IT vendors have accepted the fact that closing deals today requires proving that their products deliver substantial value. But, with some budget relief in sight for 2004, vendors may be optimistic about the return of the happy days of pre-bubble selling -- and they could abandon their commitment to ROI-based selling programs.
Unfortunately, most of the 2004 IT budget increases will not materialize into a spending windfall, and scarce dollars are already allocated to meet backlogged demands and cover key compliance, security and infrastructure projects. The most forward-looking IT vendors will continue to improve their value-selling methodology. They'll use tools to help sales professionals and partners quantify ROI pre-sales, and implement ongoing ROI-based service-level agreements.
In a recent survey by CIO Insight and Computerworld, 80% of buyers rated financial justification as important for IT purchase approvals. However, more than 65% of buyers revealed that they do not have the knowledge or tools needed to perform ROI calculations. ROI is required for purchase approvals, but vendors focused on closing deals can't leave the ROI analysis up to the client for three major reasons:
- Prospects do not have the product feature and benefit insight, financial-modeling knowledge or analysis tools needed to quantify the value of the proposed solution.
- Customers can take months to perform the justification, slowing the sales cycle significantly.
- Prospects are not able to quantify the differentiating value and TCO advantages of the proposed solutions versus competitive solutions.
These facts are proven in a recent study by Ernst & Young, which states that more than 81% of buyers expect IT vendors to quantify the value proposition of proposed solutions, and 61% of buyers rate a vendor's ability to quantify its value proposition as important in the vendor selection process.
The new ROI selling requirements for vendors represent a real and permanent shift in the way solutions are bought and sold. In this new era of corporate accountability, buyers will remain in control of purchasing decisions. Companies are becoming more decentralized in their decision making, and more stakeholders are involved in every purchasing decision. Quantifying value is vital to helping prospects rationalize their decisions to other stakeholders. It also helps them competitively analyze and align each purchase decision with all other opportunities, and prove value delivery on an ongoing basis.
To date, success-minded vendors have implemented several types of ROI tools to help meet the new ROI selling requirements. These include:
- Web-based ROI calculators, which are primarily used for basic analysis, education and lead generation
- Spreadsheet-based selling tools, typically developed by an in-house, financially savvy marketer, or by a consultant.
- More advanced software that encapsulates spreadsheet models into a better presentation and report-building package.
To reach a new level of competitive advantage, sales and marketing executives will need to view ROI selling as an enterprise initiative; this shift will dominate selling strategies during the next decade. Successful vendors will deploy a standardized selling toolkit that addresses each step in the sales process with credible value quantification, and with seamless integration into current CRM solutions and selling methodologies. Just as other solutions have migrated from simple tools to enterprise applications, these leading vendors will move their ROI selling programs beyond point-based ROI solutions and view ROI as an integral component of a successful selling process both pre- and post-sale.
Tom Pisello is the president and CEO of Orlando, Fla.-based Alinean, the ROI consultancy helping CIOs, consultants and vendors assess and articulate the business value of IT investments. He can be reached at email@example.com.
This was first published in February 2004