While it’s always important to highlight value, in our current environment communicating a strong return-on-investment message to customers is more important than ever. With a shortage of resources and budget, business leaders are responding to major disruptions across their organizations, leading to a constant reevaluation of spending priorities.
According to Gartner, worldwide IT spending in 2020 will reach $3.6 trillion — a 5.4% drop from 2019. The decrease makes sense since the priority for most companies in 2020 was just to keep businesses running as usual.
When operating within this challenging environment of compressed budgets, effective ROI messaging is a critical element for driving sales and adoption for your company. From a CFO’s perspective, aside from helping to justify planned purchases, properly ROI-focused communications can help with the approval for unbudgeted purchases and give them the ability to proceed with two competing projects instead of having to choose between them. That approach also means organizations won’t have to choose between savings and innovation.
The market is saturated with ROI messaging, and most of it is not very convincing, so credibility is key. It’s important to address potential objections upfront and agree that most ROI calculations are full of unrealistic “soft savings” that do not stand up to any level of scrutiny.
Any vague savings assumptions, such as increasing employee productivity or customer satisfaction, are suspect (at best). As a CFO, I immediately dismiss these “soft” claims and look for actual “hard” savings. When possible, it’s far more effective to use the customer’s own data to show these hard savings through real avoided costs. Ideally, having your ROI methodology reviewed and validated by an independent third party further solidifies credibility.
As an example, let’s look at the forecast made by Gartner around the spending on data-center systems.
There was a 10.3% decrease in spending on data centers in 2020, due to limited cash flow amid COVID-19 challenges. However, digging deeper, this investment is projected to have the second-highest level of growth (5.2%) in 2021 as hyperscalers expedite global data-center build-outs and organizations begin data-center expansion plans (while employees start returning to their physical offices).
As a result, Gartner projects data-center spending to reach $200 billion in 2021. Discussing these challenges and market expectations upfront, while keeping the realistic needs of the future in mind, will allow for a productive conversation around ROI with your partners and customers.
While the CFO and finance team may not be your typical audience, they are often who your information technology or information security buyer needs to convince for additional budget. It’s also the CFO (or members of the CFO’s team) who are going to ask the most ROI-focused questions around contract commitments, value, cost-savings, and payback periods.
With this in mind, it’s crucial to involve the CFO to ensure all elements of the ROI guarantee are being considered because there is a limit to its validity if the appropriate audiences are not able to provide their insights. No matter how dazzling an ROI message may be, it will fall on deaf ears if it can’t capture the attention of the budget owner or senior finance leader who has an influence on the purchasing decision. If the CFO can’t be reached, then (in addition to the budget owner) the procurement or finance teams should be pulled into these discussions. These are the folks dealing with the budgets, purchasing decisions, and day-to-day needs of the business and will have the most insight into what their organizations can afford while heeding the needs of employees.
While metaphorically we look to the new year as a fresh start, there isn’t any magic that happens when you turn the page on the calendar. Two-thousand twenty-one will in all likelihood continue to be impacted by many of the same obstacles and disruptions of 2020. Organizations will still likely face the ongoing challenges posed by the pandemic, coupled with potential political uncertainty, which may impact business conditions and the ongoing economic recovery.
With severely constrained budgets, the ability to do more with less is the next chapter of the “new normal” that so many business leaders are pointing to this year. A focus on ensuring a strong ROI for any technology purchases going forward should be the guiding light as leaders look to determine the need for future investments.
Dave Arkley is chief financial officer of Gigamon.