumbors do rol orsuro lhal
lochroIogy irilialivos viII bo ir Iiro vilh busiross
slralogy Succoss of ary lochroIogy irilialivo doords
or vholhor lho orsor rosorsibIo for imIomorlalior
has lho roquirod ircorlivos aulhorily ard crodibiIily
across lho sar of lho orgarizalior lhal vouId bo
imaclod by lho lochroIogy irilialivo ROI figuros
shouId moroIy bo usod as a moars lo orsuro lhal lho
Iarrirg is as comrohorsivo as ossibIo ard lho
lolaIily of imacl has boor corsidorod Maragors
shouId avoid arovirg lho orliro furdirg ufrorl
Ralhor furdirg shouId bo ar orgoirg corlirgorl uor
lho ro|ocl loam moolirg koy miIosloros ard
roaIizalior of Iarrod borofils
Maragors irvoIvod ir docidirg or IT irvoslmorls viII
havo lo Iook boyord ROI rumbors lo orsuro lhal you
gol a rolurr or your irvoslmorls To do so
orlorrisos viII havo lo
bridgo lho usiross IT divido
oslabIish rosorsibiIily for rolurr or irvoslmorl
imIomorl risk maragomorl rocossos irlo ro|ocl
maragomorl
Bridge Business-IT Divide
Tho corslarlIy chargirg comolilivo Iardscao makos
slralogy a movirg largol lhal is ircroasirg lho divido
bolvoor busiross oxoculivos ard lochroIogisls WhiIo
lho busiross sido focusod or coirg vilh chargo il has
Iofl lho crilicaI rosorsibiIily of aIigrirg busiross
slralogy ard IT soIoIy lo MIS doarlmorls Ir loday s
vorId vhoro busiross Ioadorshi is ircroasirgIy
lochroIogy drivor lhis roIaliorshi has lo chargo
usiross usors of IT havo lo Iay a koy roIo lrarsIalirg
busiross slralogy irlo lochroIogy roquiromorls ard
aIso lako lho offorl lo urdorslard hov omorgirg
lochroIogios viII imacl lhoir busirossos Tho firsl slo
lo lhis lrarsilior is for busiross usors lo lako
rosorsibiIily for IT irvoslmorls lhal viII imacl lhoir
ooraliors irsload of doIogalirg lhom lo lhoir MIS
doarlmorls CIOs ard IT maragors aro crilicaI bul
lhoy car orIy bo arlrors
Tho rood for IT ooIo lo urdorslard busiross slralogy
has boor boalor lo doalh loday s imoralivo is for
busiross ooIo lo urdorslard lho imIicaliors of
lochroIogy lo lhoir busiross IT shos lhal aror l
formaIIy aIigrod vilh busiross maragomorl shouId
aIvays sook lho suorl of a lhird arly vhor arguirg
for a ro|ocl lhal viII roduco sofl borofils

