Forget ROI

New report says firms must include external constituents when measuring e-business performance

Cambridge, MA -- December 4, 2000 -- As anyone who has tried to apply metrics to e-business knows, measurement can be a tricky proposition.  In fact, some might even say it is broken. According to a new report from Forrester, firms will not succeed in the emerging e-marketplaces using traditional statistics like ROI as measurements. Instead, companies need to fund and measure e-business based on three classes of externally oriented objectives: end-customer success, partnering efficiency, and multi-company financial performance across a company.

"Just as businesses develop specialized organizational characteristics when they move online, they must also employ nontraditional methods to fund and track e-business projects," said Bobby Cameron, principal analyst at Forrester Research. "Firms that lack the flexibility or foresight to implement an e-business plan risk both financial and qualitative losses."

The research firm suggests that companies implement an e-business platform based on end-customer success, hyper-partnering efficiency, and multi-company financial performance. First, because instant diffusion of information over the Internet puts customers in the driver's seat, end-customer success is a crucial factor to business survival and must be central to all of a firm's e-business projects. To ensure end-customer success, internal factors like efficiency and responsiveness -- in combination with external factors like customer satisfaction and profitability -- should be gauged based on their impact on end customers.  Forrester isn't exactly making a new discovery here.  This suggestion merely reiterates Adam Smith's assertion that consumption is the sole end of all production.

Forrester then goes on to say that firms must practice hyper-partnering efficiency.  They call define it as the ability to form, reconfigure, and disband partnerships quickly and efficiently. As interdependence explodes among firms online, Forrester predicts that firms must focus on partner satisfaction and success, as well as cost, responsiveness, and quality.

Finally, inward-looking metrics don't capture the full impact of e-business initiatives.  Instead of focusing on a single company's profitability, a multi-company approach takes into account the relevant costs, revenues, and ROI from internal business units as well as external entities.

"Firms will suffer if they make e-business decisions based on measurements that ignore the impact on external constituents like end customers and trading partners," said Cameron. "The firms that we see succeeding in eBusiness take conscious and deliberate steps to break away from traditional metrics and create measurements that address the unique interdependencies of the new business landscape."

For the Report "Measuring eBusiness Success," Forrester interviewed eBusiness leaders from 50 Global 2,500 companies. Of those interviewed, 43% complained that a lack of objective data and eBusiness hype forces them to make investment decisions based on soft, qualitative information.