A Better Way to Measure ROI

Measuring What Matters to Customers Drives Revenues & Reduces Redundant Overhead

November 21, 2002

In the Customer Economy, the only way to gain budget approval is to measure the time and costs you save your customers and justify your IT expenditures based on the increased revenues and customer retention you’ll gain. A number of companies have done just this and are reaping the rewards.


The beleaguered IT industry is looking for the holy grail of ROI to unlock the purse strings. We have a radical suggestion: measure the time and costs you save your customers, and justify your IT expenditures based on the increased revenues and customer retention you’ll gain.


Every IT project has to be cost-justified. Each company has its own approach and its own thresholds for determining whether or not any investment makes sense. Every company’s financial analysts use some combination of hurdle rates, internal rates of return, return on capital, net present value, overhead allocation, and scenario-based forecasting, among other tools. In the last 18 months, it’s become almost impossible to justify investing in information technology using any of these approaches. There don’t seem to be any ROI arguments that are able to loosen up the corporate purse strings.

Why It’s Harder than Ever to Cost-Justify IT Spending

The excesses and IT overspending of the late ’90s—the “piling on” of Y2K expenditures and the irrational exuberance of the dot.com era—have made COOs, CFOs, and corporate boards wary about spending anything on IT. Their current position is that companies should digest and assimilate the technology on which they gorged themselves during the last decade. They’re not receptive to any pitches for technology investments that require an additional outlay of cash. You’re welcome to pilot new technologies or enhancements to existing technologies (as long as you don’t waste too much time doing so), but don’t expect to deploy them any time soon. The purse strings aren’t going to loosen up.


These business executives aren’t wrong. But they’re being over cautious. The global economy is severely depressed, yet the power that our customers have over our businesses’ survival is greater now than ever before. It’s the Customer Economy, folks! Power has shifted to the consumer and the business buyer. Customers are using the power of the purse to demand more than lower prices. Today’s customers expect and demand:

  • Visibility into the business processes that impact them
  • Consistent decision-making information, pricing, and policies across interaction touchpoints and distribution channels
  • Access to and control over their account information
  • Customized products and services
  • Convenient access
  • Account portability

In fact, there are at least a dozen new customer behaviors that are going to cause most companies to continue to invest in their customer-impacting information technology infrastructures. We call these the “digital dozen” because most of these new customer expectations were brought about by the widespread use of the Internet and the World-Wide Web.

Most technology-savvy executives realize that, if our companies don’t invest in continuing to streamline our operations to make it easier for customers to do business with us, our competitors (both the known and the unforeseen) will fill the breach.


Today’s customer-centric business and technology executives find themselves hamstrung by the current budgetary climate. And they are hampered by their inability to make a compelling business case for the IT improvements and infrastructure they know their company needs in order to become and to remain customer-friendly and, therefore, competitive.

We’d like to offer you an approach to ROI that we have been using successfully with a number of our clients. It’s gaining traction. It has helped a number of organizations break down the “analysis paralysis” barriers to enabling shrewd investments in IT spending. We call it Customer-Centric ROI SM .

Patricia Seybold Group’s Customer-Centric ROI SM

There are several benefits to Customer-Centric ROI. It’s easy-to-monitor. It’s compelling to the revenue side of the business. It’s an easy sell to the cost/operations side of the business. It breaks down antiquated product-centric and line-of-business-centric funding models.

There are a few simple principles underlying the Customer-Centric ROI approach. Here they are:

1. Improve What Matters to Customers. Invest in measuring, monitoring, and continuously improving what matters most to each group of customers. (This approach is at the core of our Quality of Customer Experience SM practice). We recommend that you do this with one customer group or segment at a time to achieve quick wins. Focus on the three to six key Customer Scenarios that matter most to that group of customers. Identify the “moments of truth” in each scenario (from the customers’ point of view), and figure out what you can do to improve that experience at each of those points. Determine how you will know if you did. (What can you measure?)

2. Report Customers’ ROI. This is the biggest difference to the usual way of ...

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