THE ELUSIVE HOLY GRAIL OF ROI
Every IT project has to be cost-justified. Each company has its own approach and its own thresholds for determining whether or not any investment makes sense. Every company's financial analysts use some combination of hurdle rates, internal rates of return, return on capital, net present value, overhead allocation, and scenario-based forecasting, among other tools. In the last 18 months, it's become almost impossible to justify investing in information technology using any of these approaches. There don't seem to be any ROI arguments that are able to loosen up the corporate purse strings.
Why It's Harder than Ever to Cost-Justify IT Spending
The excesses and IT overspending of the late '90s-the "piling on" of Y2K expenditures and the irrational exuberance of the dot.com era-have made COOs, CFOs, and corporate boards wary about spending anything on IT. Their current position is that companies should digest and assimilate the technology on which they gorged themselves during the last decade. They're not receptive to any pitches for technology investments that require an additional outlay of cash. You're welcome to pilot new technologies or enhancements to existing technologies (as long as you don't waste too much time doing so), but don't expect to deploy them any time soon. The purse strings aren't going to loosen up.

THE DANGER OF CONTINUED UNDER-INVESTMENT: CUSTOMERS WILL DEFECT!
These business executives aren't wrong. But they're being over cautious. The global economy is severely depressed, yet the power that our customers have over our businesses' survival is greater now than ever before. It's the Customer Economy , folks! Power has shifted to the consumer and the business buyer. Customers are using the power of the purse to demand more than lower prices. Today's customers expect and demand:
* Visibility into the business processes that impact them
* Consistent decision-making information, pricing, and policies across interaction touchpoints and distribution channels
* Access to and control over their account information
* Customised products and services
* Convenient access
* Account portability
In fact, there are at least a dozen new customer behaviours that are going to cause most companies to continue to invest in their customer-impacting information technology infrastructures. We call these the "digital dozen" (see Illustration 1) because most of these new customer expectations were brought about by the widespread use of the Internet and the World Wide Web.
Most technology-savvy executives realise that, if our companies don't invest in continuing to streamline our operations to make it easier for customers to do business with us, our competitors (both the known and the unforeseen) will fill the breach.

TRY THE PSGROUP ROI APPROACH
Today's customer-centric business and technology executives find themselves hamstrung by the current budgetary climate. And they are hampered by their inability to make a compelling business case for the IT improvements and infrastructure they know their company needs in order to become and to remain customer-friendly and, therefore, competitive.
We'd like to offer you an approach to ROI that we have been using successfully with a number of our clients. It's gaining traction. It has helped a number of organisations break down the "analysis paralysis" barriers to enabling shrewd investments in IT spending. We call it Customer-Centric ROI.SM

PS Group's Customer-Centric ROISM
There are several benefits to Customer-Centric ROI. It's easy-to-monitor. It's compelling to the revenue side of the business. It's an easy sell to the cost/operations side of the business. It breaks down antiquated product-centric and line-of-business-centric funding models.
There are a few simple principles underlying the Customer-Centric ROI approach. Here they are:
1. Improve What Matters to Customers. Invest in measuring, monitoring, and continuously improving what matters most to each group of customers. (This approach is at the core of our Quality of Customer ExperienceSM practice). We recommend that you do this with one customer group or segment at a time to achieve quick wins. Focus on the three to six key Customer Scenarios that matter most to that group of customers. Identify the "moments of truth" in each scenario (from the customers' point of view), and figure out what you can do to improve that experience at each of those points. Determine how you will know if you did. (What can you measure?)
2. Report Customers' ROI. This is the biggest difference to the usual way of measuring and reporting ROI. Start by measuring the impact of your improvements on your customers' time and on your customers' money savings, as well as other less tangible benefits, such as peace of mind. Educate prospects and customers, as well as sales people, executives, and other employees, about the savings and benefits that customers have achieved.

