Wherefore ROI?

Do ECM projects still require ROI (return on investment) justification?

James R. Dukart
2/13/2007


In today’s acronym-laden electronic content management world, an old three-letter standby is getting put through its paces. For years, return on investment (ROI) has been the calling card of ECM initiatives and projects worldwide. Depending on the size and scope of a project, staff and consultants have been known to crank through myriad ROI calculations, each designed to show just how much a targeted department might save by addressing its content management needs. Management or board approval often rested on a specific number or date at which an ECM investment would either pay for itself or at least stop costing the company more money.

Today, many of those calculations are changing. Increasingly, enterprises of all sizes and structures are looking at ECM with a new eye towards benefits that go beyond dollars-and-cents ROI. Business drivers have changed, pushing content management to the forefront of many enterprise-wide strategic initiatives. Technology has also streaked ahead, meaning ROI calculated this year may not hold up three years hence. Perhaps most importantly, the very nature of business has changed, with electronic content inhabiting an ever-more centralized role in the enterprise. The result of these and other factors is that while ECM initiatives today continue to be strengthened with strong ROI, many are being approved as much for their qualitative as their quantitative promise.

One of the bigger drivers behind increased attention to electronic content management is the growth of content itself, not only in pure volume but also in importance within the organization. A recent IDC survey found that 76 percent of respondents said they have a need to develop content once and reuse it many times after that. More than half—58 percent—said they need welltagged content in order to improve how they manage and deliver information, and 48 percent cited a need to combine and analyze content from many different sources.

Moreover, the explosion of technology pushes old content to the periphery even as it generates more content to take its place. Distributed servers, Web farms, and multinational corporations are among the factors that have created a far-flung (though content- centric world) whose parameters continue to expand. Toss in the multifarious ways in which content is now used, along with legions of new content users (customers, business partners) and the pressing need for effective content management can hardly be ignored.

Thus ECM project approval need no longer rely on ROI alone. That said, just as Mark Twain famously quipped regarding mistaken reports of his corporal demise, reports of ROI’s death have probably been “greatly exaggerated”. You still may need ROI, but the best ROI appears to come packaged with other key ECM rationales.

Other Rationales
One of the other key rationales is legal and regulatory compliance. “On the legal and discovery side, you have to implement systems like managing email, getting rid of shared drives, and anything else to reduce frivolous lawsuits and avoid fines,” says Dan Elam, vice president of ECM consultancy eVisory. As a pure ROI calculation, Elam notes, putting a number to a potential legal judgment (which is never actually paid, since the system has prevented the lawsuit) falls short. At the same time, it is just that sort of non-standard return—the avoidance of a potential multimillion dollar discovery bill or legal judgment—that can sway a board or executive to develop more effective ECM.

Another persuasive argument is that good content management is simply good business. “You may want to ask yourself, does it make us more competitive? Does it make us more innovative?” notes Carl Frappaolo, executive vice president of Perot Systems Innovation Lab (formerly Delphi Group). Frappaolo talks about doing a “thorough needs assessment” rather than a financially-focused ROI calculation. Included in that needs assessment, he says, are things such as whether not having effective content management is costing the company the salaries and/or benefits of temp employees brought in to search through and manage content, or increased storage costs due to excessive data duplication. “One of the questions you want to get at,” Frappaolo says, “is not just what is the current cost for maintaining your records, but what is the cost of not maintaining your records?”

Another cost that doesn’t always fit neatly into a standard ROI calculation is the cost of recovering from a loss of data, be it due to human error or natural or man-made disaster. “How do you come up with numbers that are representative of what the risk might be?” asks Russ Edelman, president of Corridor Consulting. In one case, Edelman says, his group calculated the estimated cost to rebuild systems and software, as well as to replace people who may have been affected by the disaster, but the numbers added up so quickly that executives had a hard time taking them seriously. Better than trying to attach a large number to a disaster, he counsels, ECM professionals should stress the amount of work it would take to recover the lost data, and the almost certain loss of continuity and efficiency that might result.

