Intranet ROI - Part I: Measuring the Dollar Value of Intranets

by Toby Ward — Measuring the precise dollar value of intranets is not easy, but many companies are finding significant ROI. In the first part of a two-part article on intranet ROI, Toby Ward looks at the challenge of justifying and measuring intranet investments.
In the first part of a two-part article on intranet return on investment (ROI), we look at the challenge of justifying intranet investments.
 
It’s no secret, intranets and corporate portals are expensive endeavors. Despite the expense, many organizations understand the implicit and explicit value of intranets and are ready to make notable investments. A recent study by Hambrecht and Quist found that 85 per cent of Fortune 200 companies are implementing intranet strategies. And Forrester found more than 67 per cent of Fortune 1000 companies have developed or are developing corporate intranets. Even medium-sized companies know the value and a majority are following the lead of their larger competitors.

Technology stalwarts Oracle, Cisco and GE have all made recent headlines touting impressive intranet ROI of US$1 to $10 million.

So how do these companies justify the massive investments these intranets frequently require? Unfortunately, there is no ‘magic bullet.’ Measuring the ROI value of a corporate intranet and portal is an imperfect science at best. In fact, many analysts contend that precise ROI measurement is not possible due to the expansive and far reaching nature of intranets. However, while measuring the precise return on investment may not be possible for most, there are means by which many organizations do quantify both potential and existing ROI.

Generally speaking, intranet ROI can be lumped into one of two broad categories: cost savings/cost avoidance, or increased revenue. And while increased revenue should not be discounted, the most obvious and visible area is cost savings/cost avoidance. Cost savings/cost avoidance (CS/CA) can be further broken down into two sub-categories: hard savings and soft savings. There are hard savings that result from the cost avoidance of printing or distributing documents, and latent, soft savings from latent benefits such as enhanced communication, collaboration, and decision-making, among other things.
The principal challenge for measuring intranet ROI is that it is often easier to appraise the ROI of specific applications deployed on an intranet rather than measure the ROI of infrastructure and/or the portal itself. In fact, most demonstrable ROI case studies highlight application ROI – such as employee self-service and e-procurement – rather than the ROI of the entire intranet or portal.

Cisco System’s tracks and measures the ROI of specific benefit areas on its enterprise intranet including purchasing, expense reporting, printing and distribution. Cisco estimates that the total fiscal 1999 ROI of their intranet surpassed $825 million.

(Source: Cisco Systems)

Like the phone system, most organizations ascribe an inherent, latent value to the intranet. However, have you ever been asked to measure the ROI of your telephone phone system? Not likely. Most people and organizations inherently know and understand the value of the phone and don’t require a detailed ROI balance sheet. In many ways, intranets are like telephone systems – they assist us in accomplishing mission-critical work all the time.

Likening a robust intranet or corporate portal to a telephone system will help to illustrate your case, but it likely won’t persuade your CFO or accountant to open the vault. To do that, you need to provide tangible, measured intranet ROI.
There are three general approaches for measuring intranet ROI:
  1. Ascribe the intranet a value equal to the investment; dollar in equals dollar out.
  2. Ascribe a non-monetary value to the intranet as a collaborative communication and knowledge management asset.
  3. Measure and appraise specific benefits from implementing an intranet and/or corporate portal.

The first two approaches are rather obvious, but should not be ignored by any organization. However the third approach – measuring specific benefits – is the most precise and tangible means for quantifying intranet ROI.

In part two of our examination of intranet ROI, we’ll look at ten different measurable ROI areas for corporate intranets and offer some real-world examples of companies who are finding significant ROI at their organization.

A former journalist and a regular e-business columnist and speaker, Toby Ward is a senior intranet consultant and the founder of Prescient Digital Media. For more information on our One Day Consultation  © 2002-2010 or a copy of the free white paper, Intranet ROI, please contact us.