3. Monitor Increased Customer Spending by Customer Segment. At the same time that you monitor and improve the things that matter the most to each group of your customers, monitor whether or not you see an uptick in those customers' willingness to spend money with you. That will help you gauge how much they value the improved experience. Obviously, you'll need to expect a lag between the time you make these improvements and increased (or, in some cases, sustained) revenues. If you're not seeing payback in terms of increased revenues within 12 months, then you need to take another look at your product's value proposition.
4. Increase Customer Retention & Referrals by Customer Segment. You'll also want to monitor whether you're reducing customer defections. And you'll need to put a mechanism in place to track customer referrals. You may see the results of improved QCE in retention and referrals, as opposed to (or in addition to) increased spending by each customer/account.
5. Decrease Costs-to-Serve by Customer Segment. Many executives believe that if you improve the Quality of the Customer Experience you offer, you're increasing your costs-to-serve. That's typically not the case. Our Customer Scenario® mapping practice demonstrates over and over again that if you eliminate the policies and processes that annoy customers, and you proactively alert customers to any problems that may impact them, you'll save money by reducing your customer-handling costs. You'll also eliminate a set of unnecessary internal processes that aren't adding value to the customer, but are actually reducing your value to the customer.
6. Monitor the Impact of Your Improvements, Make Adjustments, and Continue the Process. Some efforts will yield greater payback than others. A lot depends on how well you truly understand what's motivating or inhibiting your customers. The only way you'll learn to do this well is through continuous improvement efforts. Start with one set of scenarios for one group of customers. As you learn what works for them, you can tackle more scenarios. At the same time, you can begin to address the QCE of another group of customers, hopefully re-using many of the IT services and policy changes you've put in place to fix key issues for your first customer set.

A FEW QUICK EXAMPLES
Here are some examples from actual customers who are using this approach when making their case to the execs who control the sources of funding.

Phil Gibson, vice president of Web business and sales automation at National Semiconductor, was one of the first executives to take this approach. As he rolled out his first wave of Customer Scenarios, he began measuring the amount of time National Semiconductor was saving its customers. He measured this not only in terms of total time saved in designing the circuitry they needed for a new power supply, but also in terms of improved time-to-market - which is what matters the most to National Semiconductor's customers. These customer time-savings, translated into dollars saved and into time-to-market advantage, appear in every presentation Phil makes to his management team. He's able to correlate these customer savings with the increased orders that customers are placing, the increased account penetration National Semiconductor is achieving, and the number of design wins. That's powerful!
Both a large retailer we've worked with and a well-known supplier of consumer electronics have chosen to focus their attention on the returns-handling scenarios for their customers. In both cases, the obstacles that valued customers were encountering in returning products, receiving exchanges, and receiving credit for those returns was a major customer dissatisfier. At the same time, handling these phone calls and emails was costing both firms a lot of money. By revamping their respective returns handling processes, both companies were able to see immediate reductions in costs-to-serve and immediate improvements in customer satisfaction.
A large telecommunications firm realised that its B2B sales cycle was being elongated by two major customer dissatisfiers in the customers' procurement scenarios: the time-to-quote and the time required to negotiate contracts. In order to reduce the time-to-quote, it did two things. The company posted its list prices on the 'Net so that customers could get the ballpark pricing they needed to make a first cut decision. Then, the firm drastically streamlined the sign-off process required internally to approve a custom price quote. The goal: provide a firm, competitive quote with guaranteed delivery and service levels within six hours! Next, the company revised its contracts to make them easy for customers' legal departments to accept. The goal: a contract the customers' lawyers and the firm's lawyers can agree to with fewer than three phone calls.
A business-to-business industrial supplies company discovered that the purchasing agents and accountants who were processing its invoices were spending a lot of time trying to reconcile the different product SKU numbers from orders placed via the company's Web site and those purchased over the phone through the same company's catalog. By investing in a unified product database to support the two different touchpoints, the company was able to save its customers several hours per week in unnec-essary reconciliation work. The result was not only happier customers, but faster cash in the door!
As you can see from the examples above, some of these customer-impacting improvements require process or policy changes. Others also require IT infrastructure investments (e.g., we need to know inventory availability, manufacturing runtime, shipping status, customer profiles, customer value, and so on). None of these companies have had any problems cost-justifying the investments they've made in both the process improvements and the necessary IT Services and applications required to deliver a better Quality of Customer Experience. Why? Because they've targeted small, measurable improvements that impact customers directly, delivered results, and then continued to tackle additional scenarios that deliver measurable results to their customers and to their bottom line.

Patricia Seybold is a world-renowned customer-domain specialist and celebrated author of "Customers.com" and "The Customer Revolution."