Thursday, August 26, 2010

Don't Just "Sell the Problem", Quantify It

I recently read a great blog post, Sell the Problem, by renowned Marketing Guru and Author Seth Godin. In this article Seth explains how "No business buys a solution for a problem they don't have." And yet, so many B2B marketers launch into presenting the cool features and functions of their product, without taking the time to understand if the person on the other end of the conversation/call/letter believes they even have a problem that the product hopes to solve.

According to Mr. Godin, When a prospect comes to the table and says, "we have a problem," then you're both on the same side of the table when it comes time to solve it. On the other hand, if they're at the table because you're persistent or charming, the only problem they have is, "how do I get out of here."

The Product Selling approach, pitching prospects on the features, functions and price of the solution, relies on the buyer first understanding their problem, that the problem is a priority, and then relies on the buyer making the connection of how your solution can solve the issues they have. This is a big leap to expect any buyer to take, and few make it, leading to stalled sales processes, and elongated sales cycles.

The good news is that many B2B marketers have recognized the issues with the Product Selling approach and have advanced to a Solution Selling approach. Solution Selling involves understanding buyer pain points, an inquiry of "what keeps the buyer up at night", and mapping solutions to the pain points. The issue with this approach is that it relies on the buyer to accurately know and communicate their issues. Too often however, we find that buyers are struggling with too few resources and information overload, and as a result,  they are often unaware of serious issues they have, or the prioritization of these issues.

Today's buyer is in need of a more proactive engagement, one that provides consultative diagnostic assistance. This approach is called Value Selling, where the dialogue seeks to illuminate issues the prospect didn't even know they had, much as a doctor diagnosis a patient based on indicative symptoms.

So what does this approach look like in practice? Seth explained a great example, of how an architectural firm was struggling to sell space utilization optimization services. The challenge to the architectural firms was that more often than not, the prospects didn't think they had space allocation problem, and as a result, weren't looking for a solution, and weren't receptive to meetings / proposals.

Pitching the services fell on buyers who didn't  think solving space utilization issues was a priority, so what could the architectural firm do to "sell the problem"? "As Mr. Godin indicates, the solution resided in the paradox, "a lot of people aren't willing to embrace that they have a problem unless they also believe that there's a solution... so part of selling a problem is hinting that there's a solution that others are using, or is right around the corner.".

"Imagine, for example, getting the data and publishing a list of the top 50 firms, ranked by efficiency of space use. All of a sudden, the bottom half of the list realizes that yes, in fact, they have something that they need to work on. If you knew that your firm was paying twice as much per associate as the competition, you'd realize that there's a problem." according to Mr. Godin.

The solution Mr Godin proposed was to not just to highlight the problem, but to QUANTIFY the problem to the prospect. By using a Value Selling approach and benchmarking the prospect against competitors , not only could the salesperson highlight the problem, that the prospect was not utilizing space as well as others were, but the sales person quantified how bad the problem was on a per capita usage basis. A baseline for which the prospect could readily compare and relate. And in today's "age of austerity", where all prospects care about the bottom-line, overspending compared to the competition needs to be addressed. With quantified benchmarks not only could the prospect clearly understand the problem, but the benchmarks illuminated the severity of the issue and that others have solved the problem better than they have.

For more information on Value Selling solutions for B2B marketers visit: http://www.alinean.com/DemandGeneration.asp

Seth Godin's original blog article can be found at: http://sethgodin.typepad.com/seths_blog/2010/08/sell-the-problem.html

Tuesday, August 24, 2010

Alinean Sponsors TechTarget Online ROI Summit

Join us in San Francisco on October 7, or Boston on October 12 for the TechTarget Online ROI Summit.


TechTarget's Online ROI Summit provides IT marketers with the tools to make the most out of lead gen investments.

Alinean is sponsoring and will be attending the TechTarget Online ROI Summit, presenting the latest tools IT marketers can use to cut through the clutter facing today's skeptical buyer, and fight Frugalnomics - buyers demand for savings, quantifiable proof and value from each investment. Demonstrations and case studies will be provided on how Alinean powered interactive white papers, executive assessment tools, ROI calculators and TCO comparison tools can be used to generate better / higher quality leads, improve conversion rates and reduce sales cycles.

http://techtargetsummit.techtarget.com/main/

Alinean Adds Six New B2B Customers

Leading Value-Based Sales and Marketing Tool Provider Continues Record Growth in Q2 2010

Alinean, the leading creator of value-based interactive sales and marketing tools for B2B vendors, today announced the addition of six new customers in the second quarter of 2010, expanding its marquee list of leading B2B vendors. Alinean has been selected to develop and power value-based sales and marketing tool campaigns for: Autodesk, Avanade, BMC Software, MessageSystems, Trend Micro, and Viewpointe.

“Successful reps know that establishing credibility and providing value to a prospect or customer throughout the buying cycle is the difference between closing the deal and losing it,” wrote SiriusDecisions, a leading source of business to business (B2B) sales and marketing best-practice research and data. “Alinean’s customer-specific benchmarks, company comparisons, executive assessments, benefit and cost analyses can significantly upgrade the quality of demand creation and sales enablement interactions throughout the buying process.”

“Even though the global economy is showing signs of recovery, Frugalnomics continues as B2B buyers demand quantifiable proof of bottom-line impact and best value from every investment,” says Tom Pisello, Chairman and Founder of Alinean. “Leading B2B solutions recognize this shift in buyer sentiment and are migrating from solution to value selling and marketing with Alinean-developed assessment, ROI and TCO demand-generation and sales enablement tools.”

These new customer campaigns include Alinean-powered self-service interactive web tools used early in the buying process – to help diagnose and assess customer issues and quantify the benefits of proposed solutions. Several of these new Alinean-powered tools will also be used later in the sales cycle, to prove the return on investment (ROI) and quantify the total cost of ownership (TCO) advantage/superior value versus competitive offerings.

These new customers add to Alinean’s ever-growing list of over 70 leading B2B vendors. Combined with being named as the standardization choice at several of these major B2B accounts, these latest new 2010 account additions widen Alinean’s lead and affirm its position as the industry-standard value-based sales and marketing tool platform provider.

Friday, August 20, 2010

Alinean Named to Inc. 5000 - Fastest-Growing Private US Companies

Leading Value-Based Sales and Marketing Tool Provider Awarded For Entrepreneurial Growth

We were pleased to learn today that Alinean was named to Inc. 5000 list of fastest-growing private US companies. This is Alinean’s first appearance on the annual list, with an inaugural ranking of 2942.

For those of you who know Alinean, we founded the company in 2001 and are headquartered in Orlando, Florida. Our business is dedicated to enhancing the effectiveness of B2B vendors’ online marketing programs and sales initiatives with interactive tools, enabling better connections and selling to economic buyers - those focused on bottom-line impact and value from every investment.

Alinean’s record setting growth has been driven by the uncertain economy and Frugalnomics, a fundamental change in business executives and buyers who demand proof of savings, bottom-line impact and value from each solution investment. Recognizing this shift in buyer sentiment, B2B vendors are quickly evolving from product /solution to value selling via Alinean-developed on-line executive assessment, ROI and TCO demand-generation and sales enablement tools.

For more than 30 years, Inc’s 5000 list has served as evidence of the significant accomplishments of growing entrepreneurial companies, and we are certainly honored to be included as one of these success stories. We would like to thank our loyal customers including HP, Microsoft, IBM, EMC, Dell, Intel, NetApp and 70+ other leading B2B solution providers for their continued loyalty and commitment to Alinean value selling solutions.

