We all learned at business school, or on the job, that return on investment (ROI) is the primary factor when making decisions on most types of investments, including investment in IT. However, an increasing number of situations are arising in which the ROI cannot — and should not — be used as the sole determining factor in IT investment. This might sound counterintuitive and strange, so allow me to explain.
Complacency Leads To Vulnerability
Take, for example, a retailer who has an e-commerce website. The website was quickly developed and deployed so the retailer wouldn’t fall behind its competition. Or it was created by a development team that lacked real engineering or architecture experience and needed to save money on the project. Most likely, the website doesn’t have a strong and reliable security architecture. We’ve all seen what happens to a retailer’s business when hackers get access to its data.
In this case, the decision to refactor the website to strengthen its security cannot be evaluated by ROI alone. Instead, we need to identify the consequence of inaction. Doing nothing might result in the retailer’s website being hacked, and generate a long-term negative impact on the retailer’s reputation and future business. Therefore, the high cost of inaction, rather than ROI, should have a profound influence on the decision. Then, after we decide to strengthen the security of the e-commerce website, we can use ROI to determine the best alternatives for implementation.
Inaction Is A Step Backward
The same line of reasoning could be used to decide the need for digital transformation. For example, when mobile has become a normal channel for commercial banks in a particular country, customers might decide not to do business with a bank that doesn’t provide a mobile channel. The decision whether or not to introduce this mobile banking capability cannot be entirely dependent upon ROI because, in this case, the cost of inaction can be the loss of customers and difficulty attracting new customers to grow the business.
You’re Left Behind While Competitors Move Ahead
Let’s look at a different scenario. When every business in an industry digitizes its processes and operations, the question for leaders becomes how to differentiate their organization from competitors. One possible answer could be to embed cognitive and AI capabilities — including machine learning and natural language understanding — into their processes and operations. A decision on this investment might be difficult to justify solely based on ROI because the immediate impact on business outcome is not known. But inaction or delay in action might enable another company to position itself as the industry leader — an obviously unacceptable result.
Therefore, establishing oneself as an innovator and leader may be the primary criteria for making an investment decision, and the cost of inaction or delay in action could be the loss of a leadership position that might be difficult to later regain.
Bottom Line: You Can’t Afford A Decision Based On ROI Alone
In summary, the world has changed. Today’s competitive forces are different from those of the past. Competition is coming from unexpected places, and customers’ expectations and influences are different. Innovation is the real power in today’s world, and speed is the new business currency. Therefore, new challenges and opportunities cannot be addressed with the old tools or the old way of thinking.
All business and technology investment decisions cannot be made using the same old criteria. In certain situations, including digital transformation and innovation, ROI cannot be the primary criteria for decision making. In the current business environment, the cost of doing nothing is unaffordable. Inaction today leads to an uncertain future.
Jamshid Vayghan Forbes Councils Member