ROI is dead? Long live to ROI…!
Most of professionals working in IT have been largely exposed to the concept of ROI, a fair way to establish a relationship of trust between a supplier and a customer.
The advantage of the ROI metric is that it enables both parties engaged in a medium or long term assignment to have the same vision and commitment for the future: the supplier will provide its efforts and resources to build the project and the customer will keep the project operational in a way that will deliver business results.
The drawback of the ROI as a concept is that it normally involves significant and complex changes and it relies on a number of circumstances in order for the promised outcome to occur. Due to the entanglement that an ROI-based project implies for the resources involved between themselves and with several external factors, the ROI can end up to be significantly different from what expected.
Nevertheless we all will continue to use ROI when talking about projects and programs that last several months or years. This notwithstanding, we have been missing for a while a definition of the value involved in recurring services, such as Managed Services.
ROV kicks in…!
And here is where the concept of Return on Value (or ROV) kicks in… Return on Value is a new simpler way to define an agreement between a supplier and a customer based on a number of circumstances.
- The Return must be immediate
- It must normally engage limited promises (i.e.: instead of “reducing costs by 30%” ROV could be based on “providing an immediate visibility of your costs”)
- It should not require any other external circumstance to occur in order to deliver the promise, since it is fully based on supplier’s capacity.
Why is the ROV concept so important in modern IT
We are applying the concept of Return on Value in our daily life several times, especially when we compare an online service with a similar one (is Spotify any better than Google Music? If yes, why? What is the additional return I get for a similar amount of money?).
Usage-ready offers are meant to provide an immediate value to customers with their ability to deliver benefits based on ready-to-use technology. These are the typical cases wher the concept of ROV is applicable, for example in comparing two different usage-ready offers dedicated to the same target need.
Contact Lemon Operations to understand how to use the concept of ROV in your business.