The 2010 Inc. 5000 serves a barometer of US economic growth, highlighting many of the leading high growth small firms (less than 500 employees). Many are convinced that the US recovery depends on the success of these small firms. According to the SBA, US small businesses are responsible for employing just over half of workers, and most importantly, generating 2 out of every 3 new jobs over the past 15 years (Source: SBA.gov). The Inc. 5000 are leading this charge, responsible for creating more than 1 million jobs since their founding, an indication of the impact private, fast-growing companies like Alinean can have on the economy.

Past honorees of Inc 5000 awards include Intuit, Zappos, Under Armour, Microsoft, Jamba Juice, Timberland, Visa and Patagonia. Complete results of the 2010 Inc. 5000, including company profiles and an interactive database that can be sorted by industry, region and other criteria can be found on Inc.com.

Reference: http://www.sba.gov/advo/stats/sbfaq.pdf

Basic Content Marketing Trumps Social Media and Blogs

Although a lot of attention is being paid by B2B marketers to Social Media and Blogs as a way to connect with and engage prospective buyers, research by IDG and MarketingSherpa indicate that more traditional promotional and research oriented content marketing is more effective.

Surveying buyers and B2B marketers about specific factors that motivate recipients to opt-in, open and engage with vendors, MarketingSherpa and IDG show that Social Media and blog content lag considerably behind other marketing tools, particularly promotional and education content, tutorials / demos, competitive comparisons and buying guides, free research reports and peer best practice / benchmarking tools.

By what percentage does each of the following offer types increase the likelihood of link to additional information and insight being clicked on:

Driven by austerity and information overload, today’s frugal buyers are looking for high value communications, those that can help them cut through the clutter of options, better understand issues and opportunities, discover best practices, save money, improve the bottom-line and gain a competitive edge. Frugalnomics reigns, and marketers realize they need to make a clear connection with buyers needs and add value to each communication if they expect a connection / response.

Reviewing this research and delivering advice on the six habits of highly effective marketers, “Done right, you can leverage powerful Internet tools to attract pre-interested and pre-motivated prospects that are ready to buy and start a business relationship with you.” States Eric Tsai,Web Strategist / Marketing Coach. “Not only will you be perceived as an influential authority but you will gain credibility and trust without having to convince people to buy your product.”

Too often, product focused markets deluge customers with solution information without asking prospects what they “think they want” that can solve their problems and as a result, the prospect connection is not made. “Imagine a doctor telling you what’s wrong with you by just looking at you from a distance” Posits Mr. Tasai, “Even if the doctor has the correct diagnose, would you trust their advice? Great marketers know that they don’t know what they don’t know. They ask questions and dig deeper below the surface to identity the pain, urgency and frustration of their customers.” Traditional Product Selling just doesn't work anymore.

Leading B2B marketers have recognized this issue, and many have evolved their legacy product focus approach to Solution Selling, creating a dialogue for prospects to communicate their issues, and attempting to align solutions with pain points.

However, we find that the new era of Frugalnomics has created a fundamental change, and that the Solution Selling approach is struggling in the face of too much information and too few customer resources to understand pain points.

Today’s buyers are looking for advice from vendors on what opportunities exist and what issues to solve – they need help identifying the problems to solve, not just what solutions to consider.

The Bottom-Line
Our recommendation to Fight Frugalnomics is to move from Solution Selling to Value Selling, providing research and tools that help customers early in the buying lifecycle to diagnose and prioritize opportunities and issues. Two Alinean recommendations to implement Value Selling and drive consultative diagnosis:

Executive Assessment Tools, which survey customers on current practices and compare against best practices / peers to uncover best practices which have not yet been implemented and prioritize these versus goals and competitive advantage. For example, the B2B solution provider could provide an on-line self service tool to survey prospects on their current IT security practices against known best practices to uncover potential risk areas and determine a roadmap for improvement. The tool would not only recommend solutions to solve the issues, but more importantly identify key issues the customer didn’t even know they had.

Benchmarking Tools, to assess current spending and process efficiencies and effectiveness, comparing against peers and leaders to help uncover opportunities for savings / improvements. For example, a B2B vendor could survey a customer via an on-line self service tool on their current customer service metrics and performance, uncovering potential issues in call frequency, escalation rates, time per call or satisfaction by benchmarking the metrics vs. leaders and best practices.

Additional advice can be found at: The Six Habits of Highly Effective Marketers by Eric Tsai, Web Strategist / Marketing Coach: http://designdamage.com/blog/index.php/201008/the-6-habits-of-highly-effective-marketers/

Tuesday, August 17, 2010

Gartner reduces IT Spending Outlook for 2010, but still predicts a positive 2.9% growth

Gartner's latest IT spending outlook for 2010 remains positive, but is less optimistic than prior forecasts, as worldwide growth stalled over the summer. The latest research estimates place worldwide enterprise IT spending growth at 2.9 percent in 2010, to surpass $2.4 trillion. The 2010 growth forecasts, although positive, are lower than the original 4.1 percent increase that the research firm had originally predicted earlier in the year, but still better than the challenges faced in 2009, when worldwide IT spending totaled $2.3 trillion, a 5.9 percent decline from 2008.

According to Kenneth Brant, research director at Gartner, "IT solutions that deliver ‘cost optimization’ will be a priority for enterprises through 2011, even as markets return to growth."

We agree with this forecast for IT, and most other business investments as well, where reducing costs and "doing more with less" will be the mantra. This sustained trend in buyers we have termed Frugalnomics, an age of austerity where buyers will demand quantified bottom-line impact, quick payback, high return on investment and superior value from each investment.

In the face of the continued cost optimization focus predicted by Gartner, IT and other B2B sellers need to fundamentally change the way they engage with prospects. Firms that help diagnose and uncover cost saving opportunities and put in place cost savings roadmaps will get the attention of executives and priority for key decision making resources. To help stalled solution sales processes, proactive business value quantification will be needed to assure that only those projects with superior bottom-line impact are selected. As each solution decision will be scrutinized by executives, quantifying the value and total lifecycle savings of your solution versus competitors will assure that the best solution is selected for investment of ever more precious budget funds.

The full article on Gartner's research can be found at:
http://www.cioinsight.com/c/a/Latest-News/IT-Spending-Gartner-Sees-Growth-in-2010-Beyond-610801/?kc=CIOQUICKNL08172010STR1

Sunday, August 15, 2010

Forrester and IDC think Sales Enablement is a Big Deal .. and We Agree!

A new role has emerged at many leading B2B companies, Sales Enablement, and recent research from Forrester and IDC proves this new sales enablement practice as the key linchpin required to help a B2B company bridge the gap between their business strategies and how they execute in the field.

Sales Enablement Defined
What is Sales Enablement? According to Forrester analyst Scott Santucci, "Sales enablement is a strategic, ongoing process that equips all client-facing employees with the ability to consistently and systematically have a valuable conversation with the right set of customer stakeholders at each stage of the customer's problem-solving life cycle to optimize the return of investment of the selling system."

Sales enablement as a best practice has emerged quickly at leading B2B firms, and many of our 70+ B2B customers now have formal sales enablement teams and centers of excellence. Why such a sudden rush to address sales enablement?

First, as B2B solution providers look at their operations for efficiency, many are realizing just how much is spent to enable sales and how inefficient these operations are. According to Forrester, companies are spending worldwide, on average, 19% of their SG&A costs, some $135,262 per quota-carrying salesperson, in sales support-related activities. (Source: Uncovering The Hidden Costs Of Sales Support, Forrester Research, Inc., April 2009). 