Page 3 of 6
Tho crodibiIily of a lhird arly lhal doosr l havo lho
orcoivod bias of lho IT orgarizalior viII orsuro lhal
somooro krovIodgoabIo is suorlirg lho irilialivo
ard viII brirg lo boar oxoriorco boyord lho
orgarizalior s four vaIIs
Establish Responsibility
A aor by Ross }oarro W oalh Cyrlhia M lilIod
Ncn apprcac|cs ic |T intcsimcni broaks aII IT
irvoslmorls aIorg lvo dimorsiors
Slralogic Ob|oclivos Shorl lorm rofilabiIily vs
Iorg Torm grovlh
TochroIogicaI scoo Sharod irfraslrucluro vs
busiross soIuliors
asod or lho lvo dimorsiors aII IT irvoslmorls car bo
brokor irlo oro of lho foIIovirg four calogorios
TransIormationa! IT irvoslmorls lhal aim lo
romovo lho irfraslrucluraI barriors lo Iorg lorm
grovlh across lho orgarizalior for oxamIo
Irlogralod CRM Erlorriso Irformalior IorlaIs
Erd lo Erd rocossirg ard so or Civor lho
orgarizalior vido imacl ard ils crilicaIily lo bo ir
Iiro vilh orgarizalioraI slralogy lhoso irvoslmorl
docisiors shouId bo ovrod by lho CEO Tho
succoss of lhoso ro|ocls shouId bo his hor
rosorsibiIily
Renewa! Tho aim of rorovaI IT irvoslmorls is lo
imrovo lho sorvico IovoIs of lho oxislirg sharod
irfraslrucluro ard or roduco lho cosl of suorl
ard mairlorarco for oxamIo Iogacy
modorrizalior Ialform corvorsior ard lho Iiko
Tho ovrorshi of such ro|ocls shouId Iio vilh lho
CIO sirco lho bourdarios of lhoso ro|ocls aro voII
dofirod ard borofils accruod car bo quarlifiod u
frorl Moroovor il is lho CIO s rosorsibiIily lo
orsuro lho sorvico IovoIs from lho sharod IT
irfraslrucluro aro corslarlIy imrovod
Process Improvements LrIiko lho Iorg lorm
lrarsformalioraI IT irvoslmorls IT irvoslmorls
lhal focus or shorl lorm rofilabiIily or
ircromorlaI rocoss imrovomorls Tho ord
ob|oclivo of lhoso irvoslmorls is faslor limo lo
markol Iovor cosl of ooraliors ard or
diffororlialod sorvicos roducl offorirgs Tho
ovrorshi of such irvoslmorls shouId Iio vilh lho
busiross uril hoad furclioraI hoad or lho rocoss
ovror doordirg or hov lho orgarizalior is
slruclurod
Experiments Nov lochroIogicaI lrords lhal
rosorl sigrificarl oorlurilios for Iorg lorm
grovlh shouId bo lho focus of IT irvoslmorls vilh
lho aim of iIolirg ard vaIidalirg lho lochroIogy s
romiso ard imacl Diffororl orgarizaliors couId
docido lo ircubalo lhoso oxorimorls ir diffororl
arls of lhoir orgarizaliors doordirg or lho
irduslry Il couId rosido vilhir lho R D
orgarizaliors or orlorriso archilocluro loams of
MIS doarlmorls

Renewal
Owner: CIO
Transformational
Owner: CIO
Process
Improvement
Owner: Business
Unit Head/
Functional Head
Experiments
Owner: R&D
Shared
Infrastructure
Business
Solutions
Short-Term
Profitability
Long-Term
Growth
Figure 1

Page 4 of 6
Tho rosorsibiIily charl ir figuro oslabIishos vho ir lho orgarizalior shouId
ovr IT irvoslmorls ir oach calogory righl from corcolior lo imIomorlalior
SIillirg IT irvoslmorls irlo lhoso calogorios orsuros lhal dosorvirg ro|ocls
lhal vouId olhorviso havo rol boor arovod or boor Iov dovr ir lorms of
riorily vouId gol furdod
Ir a sirgIo sizo fil aII ROI formuIa drivor aroach lrarsformalioraI ro|ocls
vouId aIvays gol sidoIirod sirco a sirgIo busiross uril or IT doarlmorl
carrol |uslify lho borofils basod or lhoir Iimilod scoo of ooraliors ard horco
arliaI borofils roaIizod lo lhoir grou igrorirg lho orgarizalior vido borofils























Case Study:
Te!ecom
Provider
Decentra!ized IT organization
scutt!es org wide investments
A lolocon iovidoi lad an
oxlionoly knovlodgoablo
loclnical slaff alicalions in
ioduclion voio slablo and
dolailod liacking of businoss
ciilical alicalions voio in laco
ul llo IT oiganizalion of llo
lolocon iovidoi vas oxlionoly
doconlializod Tlis lod lo
inadoqualo invoslnonls in
infiasliucluio olononls and
nainlainod significanl
iodundancios in alicalion
oilfolio loading lo ovoisonding
in nainlonanco and lack of
oiganizalional floxibilily and
suoil foi invoslnonl in
inlogialod CRM ond lo ond
iocossing and olloi connon
coioialo vido inilialivos
To solvo llis ioblon llo CIO
voikod closoly vill Infosys lo
dofino a noliics diivon culluio by
inlononling a daslboaid llal
gavo inslanl visibilily lo all
nanagois iogaiding IT inilialivos
ioduclion syslons and IT assols
Tlo singlo connon viov onablod
nanagois lo ioduco dovolononl
cosls by olininaling non valuo
addod inilialivos ioduco
nainlonanco sond and iouso of
IT assols and accounlabilily foi
connon inilialivos

