Thursday, May 16, 2002

Measuring ROI on KM investments

I’m finally getting around to responding to Chris’s post from a few days ago. He raised an interesting point about his CIO’s insistence on identifying the ROI for his firm’s upcoming CRM investment. (Disclaimer: I work for a software company that sells CRM software to professional services firms. You can learn more here. The post below relies on a couple examples of my current customers. After all - I may want to help people, Ernie, but I draw the line at helping the competition!)

The closest I’ve seen a firm come to attaching hard numbers to their CRM investment is Osler, Hoskin & Harcourt. They recently shared their experience in a Business 2.0 case study – and the results were impressive:

  • Doubled the number of RFPs marketing can respond to
  • 6,500 administrative (secretarial) hours saved per year
  • Faster opening of new office with less down-time waiting for business to ramp up

Those are the “hard” results. And they’re pretty good. The stuff above alone translates to an ROI that paid for the product in less than a year; after that, it’s an annuity. Good, right?

Then why am I ambivalent about the results? The real answer is that the truly valuable piece of their investment is the value it provides to the lawyers – in their ability to get a complete snapshot of an industry, or learn everything there is to know about a prospect, or to recognize that a partner in the Montreal office knows the assistant GC at the company we’re pitching tomorrow. That’s where the rubber meets the road, because it results in revenue gains.

And you can’t place a number on that. Trust me – I’d love to. It would make my job a lot easier. But what lawyer is going to admit that they just landed a $50,000 engagement because of software? And even if they do give credit where it’s due (Osborne Clarke, in the UK, recently did), the reality is that they didn’t get hired because of the software. They got hired because they’re good at what they do and the client had a need.

So even if I could say that you got ten new clients at an average engagement of $50,000 each because of the CRM software, can I really say that the software generated $500,000 in new revenue?

What this boils down to is a difference between strategic ROI and tactical ROI. You can measure the tactical benefits ( which are bulleted above from the Osler case study) by looking at cost savings. But I can only cut a dollar by a dollar – and nobody gets a bonus at the end of the year because you sent fewer duplicate mailings out. If I can position you to land new business, be more selective about the business you go after, and let you see (perhaps for the first time) which business is worth keeping, then I think I’ve added much more value. And there’s no real limit to how many dollars that can add to the bottom line. Result? A more proactive business (I know some managing partners break into a sweat when they see that word) that can operate more predictably, strategically and profitably.

I don’t kid myself – there are a number of firms who buy our software and never think about anything but the tactical benefits. But I can tell you now those are the same firms that 18 months from now will be scratching their heads why they invested in the software. (“Isn’t this just a Rolodex? Why’s it cost so much?”) It’s the firms that recognize that the gains that are truly worth making are also the ones that are difficult, if not impossible, to measure conclusively. Those are the firms where the managing partner proclaims (and I actually had one tell me this a few months ago), “InterAction is the spinal cord of this firm.” Now that’s strategic. And how do you measure the ROI on a spinal cord? I’m not sure, but I can tell you what it costs to not have one…

This paradox annoys me to no end, since I’m a measurement guy at heart. But sometimes these things are worth taking on faith.

1 comment:

  1. I read a book recently called "Maximizing ROI on Software Development", that discusses the entire gamut of measuring software development, localization, training and testing ROI for enterprise CRM and wireless systems. It is by Auerbach publications, CRC press for $79.95 I think.