But despite these large investments, IDC indicates that these expenditures are inefficient, with B2B buyers complaining that sales reps are not prepared for meetings / engagements:
  • 24% indicate that they are not prepared at all
  • 30% indicate that they are somewhat prepared
  • Only 29% indicate that they are well prepared
Second, we believe the demand for sales enablement is driven by a fundamental and permanent change in B2B buyers - Frugalnomics. Buyers are under extreme pressure to "do more with less", understanding the impact that major purchases will have to the business, and demanding bottom-line impact and value from every investment. In this new "age of austerity", buyers are not looking to vendors for products or solutions, but for diagnostic advice, best practices and tangible business impacts.

As a result of Frugalnomics, IDC indicates that 62% of B2B vendors indicate that they need more leads in order to generate the same amount of sales, and 72% indicate an increase in sales cycle time over the past 6 months.

The impact of sales enablement efficiencies is real according to Forrester, where "Too many common challenges (problems cross-selling, long sales cycles, declining win rates, margin pressure, getting average deal size up) can be traced back to the same source – the conversation between your client facing people and the combination of stakeholders that represent your buyers."

Forrester acknowledges the impact of Frugalnomics, and the impact sales enablement will fundamentally have on competitive advantage. "Go-to-market models always change during periods of disruption, and this economic downturn has been deep, long, and might not even be over." says Mr. Santucci, "The more buying organizations are a forced to do-more-with-less they adopt different business patterns. Today, buyers are looking for business partners that will help them drive business results or outcomes – rather than bundle their products and services into solutions.”

Frugalnomics Driving Sales Enablement Revolution
With Frugalnomics in full effect, Forrester see’s a distinct and important supplier caste system emerging, that will dramatically affect the competitive landscape over the next 3 years. B2B solution providers will clearly fall into one of two buckets based on their investment and success in sales enablement:
  • Business outcome class – Vendors who align their resources to help their customers achieve results. 
  • Commodity class – Suppliers who provide choose to compete on their products or services and look to fit their capabilities to specific stated requirements.
IDC indicates that the sales enablement best practice needs to "Better Enable Sales Reps to Engage with Customers", getting sales reps the right information and intelligence at the right time and in the right format, so they are prepared for customer meetings, and productive in meeting this need. This investment includes better Customer Intelligence and Sales Enablement tools such as interactive assessments, ROI business case and TCO comparison tools.

The Bottom-Line
We have seen this best practice in action, working with major sales enablement groups at Microsoft, HP, IBM and EMC among others. Theseorganizations have successfully used Sales Enablement to overcome fight Frugalnomics. Implementing the right engagement tools, training and practicing, we have seen these organizations transcend the commoditization of engagement, to provide real value to ever more frugal and skeptical customers. These organizations who have implemented Alinean value-selling tools as part of their sales enablement practices have helped sales teams connect better with executives, evolve the customer relationship from tactical to strategic, reduce sales cycles by 20%, reduce discounting by 30%, and improve competitive win rates by 60%.

Click here to see what value-selling sales enablement tools, and these types of sales improvements could mean to your organization: https://roianalyst.alinean.com/enterpriseroi/AutoLogin.do?d=222693735895213178

The original Forrester Blog can be found at: http://blogs.forrester.com/scott_santucci/10-08-14-what_%E2%80%9Csales_enablement%E2%80%9D_and_how_did_forrester_go_about_defining_it

The IDC presentation on sales enablement / executive briefing can be found at: http://event.on24.com/event/19/58/56/rt/1/documents/slidepdf/tb20100318.pdf
(IDC Executive Tele Briefing on Sales & Marketing Strategies for 2010, results of a survey of 40+ worldwide technology sales executives)

Monday, August 09, 2010

Do you deliver more Customer Bottom-line Impact than the Competition?

A visionary CMO presenting to other leading marketers recently asked the question: "Do you deliver more customer bottom-line impact than the competition?" According to D. Kieth Piques, author and CMO, presenting at the Business Marketing Association's Engage conference, answering yes to this question is the foremost driver of future growth and the best measure of success.

As Frugalnomics reigns, where buyers are seeking bottom-line impact and value from every purchase and relationship, we could not agree more.

According to Mr. Piques, "The days of defining winning by considering only your own P&L are over. Leading B2B companies are focused on making their customers more money than their competitors and getting their fair share ... otherwise known as Winning with Customers."

Unfortunately most organizations are not aligned with what it takes to succeed in the face of Frugalnomics, one that demands a customer value centric environment. Best practices for b2b sellers include:
  1. Quantifying improvements in customers' bottom-line performance as a result of implemented solutions (for example how solutions helped customers drive more revenue or realizing tangible savings), 
  2. Measuring and tracking the value customers derive from the relationship both absolute and compared to competitors, and,
  3. Projecting how the seller will help drive bottom-line improvements for customers into the future.
However, few sellers have shifted to match the Frugalnomics challenges. According to those attending the BMA conference, only five of more than 600 attendees polled indicated that they have currently implemented all of these customer value-centric selling best practices The good news, however, is that there is a big opportunity for companies to create real competitive advantage by investing time and energy to understand and execute the customer value-centric winning formula.

To fight Frugalnomics, Mr. Piques recommends a customer value-centric set of best practices:

  1. Help customers make more money by having a different conversation—one that focuses on the measurable financial value you create for them today and the specific opportunities you provide to create more value in the future.
  2. Inject quantitative, outside-in information regarding what customers value into decision-making. (Yes, sometimes we don't know as much about our customers as we think we do.)
  3. Develop and execute plans with customers that deliver value, and clearly outline what is expected in return.
  4. Predict future profit growth for both you and your customers by aligning your investments with their impact on customers' profits.
  5. Build your organization's winning capability by shaping a culture that focuses on making customers more money, where every employee knows how he or she can contribute to creating value for your customers.
  6. Systematically use a “customer value creation” playbook (CVC) to keep your organization on the winning path, using training and software tools to equip and mobilize the entire organization.
"There is no silver bullet to win with customers, but there is now a proven approach with supporting tools to help companies win and win big." according to Mr. Piques.

The Bottom-Line
Buyers have fundamentally changed, demanding bottom-line proof on any purchase, and value from every vendor relationship. Leading b2b sellers realize that quantified value proof points are required to attract new prospects, convert them to new customers, and sustain strong customer relationship into the future. A customer centric value approach such as Mr. Piques describes, can help better connect with frugal buyers, drive more business now and the future and provide significant competitive advantage.

For more information on Alinean solutions to help B2B sellers battle Frugalnomics:
http://www.alinean.com/aboutalinean.asp


D. Keith Pigues, CMO of Ply Gem Industries, is co-author with Jerry D. Alderman of “Winning With Customers: A Playbook for B2B,” which will be published next month by John Wiley & Sons.
The original article can be found at: http://www.btobonline.com/apps/pbcs.dll/article?AID=/20100712/FREE/307129980/1047/FREE

Engaging Content is Key to Content Marketing Success?

According to recent survey results, 90% of B2B marketers are actively involved in producing custom content, and are investing some 25% of marketing budgets to custom content creation and promotion. The level of commitment and investment clearly indicates the incredible rise in custom content marketing, and reflects the need for more personalized and relevant connections with ever-skeptical buyers.

The survey, “B2B Content Marketing 2010 Benchmarks, Budgets and Trends,” took the pulse of more than 1,100 B2B marketers to identify custom content spending and effectiveness, finding that although committments and investments are higher than ever, marketers are struggling to  to produce enough compelling and actionable content, and acheive desired effectiveness in promoting the content to users.

According to the survey, the biggest challenges to custom content marketers are:
1) producing “engaging” content (36%), and
2) producing enough content (21%).

