Technology plays a critical role in business – there’s no question. But determining the exact value of technology and social media is becoming more difficult, a survey by Deloitte LLP finds. As the role of the CFO expands into IT functions, their relationship with CIOs becomes increasingly frustrating.
Aligning IT projects with the greater company strategy isn’t as clear-cut as executive management expects. In fact, many CIOs report that they have a difficult time explaining the value of cloud ROI to their company’s CIO. Though cloud computing reduces capital expenses while improving the workflow, ROI predictions are often misguided estimates based on unquantifiable information. While many top executives such as CFOs say they understand cloud, there’s still a knowledge gap between what CIOs and the rest of the team understand.
In order to invest in new IT projects, CFOs need justification in order to green light the endeavor. But a survey from CFO Research and AlixPartners reveals that the vast majority of CFOs just aren’t seeing the business information they need to invest in a strategic approach.
Does ROI Actually Matter Anymore?
Of course, ROI still matters! But when it comes to technology, perhaps ROI isn’t the best approach to determine future strategy. Bennett Stewart, CEO of EVA Dimensions, says that companies that focus too heavily on ROI end up hurting themselves. By relying strictly on ROI measurements, companies underinvest in rapidly growing fields, lag in innovation, are under-scale compared to competitors, and under-grow as a result.
Why does it work like this? Because economic value added is additive while ROI isn’t. EVA considers the total value added, not just the ROI in consideration to the cost of capital. This results in misled teams configuring investment and long-term strategies for growth and pay off. The reality is that there will be discrepancies between incremental return versus the price tag of incremental capital.
According to Stewart, companies that focus on ROI tend to slim down, which removes the muscle of the company as it attempts to eliminate inefficiencies. This inevitably leads to a lower overall return for the company while those that aggressively invested in technology experience a long-term competitive advantage.