By Daryl Plummer
Gartner, Inc.
Is a positive return on investment (ROI) ever the wrong measure of success? When it comes to measuring the impact of cloud services on your organization’s bottom line; perhaps.
Here’s the deal: ROI is usually a measure of hard monetary return on the use of products or services. The soft side of ROI is almost always underplayed or ignored entirely. However, with cloud computing, stipulating that a hard-money ROI will be achieved, in the form of savings, is likely to net you more heartache than cost break.
But if ROI isn’t the best measure for cloud computing success, "What is?" The hard answer is the age-old consultant’s response: "It depends." For simplicity’s sake, though, let’s generalize and say the answer is “value.” Value indeed is the most appropriate measure for cloud computing success.
Value vs. Savings
Value is a commonly used way to measure the outcomes of using any kind of service. Cloud computing is ultimately about whether or not service consumers achieve certain outcomes by using cloud services. It’s true; one such outcome might be the desire to save money. But if hard-money savings is your most significant outcome, then you are likely to be disappointed.
Countless CIOs and IT managers have yet to find fairly done and positive ROI for cloud computing. While some certainly have found savings, others lament the lack of write-offs for long term use of cloud services or the expense of large-scale deployments since $50 per user, per month, multiplied by 30,000 employees; adds up fast. Or how about the need to hire more people to manage service providers?
No matter the reason, ROI doesn't always come out looking so good for cloud projects; therefore, business leaders must start recognizing that value comes in many forms. In fact, trying to measure the ROI of using a service is a lot harder than it is for a piece of hardware or software. Why? Because the only way you can tell if a service is successful is to examine how satisfied the consumers of the service are. And the only way to do that is to ask them—all of them.
What do you ask? One approach is to measure value by examining price versus performance. In essence, are you paying a reasonable price for the level of outcomes that the service provides? If the service is an application that does collaboration, are your people more effective at working together by using it?
Price is determined by what the market will bear. Performance is tracked based on any number of metrics that are related to what you want to get out of the service. Think about it. If you visit a high-priced steakhouse, do you think about an ROI on eating dinner? When you get your clothes dry cleaned, do you ask what the ROI is of dry cleaning versus doing it yourself? No. You focus on how good the meal is; or the price, reliability, and result given to you by the dry cleaner. That’s because a world of services is a world focused on outcomes.
What Does ROI Mean for Your Organization?
The question to ask first is, "What am I expecting to get out of using this service?" The answer will lead you to determine the only true ROI for your business. Are you looking for more effective collaboration for your people or more transparency in pricing connected to employee performance (for example, cost per invoice generated)? Perhaps you are seeking rapid change, more agility in provisioning application development platforms, or a reduction in energy use in your company, even at a slightly higher price?
Whatever your desired outcomes, once you establish them many factors become easier to decide. Contracts must have clauses not just for performance, but for maintaining the continuity of your business needs so that you can keep working. The providers you use must be the ones that show an interest in helping you achieve your outcomes, not just subscribing you to their service.
Keep in mind that value is in the eye of the beholder, so many people see ROI as a statement of value in itself. But let’s not kid ourselves. ROI initiatives are mostly put in place to show money saved or money generated, not to show customer satisfaction with outcomes.
The value of using cloud computing can be found in soft measures just as much as hard ones. Empowering your users to serve themselves with cloud-based applications and services can even lead to more efficient processes because the users have more choice. Changing the relationship between your business users and your IT department should also not be ignored. If cloud computing can make your IT department more effective in helping users get what they need sooner, it may be worth spending a bit more to accomplish it. Now that’s value.
Daryl Plummer is a managing vice president and Gartner Fellow at Gartner. He is chief of research for cloud computing and a primary analyst covering multiple cloud topics, business process management, SOA and Web technologies. Additional analysis regarding cloud computing is available at http://www.gartner.com/technology/research/cloud-computing/.