Dan Blank, former director of content strategy and development at Reed Business Information, sums it up best, when he says: "We see one of the biggest hurdles custom content providers face is how to make such content “actionable.” “It’s not just informing and entertaining, but calling the [readers] to action,” said Blank.

Engaging content needs to break through the information overload clutter, and create urgency, and in today's frugal marketplace that often means:

1) Helping a user diagnose issues, some they may not have even known they had, and providing advice on how to solve such issues via a roadmap of suggested best practice improvements. This personalized assessment can help create a customized improvement plan to elevate the relationship from vendor to trusted advisor, and spur action.

2) Quantify the issues and opportunities the customer has via benchmarking tools, comparing their profile or costs versus competitors and leaders. The personalized benchmark can help the buyer understand where they are, and what opportunities you may be able to help the buyer address. Importantly, quantifying the urgency of addressing the issues with peer comparisons, quantifying how much the buyer's organization is ahead in specific areas, or behind in others, can help set priorities and drive buyer urgency.

3) Quantifying the personalized savings, value and return on investment the buyer can gain from proposed solutions, as buyers seek advice on how to save money and drive competitive advantage. The personalized ROI report can let them know precisely what impact you can have to their bottom-line, and help them prioritize the project amongst the universe of potential solutions, helping to create action / urgency.

4) Validating that your solutions represent the best value, quantifying lifecycle cost savings and competitive advantage that they can uniquely gain from your solution versus the competition.

According to Joe Pulizzi, founder of the content marketing outsource site Junta42, which sponsored the survey with MarketingProfs in association with American Business Media and the Business Marketing Association, "Custom media has turned into a real marketing practice.... It used to be, the custom publishing group was in a little, dark corner that sat outside of marketing,” Pulizzi added. “Today, custom marketing is instrumental to the company’s entire marketing strategy.”

The Bottom-Line
We hope that some of the ideas on actionable customized content, particularly for today's economic focused buyer, can help to drive better custom content programs and overcome some of the key effectiveness issues with these campaigns.

For more information on customized content programs: http://www.alinean.com/aboutalinean.asp

The original BtoB feature article by Matthew Schwartz can be found at:
http://www.btobonline.com/apps/pbcs.dll/article?AID=/20100803/MEDIABUSINESS/100809986/1117/MEDIABUSINESS

The full study is available from Junta42 at: http://www.junta42.com/media/38066/content-marketing-spending-2010-results-junta42.pdf

Saturday, August 07, 2010

Comparing and Selecting Solutions Using TCO Analysis

"TCO is defined as the total cost of procuring, using, managing and disposing of an asset over its useful life.” – Bill Kirwin - the Father of TCO, Gartner

Total Cost of Ownership (TCO) refers to a useful accounting system to tally all of the costs associated with a given asset over its entire useful life. Costs are tallied for planning, acquisition, setup & installation, manage & support, evolution and retirement.

For buyers, TCO helps to make better decisions going beyond the original purchase costs, to include total lifecycle costs such as service contracts, management and support, power and cooling, facilities space costs, evolution, and retirement costs. For sellers, TCO provides an account of all costs for various solutions, helping vendors compare and contrast their solutions with others, proving which solutions are not only less expensive up-front, but less expensive in total cost over time.

TCO was born in the late 1980s by Bill Kirwin of Gartner, used to initially compare the costs of mainframe / minicomputers with PCs and networks. In these studies of early IT investments, the purchase price of the hardware and software was found to be only 15% of the total cost of owning the asset. Management, direct support and hidden user support accounted for 85% of the total cost over the useful life of the asset. At the time, a PC that cost $2,000 to $3,000 might actually cost the organization over $8,000 per year or more to keep in service.



1994 comparison of TCO for PCs showing the top level “chart of account” line items

TCO is most useful when comparing different solution options, to determine which provides the lowest cost of ownership.

To do this, TCO first creates/uses an accounting system to tally all costs for the solutions being compared, when done correctly assuring that no costs are overlooked. The accounting system is called the “Chart of Accounts”.

Second, for all the solutions being compared, the costs are tallied for each cost category. Placing these costs in the chart of accounts and comparing them head to head illustrates where some solutions are more expensive than others. Totaling the costs for each solution and comparing the totals indicates the lowest total cost solution.

When comparing solutions, TCO only shows a portion of the decision making criteria. TCO is focused on costs, but places little on comparing the different business value of the asset. For example, to lower the TCO of productivity tools for users, desktop computers could be replaced with pen and pad, which has a TCO of $1.50, compared to an estimated $3,000 per year for the typical Windows computer system. As Lenny Liebmann of ComputerWorld indicates, “Lower TCO doesn't mean higher ROI: This is a classic error. The assumption is that if you whittle down the cost of a resource, it will provide a higher return on investment. Not! If I buy a cheap used car and lose my job because I can't get to work reliably, did I really save money? Sure, IT must control costs, but not through some arbitrary goal that isn't linked to real business drivers.”

Rightly so, by focusing on costs alone, the dramatic benefit differences of and between proposed solutions could be overlooked. It is therefore important to compare not just the TCO of different solutions, but the ROI differences as well (where ROI takes into account total cost of ownership versus benefits for each proposed solution).

Thursday, August 05, 2010

Virtualization Software Cost Overruns at 44% of Large Enterprises

CIO insight published a recent planning guide for IT spending in 2011, and although they didn’t highlight in the summary, the study revealed from some startling findings about dramatic overspending in virtualization software.

The study, CIO Insight's 2010 IT Investment Patterns study, was a survey fielded in May 2010 and received a total of 695 responses, 295 of which are from large enterprises with more than 500 employees.

It should come as no surprise to datacenter managers that virtualization is expected to be the hottest enterprise IT investment area in 2011, with 42% indicating that it’s the highest area of growth since 2009, and with 46% indicating that virtualization and consolidation were top priorities in 2010 into 2011.

However, although virtualization software is a hot investment area, the survey indicated that large organizations were experiencing dramatic cost overruns / exceeding expected budgets.

Examining the top 10 largest enterprise cost overruns, virtualization software was clearly the loser in this category, with 4.6% over spending compared to budget, nearly double the next highest overspending area.

As well, the percentage of companies reporting that virtualization software missed budget targets, was 44% of the large enterprises surveyed, higher than those indicating issues in server, ERP and BPM / BPI application projects.

Only 11% indicated that they spent less than budget targets, dramatically less than all other budget categories.

So why the overbudget issues? Was it:

a) Because virtualization proved to be so valuable that the companies went over-budget / over-spent on purpose?

b) Because the promised consolidations fell short, driving up overall costs?

c) The software for virtualization, VMware being the most popular, proved to be more expensive than originally estimated?

In digging through the full report it is not clear from the research what the overspending driver was. Interested to see if other picked up on this issue and whether the research illuminates the potential cause?

A summary of the results is provided at: http://www.cioinsight.com/c/a/Research/2011-IT-Budget-Building-14-Areas-To-Watch-137685/


The full report can be found at: http://www.cioinsight.com/c/a/Research/IT-Investment-Trends-Vary-With-Company-Size-139738/

Payback Period Defined

Payback Period Defined: The time period from the start of the project until the cumulative cash flow turns positive

Perhaps the easiest calculation to understand of all the financial summary metrics used in an ROI analysis is the payback period.

The payback period is defined as the time frame needed for the project to yield a positive cumulative cash flow, which is typically specified in months. The payback period starts being measured at the beginning of a project and stops being measured when the cumulative benefits exceed the cumulative costs.

