In my current role at Salesforce, I spend a lot of time talking numbers. My customers always want to understand the cost of technology, and understandably so. What is the cost of software? The cost of implementation? The cost of training?
But where they see a burden – a cost of doing business, I see an opportunity – to compete, to innovate, to excel and thrive in a competitive market. I see an opportunity to invest in the future of their business, and it’s my mission to help them see it too.
Why business cases fail
Many business cases fail to get approval simply because they focus heavily on the cost of the project, and neglect to clearly articulate and calculate the value that the investment in a particular technology can deliver. With budgets that are forever tightening, the share of spend has to be prioritized on projects that can see an expected return on investment. It’s easy to focus on the list of tangible line items, especially when it comes to developing a business case to get approval for an IT-related project. Costs such as software, services and education are known entities, and can easily be compared between vendors. For those that have experienced failed or poorly adopted IT projects in the past, this would seem like a fair way to compare options as achieving real business outcomes may seem like a myth.
If your objective is in fact to implement the cheapest project possible – then comparing on cost makes perfect sense. A common scenario I see is a business case that articulates “We need x capabilities for y reasons, and vendor a is cheaper than vendor b.” But chances are your objectives aren’t really to obtain a set of capabilities, rather they are to achieve a business outcome that those capabilities, when implemented correctly, can create. And contrary to popular belief, not all technology products are created equal. Adoption varies greatly across vendor solutions – a poorly adopted solution is nothing more than sunk cost, whereas technology with a history of high adoption sets the benchmark for delivering return on investment.
In reality, it’s not about the cost at all, and to compare it as such puts a dis-service to the technology and what it is you’re trying to achieve. The only way for a business case to stack up to financial scrutiny, is to focus on the return on the investment that the technology can unlock for your business. And for that to occur, it’s critical that now more than ever business and IT leaders work together to identify, measure and articulate the expected value to both the business and technology objectives.
Comparing on return
Most businesses today can offer plenty of war stories about technology projects that failed to deliver real value, that were in fact a cost to their business. But at Salesforce, that’s not the experience of our customers – far from it! Which is why we encourage businesses to compare technology offerings on the business outcomes they will deliver, and to focus on the return both now and in the future, not just on the initial cost of investment.
Like any investment, we expect to see significant return over a three to five year period. In our team, we look at four important numbers when building out the financial business case:
1. Direct Cost Savings
These are the costs that can be taken out of the business when the new technology is deployed. These include fees for software and hardware that are no longer required, and outsourcing or support contracts that can be cancelled. These numbers are relatively easy to pull together and can be quite significant, particularly when legacy applications are being replaced with modern, SaaS applications like Salesforce. Examples of direct cost savings include:
- User License Costs
- Vendor Support & Maintenance Costs
- Upgrade Costs
- Ongoing Customization Costs
- IT Infrastructure & Support
- Application Administration & Support
- User Training
2. Cost Avoidance
Benefits come from productivity improvements and resources that can be deployed elsewhere in the organization. These are not direct cost savings as organizations often put this freed up time to better use, but the value of that freed up capacity should still be used in evaluating the overall return on investment. Examples include the financial value of:
- Time saved by sales reps spending less effort completing tasks and administration.
- Time saved by service agents researching and resolving cases.
- Reduced effort to on-board new staff, customers and business partners.
- Reduced effort required by IT staff to maintain and support the technology platform.
It’s important to note that cost avoidance varies greatly between technology offerings, depending heavily on the ease of development, maintenance and use. Adoption of new technology also plays a critical role in unlocking these benefits – so play close attention to a vendor’s historical record of success.
3. Revenue Uplift
This is the real value to the business and often a little harder to quantify. Initially, people can be nervous about putting numbers on the impact that technology can have on business KPIs, but where the technology comes with hard evidence for similar clients and industries achieving significant levels of benefits, these can- and should- be incorporated into the overall business case. More and more I see decision makers insisting the business clearly articulate the value they expect to see – and if they can’t, then that budget is going elsewhere. This often requires financial modeling at a detailed level, sitting with business teams to understand the gap between current processes and future state, and calculating the benefit to the business that will result with transformation. Examples where technology can directly influence revenue include:
- % improvement in leads and lead conversion
- % improvement in win rate and cross-sell/up-sell
- % improvement in customer satisfaction
- % improvement in customer retention
At Salesforce, we are focused on- and are fortunate to have- a history of highly successful customers. Over the years, an independent third party have measured the impact that Salesforce technology has had on these customers’ businesses across a range of key success metrics. Where organizations have difficulty in quantifying metrics for their own business case, many have successfully used these independent studies to either estimate the impact Salesforce technology could have on their business, or to validate that their own estimates fall within the range expected of the industry in which they operate. Average Percentage Improvements reported by 10,500+ randomly selected Salesforce customers between March 2014 to August 2016 include:
- 25% increase in Revenue
- 24% improvement in Win Rate
- 25% increase in Marketing ROI
- 35% increase in Customer Satisfaction
- 33% increase in Customer Retention
4. Cost of Proposed Solution
Whilst I believe technology should be evaluated on the value it can bring to the business, cost is absolutely still an important factor and needs to be incorporated into the overall business case in order to calculate the true return on investment. Most businesses I work with are pretty good at pulling together a comprehensive list of costs related to a project – including software, hardware (if necessary), services and education. Don’t forget to look at the hidden costs like software upgrades down the track, or excessive training and change management costs for tools that are difficult to use and struggle with adoption.
Evaluating the real costs
Being able to quantify the real benefit that an investment in technology can have on the business, puts you in a position to be able to answer questions about the real costs to the business: What is the cost of doing nothing? What is the cost of going slow? What is the cost of a missed opportunity? Once you know the benefit an investment can bring over the first 3-5 years, you can begin to articulate the cost that doing nothing or delaying the decision to invest will have on the business each and every month moving forward. Is that a cost your business can afford?
Technology doesn’t have to be a cost. When chosen correctly it can (and should) be an investment in the future of your business. It’s investing in the capabilities you need to keep your business competitive, and thriving in a world of rapid change and continual transformation. And every day you delay the decision to invest in technology that can deliver tangible return on investment, is an increase in the technical debt your business owes simply to stay in business. The key is in business and IT being able to work together to identify and articulate that value, so decision makers can make an informed decision about where they should invest to get the greatest value for their business moving forward.
Originally posted @ Salesforce.com