Measuring Intranet Return On Investment

by George McGrath and Anthony Schneider                                        TalkBack

The surge in interest and media coverage of intranets recalls the early and heady days of the World Wide Web's burst on the corporate mindscape. Intranet is the new corporate hero, dazzling the covers of business magazines and leading the panel discussions at business conferences. It seems that about the only thing intranets can't do is make coffee.

Review the existing return on investment studies or question company executives on their claims of multimillion dollar savings, and one finds that calculating intranet ROI is more art than science and more guesstimate than calculation. Like the sweeping claims made for corporate Web sites a few years ago, many of the projections of ROI measured in thousands of percent may fade as organizations begin to experience the cost of ramping up, maintaining and administering intranets across thousands of users. Not to mention incorporating the inevitable upgrades and conducting enterprise-wide training.

That said, it is apparent to anyone who has used this technology that intranets offer tremendous potential as a communication, collaboration and knowledge building tool that will create new, more efficient ways of doing business. Selling the benefits to senior managements who do not have this "hands on" experience can be more difficult. They are balancing many other information technology investments, such as costly "Year 2000" conversions, and want to see where and when an intranet will generate a payback.

The key is to link intranet ROI to bottom line issues that senior management cares about. These include cost savings, increased productivity and gaining competitive advantage.

Cost Savings

Most organizations are striving to reduce the cost of doing business to deal with the pressure of a highly competitive, global marketplace. The starting justification for many intranets is the decreased cost of producing, accessing and distributing information within an enterprise.

Analysts estimate that 18% of corporate printed material becomes outdated within 30 days. Documents that are printed and mailed, such as internal phone books, policy and training manuals, requisition forms and marketing materials, can be put on an internal web server and updated for a fraction of the cost of reprinting material. It is not only the publishing but the updating of information that leads to savings.

Intranets also allow information to be rapidly and economically deployed to a dispersed group of employees. A marketing planner for a global pharmaceutical concern notes that before the deployment of an intranet, his division was spending about US $30,000 per month on information mailings to sales representatives. He adds that "by the time the information arrived to our global representatives and affiliates it was usually out of date." The development costs of an intranet database "were more than offset by savings in printing and mailing."

Fast access to information is another key intranet cost saving. If an intranet means that every employee in an 50,000 person corporation saves 10 minutes per day, the cumulative cost saving is enormous - much greater than the savings from reduced printing and mailing costs.

A case in point are the savings achieved by a leading management consulting firm, as reported in a recent study conducted by International Data Corporation. The firm established a knowledge database of best practices, job histories, resumes, threaded messages and ideas for clients, accessable to all employees. The consultancy calculated that over a three year period it saved US $390,000 through the elimination of phone calls, overnight mail and faxes. In addition, the company saved an estimated US $22 million by reducing the time required to find and access employee data and collaborative information.

Increased Productivity
Productivity increases from intranets arise from more rapid and easier access and exchange of information. Intranets also allow for flexibility in the time of delivery of information. For example, by making training materials accessible through an intranet to the desktop, employees can schedule training during lull times, rather than be interrupted during key projects.

Benefits from increased productivity are more difficult to measure than savings from the reduced cost of printing and distributing manuals. Businesses that budget, track and bill employee time in hourly increments, such as accountancy, consulting and law firms, have an advantage in this regard.

In addition to making information more easily and quickly accessible, an intranets facilitate a global exchange of information that enables true "24x7" organizational productivity. For example, an intranet linking design centers in Asia, Europe and the US helped engineers craft the 1996 Ford Taurus.

Sales support is the arena in which intranets may ultimately generate the greatest return on investment. Here, productivity gains are measured in sales closed rather than minutes saved. Many companies are using intranets to efficiently connect the field sales force personnel to the home office and link sales representatives each other to obtain product information, or collaborate on pursuing sales leads.

For example, a major pharmaceutical firm recently announced plans to launch an integrated Internet/intranet and extranet program to launch three new prescription drugs. The public external Web site offers information for consumers. The intranet gives 2,500 mobile sales representatives access to a database of product information, federal regulations, research tools and marketing materials to use in calling on physicians. Sales managers will also be able to send sales reports over the Web to headquarters. The sales representative can also give the physician a password to use in accessing the company's extranet, which contains information on drug research, testing and medical journal articles.

By integrating its external and internal Web sites, a company can create a powerful, holistic information system to distribute and gather information from customers to tailor the sales approach to their needs, close the transaction, and provide low cost after the sale service. In today's highly competitive global marketplace, that translates into a competitive advantage in terms of shorter cycle times in identifying and closing prospects, and building ongoing customer relationships to maintain and build business.

Demostrating Intranet ROI
From fledgling organizations to multinational corporations, the early anecdotal evidence and research studies indicate that intranets have the potential to generate a significant return on investment. However, the reaction of senior management may be somewhat skeptical. They know that new technology usually costs more and delivers less than promised.

If your intranet is still in the proposal stage, or if you are trying to make the case for expanding your organization's intranet, here are some suggested strategies for addressing senior management's typical questions and concerns.

1. Pilot intranet applications with a small test group before rolling them out to a broad audience. This allows you to test the most cost effective technologies, identify the true costs of maintaining the internal Web 24 hours per day, 7 days per week, and get a realistic picture of the payback period.
2. Research the costs involved in a short list of communications in your organization and conduct experiments to quantify the savings in moving these communications over to an intranet. For example, identify the cost per copy, including distribution of a document that is easily ported to an internal server. Model the potential cost savings over five revisions to the document.
3. Focus on intranet applications that have revenue generation potential as well as cost saving benefits. In terms of total return on investment, an intranet targeted to improving the productivity and effectiveness of a company's sales force may make a better case for the technology than employee access to an online benefits manual.

In the view of the skeptics, intranet deployment is not easy and cost savings are not guaranteed. "Ramping up" the technology and dealing with the human factor, including training employees are reengineering work processes, are formidable hurdles to achieving the high and rapid return on investment some organizations have claimed. On the other hand, intranet advocates observe that as the technology proliferates and becomes a business necessity, the question of quantifying return on investment will become moot.

Until that happy day arrives, business communicators would be well advised to focus intranet applications on solving the problems senior management cares about - such as building sales, increasing organizational speed, and supporting customers, and make the case accordingly.

Reprinted from Intranet Communicator (June/July 1997). George McGrath is a partner at Osgood, O'Donnell & Walsh. Anthony Schneider is a principal at Web Zeit. You can Email them

TalkBack: Post your comment here