On a graph of cumulative benefits and costs, it is the elapsed time from project start to the point where the lines cross (see figure). This point is often referred to as the break-even point, demonstrated in this example:

The Bottom-Line

Payback period is important because it measures how long it takes for an investment to begin generating a positive cash flow. A longer payback period generates risk, especially if the project time line is delayed or benefits occur later than expected. A shorter payback period does not guarantee substantial returns for the investment; instead, it assures that there will be positive returns and that the benefits will occur early in the cycle and quickly offset the initial investment costs.

As with other financial summary metrics, payback period has its issues if used alone, such as failing to communicate the value of returns, only the time to returns. But as a measure of risk and speed to reward, it serves as one of the best early indicators as to the speed of potential rewards a project can deliver.

In today's frugal environment, payback measurement on projects is a requirement, and fast payback mandatory - typically dictated as 12 months or less from project deployment.

Risk-Adjusted ROI Defined

A variation on the traditional ROI formula, Risk Adjusted ROI is calculated as the ratio of the net gain from a proposed project, divided by its total costs - represented in net present value terms to account for project risk.

In a formula, this can be represented as:

Risk Adjusted ROI = Net Present Value of Cumulative Net Benefit divided by Net Present Value of Total Costs

The Risk Adjusted ROI is typically presented as a percentage which demonstrates the value of the investment, and as opposed to the basic ROI formula, the benefits and costs are adjusted into net present value terms to account for lack of visibility in future cash flows.

For more information on NPV, see: http://tompiselloroiguy.blogspot.com/2010/08/net-present-value-npv-savings-defined.html

The risk-adjusted ROI calculation is adjusted for risk by using the discount rate and net present value terms, and therefore is actually better to use than the more traditional ROI formula. However, because the basic ROI formula is easier to understand, especially for quick calculations, it is dramatically more popular.

For more information about the basic ROI formula, see: http://tompiselloroiguy.blogspot.com/2010/08/return-on-investment-roi-defined.html

Net Present Value (NPV) Savings Defined

NPV Definition: The sum that results when the discounted value of the expected costs of an investment are deducted from the discounted value of the expected returns.

The Net Present Value (NPV) benefit is a calculation that measures the net benefit of a project in today’s dollar terms, taking into account that over time money today is more valuable than money in the future (discounted time value of money).

The NPV savings calculation consists of two financial concepts:
• The “net” part of the NPV savings calculation is the difference between all costs and all benefits (savings and other gains).
• The present value portion of the NPV calculation takes into account the time value of money; so that adjusts to expenditures and returns, as they occur over time, can be evaluated equally.

When examining a project investment decision, and knowing that money has a time value, future payments need to be higher than investments made today in order to be equivalent to today’s dollars.


This time value accounts for the fact that:

• Money typically inflates over time, meaning that a dollar invested today will be worth less in the future because of inflation.

• A dollar invested today could earn interest over time, so the investment needs to make up for the lost opportunity. As the investment could earn interest elsewhere at the organizations weighted average the cost of capital, this is often called opportunity cost.


NPV Defined
The NPV calculation evaluates a set of costs and benefits over time in order to account for the time value of money. The cash flows are the amounts and timings of the various investment costs and benefits, and these are brought into a common term, today’s dollars, so that the net benefit can be quantified and compared if necessary to competing investment opportunities.

Using an IT project as an example, let’s say that a company invests $100,000 in a new application and that the application requires $25,000 annually thereafter in maintenance and support costs. From this investment, the company expects to save $200,000 each year. An analysis of this investment over three years would yield the following negative (costs) and positive (benefit) cash flows:

The cash flow from this investment is shown as the Net Benefit, which is the Total Benefits minus Total Costs: a cash flow of -$100,000 initially (year 0), with $175,000 in year 1, year 2 and year 3.

The NPV Savings calculation seems intimidating when expressed as a formula; however, when demonstrated in practical terms it is quite intuitive. Mathematically NPV calculation is represented by the formula:

In this formula, the " I "s represent the net benefits for each year, the subscript "0" represents the initial net benefit, the subscript "1" represents the year one net benefit, and so on. The exponent in the denominator is also equal to each year of the analysis, up to n, the number of years in the analysis term. The discount rate is r and is held constant through the analysis period.

To put the calculation in practical, step-by-step terms, we will use the calculation applied against our example cash flows. The net present value calculation, using a cost of capital/discount rate of 7%, takes the initial costs and ongoing costs and benefit cash flows to create a single net cost or savings figure. For the example set of cash flows in the above table, the net benefits are as follows:

Initial = I(0) = - $100,000

Year 1 = I(1) = + $175,000

Year 2 = I(2) = + $175,000

Year 3 = I(3) = + $175,000

The initial expense of $100,000 is not discounted because it is already in today’s dollars terms. However, Year 1 through Year 3 need to be adjusted to be brought into today’s dollar terms and is calculated as follows:

NPV Year 1 = $175,000 divided by (1+ .07) = $163,551

NPV Year 2 = $175,000 divided by (1+.07) squared = $152,852

NPV Year 3 = $175,000 divided by (1+.07) cubed = $142,852

The total NPV savings is the sum of the initial expense and the three-year NPV analysis, represented as:

NPV Savings = - $100,000 + $163,551+ $152,852 + $142,852 = $ 359,255

As shown, the net benefits from later years are discounted more in today’s dollar terms such that they mean less in the overall analysis. As a result, the total NPV savings is only $359,255 compared to the cumulative benefits of $425,000 when the discount rate is not considered.

The higher the discount rate is and the further into the future that a cash flow will occur, typically the lower the present value of that cash flow will be. Because the net present value calculation increases the impact of current costs and near term savings while reducing the impact of future costs or benefits, the following holds true:

• Projects with high initial costs and savings that grow slowly over time yield lower NPV savings values;

• Projects with low initial costs and greater initial savings yield higher NPV savings calculations.

The Bottom-Line

The NPV Savings is one of the most popular and accurate methods used to assess business investment viability. NPV uses discounted cash flow to accurately quantify the net benefits from a project.

However, the NPV calculation usually cannot be used alone to determine whether a project is viable. As an example, a project may yield a substantial $100M NPV savings over a three-year period, but the required initial investment of $10M may be so risky for the company that it is not considered a prudent risk. As well, a project might have a large NPV benefit but has a long payback period and derives much of its benefits through huge gains in outgoing years.

Return on Investment (ROI) Defined

ROI Defined: A general concept referring to calculate the Earnings from the Investment of Capital, where the earnings are expressed as a proportion of the outlay.

Knowing the value of ROI is important when making a business investment because it clearly demonstrates the financial gains of the proposed project, compared to the relative cost.

The Return on Investment (ROI) calculation is fairly straightforward, and is defined as the ratio of the net gain from a proposed project, divided by its total costs.

In formula form, ROI is represented as:

ROI = cumulative net benefits / total costs

The ROI calculation uses the cumulative investment costs over the analysis period, and compares this with the total savings and other tangible benefits over the same period. The ROI value is usually expressed as a percentage, multiplying the ratio by 100%.

For example, if a project has an ROI% of 200%, the expected net benefits of the project are double those of the expected costs for implementing the project. In more basic terms, every $1 invested in the project will yield $2 in net returns.

In an analysis where the costs and benefits have been properly estimated, decision makers typically look for higher percentages for ROI as an indication of risk reduction. The higher the percentage the less risk typically, because the benefits are much higher than the costs, and the project is more tolerant if costs overrun predictions, or benefits fall short of expectations.