Traditional ROI calculations may also be off the mark, Edelman adds, if they ignore or underreport the true cost of ownership of systems and data. He cites the example of a recent ROI study that focused on the cost of new software and projected reductions in staff time, but completely ignored the cost of (and benefits to) re-engineering systems and processes as well as training costs for the new system. “In order to be effective, ROI has to begin with the entire total cost of ownership,” Edelman says. “The good news is end-users and decision-makers are getting savvier to this, that ROI may not represent all factors.”

While ROI may be getting something of a bad rap as a gauge for enterprise-wide ECM deployments, though, it still remains a decent driver for smaller scale, department-level initiatives. “If you want to implement accounts payable, you need to show you can save money,” comments Elam, who argues that the validity of ROI grows in an inverse relationship with the cost as well as scope of an ECM initiative. Smaller, targeted, less expensive initiatives such as an OCR claims processing system, in other words, might present attractive ROI numbers and a short payback period, while the returns on larger initiatives prove harder to quantify.

This fits into what Mike Alsup, president of ECM integrator Gimmal Group, says about trying to peg absolute and accurate cost figures to the implementation of an ECM project. “The problem with an investment ROI analysis is that, except at a departmental level, the hard ROI depends on heroic assumptions,” Alsup says. “For example, if you save 10,000 people one hour per day, can you really eliminate the jobs of 1,200 people? Probably not.” Alsup advocates for “justification” as the new rationale for ECM. Justification, he says, takes into account not only investment ROI but also the costs and risks of litigation, the need for regulatory compliance, disaster recovery costs, the use of ECM as a business enabler, and the need for ECM to enable accurate and complete records management in today’s enterprise.

“ROI has always been really important, and it is just in the last two or three years it has become less important in a way,” Alsup notes. “What has really happened is that ECM became more important to the entire organization primarily because of non-ROI justification, things like compliance, records management, and e-discovery.”

Moving from ROI to VOI
For the acronym lover in all of us—good news. Not only can ROI continue to be used as one of a quiver full of arrows for ECM justification, enter a new acronym—VOI, for “value on investment”—to take its place.

“People misunderstand how to apply ROI in relation to ECM,” states Toby Bell, research director at Gartner. “If I ask the business side or the CFO, they’ll say ECM equals cost, and BPM (business process management) equals ROI.” Bell argues that executives who view ECM in this way ignore or shortchange the “horizontal” value of good ECM—consistent, accurate data and content that can be used to create “vertical” applications and solutions that can be sold to customers or business partners. Gartner even offers another acronym—CEVAs, which stands for “content enabled vertical applications.” Bell cites examples such as loan origination and claims processing, whose very existence, much less ROI value, can be traced to the good horizontal-scale value of efficiently and accurately managed content.

“The real value of ECM is when it starts to intersect with BPM,” concurs Craig Rhinehart, vice president for compliance markets and products for FileNet. “Take the example of insurance claims processing. There is not a lot of value in storing a repository. The real value comes from the routing of information throughout a large distributed organization, in a common workflow with common business steps.”

All of which leads back to the idea that ECM professionals will win converts by preaching the benefits of ECM as both a holistic and complementary technology to aid the entire ECM-challenged enterprise. An even stronger argument may be made that ECM is really a core competency or simply the “cost of doing business” in today’s content-centric, electronically-enabled world. As such, ECM’s ROI—or VOI—becomes self-evident.

“Executives and CFOs really want to hear how is it helping, not just ‘what’s the return if we do this,’” says Frappaolo. “Good CFOs will really want to understand why it is helping, do we need to retrain, is our culture or are our processes changing for the better? It is not just a focus on the numbers but on the overall how and why.”

“You can spend a lot of time coming up with all kinds of calculations,” Edelman concludes. “If we have 150,000 people worldwide who spend five percent of their time looking for content, and if we know the average salary of the individuals we can come up with some kind of number. There’s a good chance executives will look at that and just laugh. You are trying too hard to sell the ROI. Some of this is much more intangible. What you want is for people to start to say we are doing this because we believe in the concept, rather than here is mathematically how it is all going to work.”

James Dukart is a freelance writer based in Minnesota. He can be reached at jdukart@thewriteplanet.com.