CEO
Responsible for Transformational IT
investments
CIO
Responsible for Renewal IT
investments
Business Unit Head/
Functional Head/ Process
Owner
Responsible for Process
Improvement IT investments
R & D
Responsible for Experimental
IT investments
Figure 2: Responsibility Chart

Page 5 of 6
Figure 3
Inflection
Point
Inflection
Point
Revenues
IT Spents
Process Improvements
Transformational Renewa
Tho dislribulior of IT budgol across lhoso four
calogorios is drivor by slralogic imoralivos ard
busiross Iifo cycIo slago Figuro iIIuslralos hov lho
budgol dislribulior across lho four calogorios couId
vary across lho lyicaI S shaod busiross Iifo cycIo Tho
iriliaI haso is characlorizod by mosl of lho
irvoslmorls ir lrarsformalioraI ro|ocls lhal Ioads lo
lho busiross ramirg u vilh lho firsl slralogic
irfIoclior oirl As lho lrarsformalioraI ro|ocls roar
imIomorlalior lho rocoss imrovomorl ro|ocls
kick ir lo mool lho ircroasirg comolilior
As
Iorg as busiross soos vaIuo ir oxislirg sysloms il viII
irvosl ir rorovaI ro|ocls bul orIy so far as lhoro aro
oxlra rofils lo bo squoozod from lho sysloms
MoarvhiIo a corslarl amourl is irvoslod ir ar
oxorimorlaI ro|ocl lo orsuro lhal lho busiross is
kooirg aco vilh lho chargirg lochroIogy
Implement Effective Risk
Management Processes
Firms havo lo do moro lhar lo ovaIualo ard hoo for
lochroIogy ayback Ralhor lhoy shouId focus or
urdorslardirg Iarrirg ard maragirg for ROI

Aflor firms havo crossod lho firsl lvo ma|or ard mosl
difficuIl hurdIos of bridgirg lho usiross IT divido
ard lhoroby oslabIishirg lho rosorsibiIily ard
orsurirg lhal lho IT irvoslmorls aro ir Iiro vilh
busiross roaIilios lho roxl slo is lo foIIov lhom u
vilh fIavIoss oxoculior vhich moars offoclivo ro|ocl
maragomorl rocossos A koy comororl of offoclivo
ro|ocl maragomorl rocossos is risk maragomorl

Figure 4
Management I nvolvement
Concept Planning Development Validation Launch
Cumulative
Project
Resources
Best-in-Class
Management
Involvement Profile
Typical Management
Involvement Profile




EslabIish a cross furclioraI loam ircIudirg aII slakohoIdors Emovor
lhoso cross furclioraI loams ard foslor a sorso of urgorcy
Irovido a mocharism for makirg a busiross docisior go ro go chargo
diroclior or oach ro|ocl miIosloro This mocharism shouId bo urdor
cIoso suorvisior of lho rosorsibIo orsor idorlifiod abovo Thoso
miIosloros aro slardard moasurabIo chockoirls Thoso miIosloros
oslabIish mardalos lhal dofiro roxl haso largols as voII as bourdarios
for corduclirg ar irlorim roviov Thoso roviovs shouId orsuro forvard
Iookirg focus or busiross viabiIily
AIIocalo rosourcos lo arovod ro|ocls lhal aro corsislorl vilh busiross
riorilios ard mairlair domard suIy baIarco bolvoor koy rosourcos
across lho ioIiro of ro|ocls






About the Author
]ucob Vurghese is t|c Mar|cting
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References
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