Tuesday, March 13, 2007

Calculating return on investment

Much has been reported about the importance of analyzing return on investment (ROI) for user experience to gain influence in a corporate context.

For example, Tobias Herrmann, Head of Team User Experience at mobilkom austria, wrote in "Corporate UX -- Bringing value to the mobile industry" that "a tailored ROI model was the key to success":
"Our ROI model contained, among other things, the monitoring of user experience-specific key performance indicators (KPI), internal performance measurements, standardized product evaluations from a customer's perspective, and, of course, exemplary case studies with high customer and revenue impacts. Further, we included some major user experience KPIs in the Corporate Balanced Scorecard, and even in variable bonus systems for employees. As you might imagine, all these activities strongly supported organizational sustainability, but even more built up a common mindset on user experience and its relevance."
And my conversations with Justin Miller, now Senior Director of Product in Europe at eBay, confirm that estimating ROI has played a major role in moving user experience into a position of influence at eBay. Indeed, at CHI 2004, Jeff Herman described "A process for creating the business case for user experience projects" that enabled eBay's User Experience & Design group to achieve "significant success sponsoring successful user experience projects."

Yet, when he was VP of User Experience at Oracle, Dan Rosenberg wrote:
"…in my 20 plus years of experience, I have never been asked to produce an ROI analysis. Why has this never been necessary? Have I just been lucky in my choice of employers? Did these companies all have CEOs so enlightened about usability that no such analysis was necessary? I suspect not."
And just last month, David Siegel argued the following:
"Our field has been overly preoccupied with ROI as the basis for making the business case for user centered design (UCD). However, experience has shown that the most brilliant ROI analysis may often not win the day in the real world of business. Cost justification and ROI is often not persuasive, especially when we are talking to strategic level decision makers. At a certain point in the evolution of UCD, ROI arguments may have helped us gain credibility and get 'a foot in the door.' However, excessive dependence on ROI arguments can have some destructive effects. To be convincing, ROI analysis has to focus on easily measured variables that impact near-term outcomes. This can distort the way the value of our contribution is conceptualized and recognized, and artificially isolates UCD from other factors that affect the product’s ultimate success. Even more important, it can lock us into a peripheral tactical role where we address only modest incremental improvements. It can work against our field’s efforts to get involved earlier in the product planning process where we can have a more decisive impact and potentially contribute to strategic risk reduction."
Should you attend to calculating ROI where you work? Cannot such calculations contribute to strategic business planning?

This issue is among several that will be addressed by a group of people in senior management roles from a mix of companies during a session I'll be leading at CHI 2007 -- a session entitled, "Moving User Experience into a Position of Corporate Influence: Whose Advice Really Works?". Tobias Herrman (represented by Manfred Tscheligi) and Justin Miller -- both referenced above -- and Jeremy Ashley, Oracle's current VP of User Experience, will be among the session participants.

As I reported in earlier postings, "ownership of user-customer experience," "organizational positioning," and "documenting and evangelizing user experience work" are among other issues that will also be addressed during that session. And I'll address all these issues further as well as the CHI conference session itself in upcoming blog entries.


Richard I Anderson said...

What has been your experience where you work? Has calculating return on investment played a role in moving user experience into a position of corporate influence, or has it not played such a role? If it hasn't, could it? If it has, what role has it played?

Please share your stories here or send them to me via email.

TDW said...

The model to look at here is search, which has almost totally transformed interactive advertising and, by extension, the entire Web. It's the cash from this that's making Web businesses possible and profitable. And it's all about ROI from top to bottom.

Search metrics and analytics are currently being adapted to use in very complex ways, including the tracking of multi-month large-purchase decisions, of people who see online and buy offline. There might well be some ways to take this thinking and use it to demonstrate cost savings from good UCD...to say nothing of increased profit.

Many of the IAs I've met are influenced by mid-to-late 90s information theory, which is essentially a "library" model (see Morville, "berrypicking," et al). This model wants everything to be findable. It's more profitable if people find what you want them to find. Ironically, assuming you let people know up front what you're about, this model may be more usable, not less. The user's task is focused and directed; he or she can bail quickly if she doesn't want what you're offering.