ROI Calculation Example

To understand further, let us examine the cash flows from a sample project and the resultant ROI calculation:

ROI% = $425,000 / $175,000 = 243%

The ROI in this example was calculated by taking the Cumulative Net Benefits of $425,000 divided by the Cumulative Total Costs of $175,000. Hence, the net benefits are more than double the investment, yielding an ROI% of 243%. Every $1 invested will yield a $2.43 in net returns.


Limitations in Calculating ROI?

As a simple % calculation, ROI is easy to understand, and easy to apply to comparisons, however the ROI calculation if used as the only measure of a projects viability, has some shortcomings.
  1. The ROI formula shows the net return from investment but does not indicate the time associated with achieving the returns.
  2. The ROI calculation does not recognize that in some cases, the projects total cost and benefit value may be so small that the net benefits are not worth considering. As an example, the ROI% of a planned project might be a significant 500%, but the net benefits of $10,000 on a $2,000 investment are so small that the project is not worth comparing to the millions of dollars in benefit that most corporations are seeking. Conversely, for some projects the costs may be so high that even though the net benefit and ROI yield are high, the project exceeds a reasonable investment risk. For example, a project that costs $10 million and has a projected net benefit of $100M, yields an ROI% of 1000%, but the risk of applying $10 million to a single project might be too high for a cash strapped company. Thus background economic scenario of each situation must be considered.
  3. The standard ROI calculation typically does not use net present value terms in its calculations. Net present value calculations use the “time value of money”, which takes into account the fact that the purchasing power of a dollar received in the future is less than dollar possessed today. The ROI calculation does not take into account that many projects require up-front investments that then need to be offset by savings in outgoing years, but that these savings are not as valuable when compared to up-front costs because money in the future is worth less than today. To resolve this issue, sometimes the ROI formula includes net present value calculations for the net benefits and the costs.

The Bottom-Line

Overall, the ROI calculation provides a valuable comparison of the net benefit verses total cost, a ratio that can point towards a solution that delivers optimum financial benefits. But ROI alone is not the only indicator of performance, and should be considered with other factors such as NPV Savings, IRR, and payback period prior to making a purchase decision.

Is using an ROI Analysis Good Enough to Make Critical Investment Decisions?

Traditional ROI analysis examines the cash flow of a proposed project over time to determine if it makes fiscal sense. The investment is tallied and benefits contrasted against the benefits to see if the project generates a positive cash flow, and as a result, can deliver bottom-line impact to the organization.

Although in today’s frugal environment a bottom-line impact is required of almost every business project, when determining which projects to invest in, only comparing the financial impact of these projects can lead to a one dimensional analysis and perhaps, near-sighted decisions.

It is recommended that the ROI analysis methodology be extended to consider elements of the investment beyond financial alone, supplementing the cash flow analysis with some additional measurements and dimensions.

The Alinean ROI Dashboard is an ROI analysis methodology recommended to extend traditional ROI analysis to include additional analysis dimensions beyond the Net Tangible (quantifiable) Benefits, to include Strategic Impacts and Alignment (Intangible Benefits) and Risks.


Traditional ROI Analysis and Net Tangible Benefits

To revisit, traditional ROI analysis examines the net tangible benefits of a project, those that can be quantified in financial terms. The tangible benefits of a solution measure the investments / costs of implementation, against projected savings, incremental revenue and benefits, to calculate the quantifiable financial benefits of the solution.

The investment portion of the tangible benefits equation measures all of the up-front and on-going costs for implementing the project, seeking to capture the total cost of ownership of the proposed solution (all of the costs over the useful investment lifespan).

For an IT project as an example, these typically include:

• Capital Expenses - the investment in systems, software, networks, peripherals, supplies and equipment to deploy and maintain the project

• Implementation Labor - the staff and contract labor to research, purchase, plan, test and deploy the proposed solution

• On-going Management and Support - the staff and contract labor to manage and support the solution after it is deployed

• Operations and Contracts - the recurring fees, leases, facilities and power costs, and the on-going maintenance and support contracts

• Business Unit Costs – the change management, project management and user training fees and labor

The savings / benefits portions of tangible benefits tallies the positive impact the project will have on the organizations costs, cash and revenue, and are typically grouped into four categories:

• Labor Savings - the savings due to expected headcount reduction, overtime avoidance or strategic resource re-allocation from implementing the planned project.

• Expense Reductions - the savings in expenses such as equipment expenses, facilities, net fixed assets, inventory, accounts payable and accounts receivable from implementing the planned project.

• Strategic / Revenue Benefits - the gains in revenue and associated profit, such as incremental sales from new customer acquisitions and conversion percentage improvements, reduced sales cycles and increased customer retention reduced churn.

• Working Capital Improvements – reduction in needed working capital investments for items such as inventory or facilities.

Intangible Benefits

Many projects have benefits to an organization that are strategic and may be difficult to quantify in absolute monetary terms.

Intangible benefits represent strategic benefits that are difficult, or impossible, to accurately predict and measure in financial terms, but are an important aspect of the project, making an impact beyond financial to the organization.

Some intangible benefits to be considered when evaluating and measuring the performance of a project include:

• Brand Advantage -reinforcing, advancing or changing a company's brand

• Strategic Advantage - working towards or meeting overall corporate objectives

• Competitive Advantage - releasing solutions faster, developing solutions less expensively, better addressing customer needs, meeting changing market demand, scaling easily and more cost effectively, and gaining market share

• Intellectual Capital - increase in relevant knowledge gained by the staff, and the perceived market value from those gains

• Organizational Advantage - enabling an organization to function more effectively, or reinforcing or recreating a corporate culture

Although not quantifiable easily or credibly in financial terms, these intangible benefits can often be quantified into Key Performance Indicator impacts such as improvements in employee satisfaction scores, customer satisfaction scores, brand sentiment rankings, or industry position rankings. Quantification of these benefits versus a KPI will help the team understand the proposed improvements and assure success post deployment (post-implementation analysis).

Risk

Risk is a future issue that may affect a project, and lead to increased costs or reduced tangible and intangible benefits. Risk can be measured based on the probability of occurrence, and the likely impact on the costs and benefits, in some instances discounting the value of the project significantly.

The risk measurement may include items such as:

• Labor Resources - the risk that required resources may not be available, not have the proper skill set or training, or rely on a small group of experts that cannot be retained easily

• User Acceptance - users may not accept the solution and rebel, or more likely, they will not adopt all or some of the key features, which reduces the benefits substantially.

• Compatibility - the solution may not be compatible with current or future operating systems, platforms or other applications.

• Vendor - the vendor may not be able to deliver the solution in the promised time frame or to the required specifications. The vendor may be a start-up, or not financially sound, so they may not be around in several years to support the solution and deliver required updates and upgrades.

• Management Commitment and Funding - the senior management and the stakeholders may not be fully committed to the project with management support, and especially funding.

• Market or Strategic - the market may shift, competitors may change their strategy, or the company may change strategic direction, changing the project requirements, or changing the business benefits equation.

• Schedule - the project requirements may drive a schedule that is unrealistic. The overruns in schedule may cause cost overruns, delays to benefits, and impacts to other dependent projects.

• Legal and Governance - there may be legal and governance risks and exposures in the project, such as not being able to implement the project in time to meet legal regulations, or a failure that may risk legal exposure. The project or issues with the project may also affect compliance with governance issues such as financial reporting requirements.

• Organization - there may be risks to the organization as a whole, should issues occur, such as a risk involving employee morale or organizational dynamics

• Dependencies - there may be risks that can affect a family of dependent projects, such as delays, resources or budgets.


