• United States
by Mike Jude

Beyond ROI

Jun 23, 20033 mins
Data Center

* Purchasing decisions aren't solely based on ROI

An essential arrow in the marketing quiver these days is to present a powerful ROI story. The idea is that if a product has a high enough ROI, then it is sure to be purchased by an executive.

Of course, here at Enterprise Management Associates we are very big on ROI, and we subscribe to the notion of making purchasing decisions based on sound economics. However, in the course of our work, we have discovered a small but growing fraction of IT managers who make purchasing decisions based on a more complex model. Rather than totally depending on ROI arguments, they seem to factor in other considerations. Since we are also very much into decision modeling at EMA, we have embarked on a project to determine what these other variables might be that influence the decision to buy.

It is possible to speculate on a few of these variables. One must undoubtedly be what we would call an assessment of risk. Some products only make sense if what you are trying to do is to mitigate risk in some larger sense. Storage management can be justified in most cases as a way to mitigate the risk of losing critical data. This risk, of course, can be assigned a value, but ONLY IF A DISASTER OCCURS. What is the likelihood of the disaster occurring? What will be the impact if it does? These are hard questions, but in many cases, the very notion of the consequences of doing nothing moves decision makers to acquire technology that they know they can only justify financially if the worst does happen.

Another area where the desire to mitigate risk may trump economics is in the area of security. What is the potential cost if someone penetrates a firewall? Most companies don’t know, because they don’t know what a hacker might do if successful in penetrating the security wall. This uncertainty has been sufficient to drive an entire industry.

Additionally, one could speculate that a factor that trumps pure economics is the degree to which a particular product improves internal business dynamics. For example, the degree to which a tool might enable communication between IT and other business groups, or the degree to which a technology would enable cross-silo communication within IT, both influence the decision to buy. While it is undoubtedly possible to assign a value to improved communication, usually the value of this improvement is more apparent in retrospect.

There are probably other factors that affect a decision to buy. Some of these might be a desire to have to the most cutting-edge technology. When PDAs came out no one knew what to do with them (some still don’t), but they still sold. People had to have the capability merely to be perceived as being up to date. While this dynamic probably doesn’t work as well at higher levels of investment, it is still true that the same people that are making these buy decisions are probably also the ones buying upscale cars for personal use. Someone who can justify the purchase of a $100,000 automobile probably is looking at corporate technology acquisitions through green-colored glasses as well.

EMA has set up a Web site for those interested in expressing an opinion on this subject:

From those that participate, we will draw a name for a month of free analyst access.