The cost of integration
- Article 32 of 77
- Information Age, March 2002
With application integration high on the CIO agenda in 2002, what are the cost benefits, if any, of the process?
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Elaborate claims are made for enterprise application integration (EAI) products. The technology, say suppliers, will enable disparate business applications to interoperate seamlessly, exchanging data regardless of its format. In this way, they claim, it creates corporate efficiencies and generates substantial cost savings.
But EAI software is also expensive and time-consuming to implement – which is why, in a difficult economic climate, suppliers are increasingly called upon to back up their claims with substantial evidence that prospective customers will see a return on their investment.
In response, many EAI suppliers now use return on investment (ROI) calculators to generate figures to assist them in closing a deal. How realistic are their projections? And how much faith should organisations invest in them?
“ROI calculators allow businesses to take the guesswork out of forecasting returns on their new projects,” claims Alun Baker, UK managing director of EAI vendor Tibco. “This scientific approach helps to set measurable success criteria and ensure that only the most valuable projects for the business go ahead,” he adds.
But this “scientific approach” comes with considerable complexities, says Karsten Alva-Jorgensen, an associate partner for consultancy Accenture. “It can be challenging – often the business case [for an integration project] has not been well documented,” he explains. “You want to improve the total cost of ownership of systems, but that really requires a quantifiable view of cost. To show what ROI you are likely to achieve, you have to know how much [your enterprise systems] cost today – including intangibles,” he says.
So how are ROI projections generated? Many consultancies and auditors use an ROI calculator to define the data needed to determine possible paybacks on projects. By drilling down into specific business processes, the calculator generates metrics for improvements to the company. Order processing, for example, may be analysed using data such as percentage of orders processed using manual means, while time-to-market analysis may look at the gross profit per day of a product.
An ROI study should not be a drawn-out process, says a recent research report from IT services company Compass-I. However, to be reasonably realistic, it does need to be based on accurate and comprehensive data. This may be a problem for some organisations; indeed, they may be embarking on an integration project specifically because managers find it difficult to access accurate and comprehensive data.
Nevertheless, say Compass-I executives, an ROI exercise can create vital project momentum within an organisation. “Working through a scientific and measurable process to identify potential returns will create a much greater level of confidence in the initiative and help reduce the risk to the business,” they say.
But technology will not create benefit unless it is implemented in tandem with fundamental business changes, warn analysts. “Measuring ROI provides no benefit in itself,” argues Nigel Hughes, head of ebusiness at Compass Management Consultancy. Dan Merriman of analysis company Giga Group agrees.
“The increased focus on ROI has improved IT's ability to select projects that have the best chance of providing value to the corporation. Yet it does little to help IT actually deliver that value,” he says. “IT needs to work closely with the business to identify and implement success metrics for major IT projects. Business benefits typically don't result from technology alone, but from a complex integrated effort that includes business process improvement and change management.”
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