The Bottom-Line
Extending the traditional ROI analysis model can help factor in other important elements into the buying decision, and assure that the best projects are selected from a portfolio of proposed options. Although financial analysis is required now on most projects, Frugalnomics is in full effect, focusing only on financial gains of a proposed project often can lead to decisions that don’t take other key aspects into account, such as strategic benefits or risks.

It is not proposed to avoid quantifying financial costs and benefits , risking that decisions don’t make fiscal sense, but rather to extend the analysis slightly to include strategic and risk elements that can be compared and contrasted versus the financial gains to assure a more well rounded and sound decision.

Is ROI a Good Way to Make the Case for Change?

Buying and selling of B2B solutions has fundementaly and permanently changed, an evolution called Frugalnomics, requiring buyers to provide quantifiable proof to executives that proposed solutions will deliver bottom-line impact, and requiring vendors to help create and deliver the quantified proof-points and business case if they want to win the deal and avoid stalled sales cycles.

One of the best and most commonly used methods used to calculate bottom-line value of proposed projects is via an ROI analysis. Although many  may be familiar with what ROI analysis is, it is important to standardize the definitions as to what a typical ROI analysis is, and what key calculations are required.

An ROI analysis, more descriptively called a discounted cash-flow analysis, is used to measure the value of a proposed project over time. The analysis compares the cost savings and other benefits of a proposed solution versus the total investment in order to determine whether the project makes sense. Because of this, ROI analysis is often referred to as “making the case for change”, providing the analysis and proof points as to whether the proposed project / change makes fiscal sense.

The analysis compares the “business as usual” scenario, where the organization continues to operate as it intends to without the solution (often called As Is), with the scenario where the solution is implemented (often called To Be). The analysis usually is performed over 3 to 5 years to match the proposed lifetime/lifecycle of the investment.
The difference between the revenue and costs in the As Is (before) scenario with those in the To Be (after) scenario determines the bottom-line impact , and the overall cash flow of the project.

To calculate the opportunity, the analysis first starts with an understanding of revenue and cost projections over the analysis period. The team gathers current revenue and costs, and projections of how the revenue and costs are expected to grow without implementing the proposed solution.

It should be noted that in many cases, if the project may only be focused on cost savings, and revenue is not relevant. Therefore, only the cost portion of the equation is tallied for these cost savings projects and analyses.

Next, the impact of the proposed project is simulated on the As Is revenue / cost projections to determine:

  • What incremental investment is required
  • What are the benefits – savings in IT and Business Costs, or improvements in Revenue

The simulation lets the business tally the level and duration of required investments, which add to costs initially, usually as capital investment such as hardware / software, and over time, usually in the form of incremental operating expenses such as service agreements, support and management costs.

The simulation also estimates the magnitude of benefits such as cost avoidance, savings and revenue improvements, and importantly, how quickly the benefits can be realized.

Comparing the incremental costs versus the benefits, the difference between As Is and To Be, creates a cash flow over time.


When the difference is calculated, if the results are negative over time in total, a negative cash flow, this means the project, the To Be scenario, costs more over time than the As Is. This can be a result of the investment being too high, or the benefits being too little to make up for the incremental investment.
If the cash flow is positive, it means that the incremental investment to implement and manage the solution is compensated for by savings and benefits.

To make sure the cash flows make sense financially, and to compare the project with other projects and investment options, an ROI analysis typically summarizes the cash flow into financial key indicators. These indicators are typically:

  • Return on Investment (ROI) – a ratio of the net benefits divided by the total investment. A higher ratio means that the projects net benefits are much higher than the investment, and the project is often judged as less risky as a result. To calculate the value, ROI = net benefits / total investment, where net benefits are equal to total benefits – total investment.
  • Net Present Value (NPV) Savings – a calculation that measures the net benefit of a project in today’s dollar terms using a discount rate to discount future cash flows. Many times a project requires up-front investment, and this is more expensive in time value of money terms compared to future benefits, so looking at the cash flows over time assures that all cash flows over time are made equivalent. Sometimes a project may have a positive cash flow, but because of a large upfront investment and a long time to accumulate benefits, may actually have a negative NPV savings. A high NPV savings indicates that the project can deliver real bottom-line impact to the organization.
  • Payback Period- The payback period is the time frame needed for the project to yield a positive cumulative cash flow, which is typically specified in months. The payback period starts by comparing cumulative costs versus cumulative benefits by month from the beginning of a project until the point when the cumulative benefits exceed the cumulative costs. A quick payback on a project usually is a sign of less risk.
  • Internal Rate of Return (IRR) – The IRR calculates the effective interest rate that the project generates. A higher interest rate than competitive projects means that the project has a higher return and generates more effective interest on the investment. In mathematical terms, the Internal Rate of Return is calculated as the projected discount rate that makes the Net Present Value calculation equal to zero. The method of calculation involves a series of guesses, making it the most difficult to understand, but when comparing projects, one of the most effective metrics in selecting the best comparative project.

Wednesday, August 04, 2010

Can a Value Selling / Marketing Program Improve Your Business?

Frugalnomics, borne of the economic downturn, represents a fundamental shift in the way businesses make buying decisions, resulting in a scrutinizing of each investment to deliver quantified bottom-line accountability.

This permanent shift towards frugal buyers has forced B2B vendors to fundamentally change the way they reach prospects and convert them to customers. Leading B2B vendors are implementing value selling / marketing programs, and have received dramatic benefits as a result.

Here are the top six benefits:

1. Cut through the clutter - Buyers are inundated with marketing messages constantly via e-mail, web browsing, direct mail and advertising. With buyers suffering from information overload, how can a marketer break through the clutter and connect? Research shows that customers do not want generic messages or the hard sell, but instead want relevant and consultative tips and advice. Using value marketing tools, users can be presented with tools that help them to analyze their opportunities, and obtain more personalized and intelligent advice. These tools can include interactive white papers, executive self-assessments, benchmarking comparisons, ROI calculators and TCO comparisons.

2. Transform and elevate customer relationships - Helping prospects diagnose their issues, uncovering problems they didn’t even know they had, and creating a best practices roadmap can open up doors to executives and help sales engage earlier in the decision making cycle. Buyers noted a decided change in sentiment post assessment, driving the B2B vendor to be perceived as a strategic consulting partner versus product vendor. Moreover, the executive assessments continually led to multiple projects / product sales at decidedly higher deal sizes. Better competitive advantage was gained by helping the customer set the strategy and agenda, versus involvement later in decision process, such as responding to RFPs.

3. Create an urgency to buy - Frugal buyers are looking for reasons to say “no” to vs. “yes”. As a result, decision makers are requiring quantified business cases for >90% of all projects, first, in order to set priorities of what projects are considered, and second, to get executive signoff/ spending approval. Those B2B vendors who deliver compelling business case are meeting expectations from 81% of customers who expect business case justification, and have proven to be 60% more likely to get the deal, and receive approval >30% faster, than those who leave the justification up to the customer.

4. Connect with multiple stakeholders - large purchase decisions involve more stakeholders than ever, and with varied agendas and pain points. Connecting with diverse purchasing committees is difficult for even the best sales professional. Value selling tools can help to analyze the opportunities from multiple perspectives, helping to quantify the improvements an investment can make from each stakeholders point of view, and create value proof points for all stakeholders involved.

5. Sell value vs. price - Traditional sales professionals focus on price, and therefore leave the discussion open to discounting. Value selling focuses on the benefits and payback of the proposed solution, shifting the focus from cost of the product, to value of the solution. This has been proven to help increase the products and services of a proposal, boosting up-sell / cross-sell potential, and reduce discounting, resulting in 20% higher transaction sizes.

