Return on investment is a fine concept. Any asset in a production process should contribute something to the result and, in theory, that contribution should be measurable.
The problem comes when you try to calculate it.
Worse, the more subjective or, if you like, human-centred the process,
the fudgier the numbers tend to be.
After decades of tinkering with ROI formulas, vendors of high-tech products have turned what was once a simple concept into intellectual jelly – something that shines and quivers but that melts when handled.
In the context of customer relationship management, the concept becomes almost elusive, for CRM is filled with subjective values, such as customer satisfaction and employee morale.
The basic measure for ROI should give no one anxiety. In its simplest form, it’s:
[(total benefits – total costs) x 100 ] /total costs
ROI can help make good CRM decisions. Microcell Solutions Inc. in Montreal has used ROI and a customer scoring system for predictive modeling to improve marketing efficiency and increase profitability.
“”We built a business model with an ROI calculation and lowered the number of customers we lose each year to our competitors,”” says Karim Salabi, director of marketing and customer management at Microcell.
“”We know what different customers are worth and we know the cost of our CRM software. ROI analysis lowered churn among our high-value customers. For us, as we implemented our CRM solutions, we kept our risks down.””
Not all CRM outcomes are so good.
Analysts are no longer sure that the software combos in these packages can create measurable results. According to Tom Pisello, the CEO of Alinean, an IT consultancy in Orlando, Fla., ROI data is deeply flawed.
Pisello cites several reports published in 2003 that claimed that the ROI from recent CRM suites had been disappointing, noting, for example, that eight out of 10 projects failed to deliver on ROI promises, and project failure rates were between 50 and 80 per cent.
Yet other reports held that about 70 per cent of companies said their CRM initiatives had exceeded original ROI expectations.
The biggest problem is a failure to measure results, Pisello says. Only a fifth of companies in surveys were able to show ROI for their CRM investments, he notes.
Many said that intangibles were more important than cost savings that can be measured in dollars.
Consider the problem of measuring such things as customer satisfaction. Direct measurement of satisfaction, perhaps done by asking the customer to rate a service or a relationship on a scale of one to 10, is dicey. In a line of values, five may be better than four, but what is the value of the variance?
In cardinal numbers – like two pounds of cheese compared to three pounds of cheese – we know the exact value of the difference. What’s more, it’s a number that can be manipulated, plotted, rolled up in math to make vectors or stirred into differentiable curves without losing its integrity.
But in attitudinal surveys, the differences could be linear or logarithmic, like the Richter scale in geology. If one survey gets all this right, who is to say that the same scale of values applies to the next survey?
In spite of the problems inherent in trying to assign values to intangibles, there is a case for using ROI.
According to Andr