this age of decelerated growth and sluggish economy,
any expenditure is bound to be carefully screened before
getting the go-ahead from the higher management. The
scene now is a stark contrast to that of a few years
ago during the peak of the dotcom craze. In those days
investment in IT was deemed necessary for survival.
The dotcom bust coupled with the rough patch the economy
is going through makes it imperative to justify the
IT investment to the senior management. No management
will ever agree to go ahead with an IT project unless
it is convinced that the expenditure will either result
in a top-line growth or achieve a higher degree of efficiency
in operations. This is especially true in an 'economic
value driven' company like Godrej, where unlocking shareholders
value and enriching them is a key focus area.
Industries Ltd. and Godrej Consumer Product Ltd.
Revenue: Rs 1000 Crore (approx.)
Employees: 2,500 (approx.)
IT Budget: Rs 6 Crore
IT budget as percentage of revenue: NA
ROI is an inevitable function in today's sluggish
and low-growth business environment. But there
isn't any structured tool to calculate ROI. A
cautious approach before deploying an IT project
and awareness of common mistakes will put some
structure in the ROI process
then could be a means to calculate the ROI on IT investments?
Is there any structured tool that can be used universally
to reflect an accurate ROI? The answer to this is an
Other than the lack of a structured tool, what makes
the task more difficult is the fact that a significant
quantum of the benefits is intangible in nature and
thus difficult to measure. A typical example is a Data
Warehousing solution which is set to benefit an organization
in terms of a greater depth in analysis of business
information. The effectiveness of such an implementation
by-and-large depends on the creative level of usage
of warehousing tools. Will deployment of the warehousing
tools translate into better and quicker decision making
capabilities, will it allow higher forecasting accuracy,
and can you devise better marketing campaigns? And if
yes, how much value can you attach to it?
It will always be possible to ascertain to a fairly
high degree of accuracy as far as the tangible benefits
are concerned. For example, in a supply chain type of
a project the biggest tangible benefit would be reduction
in inventory in the chain. And it is possible to lay
a judgement on what could be the reduction in inventory
of different segments in the supply chain.
One can look at the operational efficiencies that an
IT project will bring about. It may be possible to eliminate
manually prepared reports, shorten the time taken to
aggregate data, generate various MIS, and eliminate
Consider a company that installs a plant maintenance
package. This can result in much lower downtime at the
shop floor level leading to reduction in the 'opportunity
loss' in sales, and thereby increase in profits. This
will then be the potential ROI for the package. Therefore,
the methodology to be adopted for calculating ROI on
IT investment will vary from one organization to another
and from one project to another.
It has now become critical to present a proper business
case to the management to win their confidence in a
new IT project. One should never get into the habit
of over-pushing or over-emphasizing the benefits of
a project. It is important for the IT department to
be fully aware of two things as pre-requisites before
embarking upon an IT project. First, complete knowledge
about the organization like the business drivers, important
workflows, bottlenecks, and growth plans. Second, thorough
know-how about the product. It will be impossible to
prepare a convincing ROI on the expenditure unless one
is armed with the above pre-requisites.
One should then try and see how to marry the product
to the organization without the risk of a divorce. It
is not necessary that the success story of an IT product
in an organization can be extrapolated universally.
Each organization is saddled with its own culture and
Many companies assume that its business has to operate
in a fixed manner in order to generate positive ROI.
There is a chance that an IT project in such a company
will call for an overhaul of some of the critical workflow
processes. In such a case, the organization may not
be ready or mature enough to accept the processes.
The IT department should clearly highlight the organization's
business drivers that will have positive impact as a
result of the project implementation. It will be impossible
to garner top management interest and commitment unless
this is clearly spelt out. The top management's push
and drive is a must in any major IT implementation.
Without their support it will not be possible to bring
about any process re-engineering in business operations,
a function which is essential in the implementation.
The IT department should also highlight the time commitments
required from all quarters. One should never commence
any implementation without getting a commitment from
the management in terms of time and resources.
It is also important to find a business sponsor for
the project who will 'champion the cause' and be responsible
for its implementation. IT should facilitate and enable
the implementation and the ownership should lie with
the business. The management should be involved in all
stages of the implementation. They should be involved
during conceptualization, product evaluation and selection,
project and resource planning, implementation, and subsequently
for support. Only then can one
hope to write a success story about an IT project implementation
and enjoy a positive ROI in the process.
One of the most common mistakes made by the IT department
is that it builds the project to be 'IT-driven' rather
than 'business-driven'. Most IT projects fail because
the top management gets a blurred vision of the business
drivers likely to be impacted as a result of the implementation.
The benefits are often bloated because the IT department
somehow wants to
push the project through in order
to get its hands on latest technology.
One should never adopt a technology just because it
is there. Rather, one should consider a deliberate view
and go for it only after receiving a firm conviction
from all quarters. Another mistake would be to play
into the hands of vendors who usually try their best
to present successful case studies of other companies
and build a huge hype around them.
No ivory tower this
In summary it would be important not to treat the IT
department as an 'Ivory Tower' separate from all other
functions. It should merge seamlessly with business
as an important part. Technology should not be looked
upon as 'rocket science', but rather as a tool that
will help the organization meet its business objectives
and goals. Only then one can find support and hope to
implement an IT project and be sure of its success and
Mani B. Mulki is General Manager, Information
Systems,at Godrej Industries Limited and Godrej Consumer