Is ROI having an identity crisis?

That gulf separating business and IT wouldn't be so wide if each side didn't have a different definition of ROI. While business people have revenues dancing through their heads, the IT people dream of protection from breached and broken systems as well as compliance with Uncle Sam -- they basically dream of getting a good night's sleep!

The acronym "ROI" could stand for "relatively obscure idea." A return on investment isn't so easy to define these days.

The proof is in the poll results. A recent study by Forrester Research Inc. found that the IT spending uptick that's been predicted for 2004 is more like a spending "uptrickle" when CIO budgets are used as the measuring stick. According to a survey of more than 800 tech execs in North America, the average budget increase for next year will be a not-so-whopping 1.7% .

When you break the spending down, you'll notice that CIOs seem more interested in covering their assets than getting a tangible, traditional return on investment. Forrester's respondents listed security and disaster recovery investments as their top spending priorities next year, followed by compliance-related technologies -- the kinds that will make sure public companies don't run afoul of the Sarbanes-Oxley Act.

Another study, this one from Meta Group, found that CIOs found room in their lean 2003 IT budgets for security-related investments. While IT spending was flat overall this year, spending on security and disaster recovery was up from 2002.

These kinds of investments indicate that CIOs are looking for the kind of returns that don't necessarily flatter a balance sheet. They're looking to keep the machines -- and their companies' good names -- intact.

Speaking of failure to comply with government regulations, Bill Langley, executive vice president and chief compliance officer at banking giant Wachovia Corp., said, "There was a time when there was possibility of a fine or penalty, and that was the end of it. In today's climate, it's much more likely to escalate into some kind of reputational risk.

"It's even got a name now –- 'C-1 risk,' because you could end up on page C-1 of The Wall Street Journal. It means something has gone terribly wrong in your organization."

And for all to see.

Business units still see ROI in terms of saving or winning the company more money. The Forrester and Meta research show that IT folks are thinking more along the lines of not losing money in the long run, either from the loss of public trust, the fine fingers of Uncle Sam or the cost of repairing breached or broken systems.

It seems that the term "ROI" is in the midst of an identity crisis. At least the "R" part is. The business unit may define a return as cash in hand. A CIO might see a return as an insurance policy.

The disconnect over ROI's meaning was apparent to analysts with the Meta Group. They brought it up earlier this month at a security conference in Amsterdam, saying that IT staff may think of ROI as the simple guarantee that they'll be able to sleep at night and not wake up to a nightmarish workday. But business execs may have a far-different definition. They want to know how much money is being saved or how much extra revenue a technology may bring, analysts said.

Where's the common ground? How do you link these disparate views on the definition of "ROI"?

"Business units have said that we have to justify IT in terms of ROI –- that's difficult to do," said Richard Bilancia, president and founder of Littleton, Colo.-based Computer Guidance and Support and former CIO of CoorsTek Inc. When the economy went south and ethics and fiscal responsibility took center stage, the days of the CIO getting whatever he wanted "because that's what we need to keep up with the competition" ended. These days, it's the CFO who has the CEO's ear, Bilancia said.

And as long as the number crunchers have the power in the executive suite, CIOs, like it or not, must bone up on their financial skills and be able to think like businesspeople.

"They need to learn how to reduce investments that don't map with the corporate strategy and increase the ones that do," Bilancia said.

The term "ROI" may just have to stay fluid, its definition written in pencil. It might need to be defined in the context of the times. A good return on investment tomorrow may be unrecognizable to one today. Regardless of the times -- and despite the fact that U.K. research firm QNB Intelligence found that only 40% of IT buyers consistently factor ROI into their business cases -- Bilancia thinks that ROI in some form is a timelessly good idea.

"The best-managed companies will always use a formal methodology (ROI, payback, cost-value, etc.)," he said, "while the others will simply follow the herd and rely on intuition."

FOR MORE INFORMATION:

Introduction to the SearchCIO 200

The Altria Group: Running IT as a business

Rent-a-Center uses IT for financial and strategic gain

Check out the advice in SearchCIO.com's ROI Insider

Ask our ROI guy Tom Pisello a question

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