6. Prove best value versus competition – Every buyer today wants a deal, and knows that competition amongst providers is fierce. Even though you may have set the strategy for the project and made a great business case, you can bet that the buyer will seek out other solution providers and pit vendor vs. vendor to reduce up-front costs. It is important therefore to not only prove that your solution can deliver savings and a high ROI, but that it delivers these benefits at a better value than the competition. One way to prove better value is to demonstrate unique benefits and bottom-line impact – tying unique specific features of the solution to unique savings or benefits. Another way to prove value is to prove that the solution has a lower Total Cost of Ownership (TCO) – lower up-front / over lifecycle costs than the competition. With today’s frugal buyer, sales professionals using TCO comparison tools have driven competitive win rates higher by 50% or more.

7. Delivery credibility to Overcome the Skeptics– Frugal buyers absolutely require vendor assistance in diagnosing issues, developing roadmap/plans, and quantifying the value of proposed solutions. However, the buyers understand that the B2B vendor has an agenda - to sell products / services - and therefore remain wary of the analysis and advice. Less than 17% trust vendor provided business cases unless third party research / proof is provided. SiriusDecisions validates that buyers trust analysts as the third party of choice (SiriusDecisions B-to-B Buyer's Survey 2010), and that using third party proof points can help to drive quicker buying decisions.

Want to understand the unique benefits that a value-based B2B selling / marketing program can deliver for your organization? Take 5 minutes to tell us a little about your organization and we’ll quantify the value for you - https://roianalyst.alinean.com/enterpriseroi/AutoLogin.do?d=222693735895213178


Metrics / Research Source: IDC | Alinean 2010

Is Frugalnomics Today’s Number 1 Buying Factor?

Before the bursting of the technology bubble, IT purchase decisions were driven by steady upgrade and replacement cycles, mingled with occasional bouts of euphoria, as with the Internet race, and panic such as the Y2K crisis. The choice as to which IT investment to make was based most often on a need to keep up with, or get ahead of the “Joneses”.

Because these IT investments during the go-go 90s were not analyzed for bottom line impact, having been tied to a business case in less than 10% of the proposals, many organizations did not make the best investment decisions and did not realize any lasting financial gains. When the bubble burst, a significant backlash resulted in a permanent change called Frugalnomics, a scrutinizing of each investment to deliver quantified bottom-line impact. The difference in IT today is that cool doesn’t count, and saving money is all the rage.

We now see this change reflected in all B2B buying decisions, as the global recession is forcing organizations to be as skeptical as ever on risk vs. reward decisions. Businesses worldwide have returned to the basics. Revenue growth is scarce. The global economy is more competitive. Fewer easy growth opportunities mean less room for mistakes. Fewer customers mean each customer is more important. Lower profit opportunities in a given market mean less discretionary spending. Saving money is a requirement

As a result, the following strategic values are key today:

• Vision. Companies must quickly show a profit in the face of challenged revenue opportunities. With limited revenue growth opportunities, this has meant a focus on creating and sustaining cost savings to drive good bottom-line results.

• Control. Executives who pin their companies’ failings on the market, the economy, or some other external cause are passé. Accountability is key, and all investments need to be analyzed for risks and rewards.

• Growth. As market conditions improve, the winners will be ahead of the curve, investing in the foundations to capitalize on future growth opportunities and fundamental business changes. Organizations that find ways to cut operating costs more than the competition, and then allocate a higher percentage of budgets to innovation have an advantage in catching the next wave.

As a result, we are seeing unprecedented executive demand for quantifying the business value of most investments, with executives demanding that more than 90% of all B2B investments demonstrate a contribution to savings, growth and bottom-line impact.

As well, now more than ever, is a passion for "time to value". Frugal executives are demanding that most investments deliver tangible impact in less than 12 months from initial investment. This focus on quicker returns assures that any investment deliver a payback in close to the same budget period, reduces risks, and helps to drive important savings / growth needed now vs. in the future. The challenge in the short payback period decisions is that too much focus on the short term can leave a company ill prepared for when the good times return.

B2B solution providers must be prepared to tackle the Frugalnomics issue, or face paralysis in buyer decisions, extended sales cycles, and a dramatic competitive shortfall. We find that with less resources than ever, although buyers require business cases to justify the vast majority of purchase decisions, the buyers are unable to generate the evidence themselves, with more than 65% indicating that they lack the time, skills, knowledge or tools to perform business case analysis.

This has resulted in an increase of typical B2B buying cycles from nine to 18 months, and proposal approval rates dropping over 60% since 2007.

Consequently, B2B providers are being called on by buyers to provide rapid, yet credible business case analysis that accurately conveys the impact that can be expected from deploying the vendor’s solution. In fact, over 81% now expect B2B vendors to provide an ROI business case or Total Cost of Ownership (TCO) competitive comparison with any proposal. The frugal buyer logic – if you have something to sell me, you should be able to prove the impact to my bottom-line, and stand behind the results.

Frugalnomics represents a fundamental shift in decision making towards quantifiable bottom-line impact for any B2B investment, in all markets. As a B2B sales enablement or marketing professional, are you prepared to meet this new challenge and address the number 1 buying factor?

HP launches Blade ROI campaign, powered by Alinean

When examining IT budgets in 2010, "Keeping the lights on" operations consumes more than 60% of total budgets (according to IDC | Alinean research - 2010). As a result, most organizations are left scant funds to drive needed migrations / upgrades, or to apply to innovative business solutions. The more organizations can reduce on-going operations costs, the more budgets can be allocated towards new projects and innovation.

To reduce high on-going operations costs, IT decision makers are fervently looking for solutions to help drive cost savings, in particular solutions that help simplify, consolidate and standardize to cost savings.

As organizations virtualize, blade solutions help provide a simpler, consolidated and standardized server infrastructure.

To help clients understand the savings and benefits of blades, HP has created a valuable microsite and toolkit, powered by Alinean: http://h18004.www1.hp.com/products/blades/components/matrix/tco/index.html

Lack of ROI Measures Threatens Marketing Budgets

According to an article by eMarketer, “Is the Click Still King?”, marketers are still having a hard time connecting their investments to tangible bottom-line impact. Today's executive management strategy is driven by Frugalnomics, where maximizing value reigns supreme, and all spending needs to be tied to tangible gains. The lack of quantifiable ROI means that Marketers will struggle for their fair share of the budget.

We have tracked this same impact in IT budgets for years at Alinean. Post the technology bubble, Frugalnomics became the modus operandi for IT decision makers. As a result of this shift, and the inability for IT executives to tie IT spending to tangible bottom-line impact, IT spending as percentage of revenue declined significantly. This despite that during the same time IT became even more important to the organization. According to our ValueBase(tm) metrics comparing IT spending vs. financial performance, IT spending declined from a peak of 3.8% to less than 3% or revenue (analyzing average from 2003-2009), a 30% decline in IT spending compared to revenue.

Does a similar fate hold for marketing budgets, which today are 6% of revenue on average. We believe so, unless marketers realize that frugalnomics demands quantifiable proof of value.

According to eMarketer however, this is not the case today. “Online marketing has been touted for its measurability, a quality that should make it easy for marketers to determine effectiveness and value for money. Despite widespread recognition that the click-through does not measure the full effect of an online ad—even ones placed with direct response objectives—and calls for better branding metrics, many marketers still rely on the easy-to-track click as their top performance metric."

A March 2010 survey by Chief Marketer showed the click remained on top, with 60% of US marketers reporting they measured performance in click-throughs. Less than two-fifths measured overall return on investment (ROI). Similarly, Collective Media reported that in February 2010, click-throughs were the most common measurement of ad network performance, used by 64% of responding advertisers.

The CMO Council’s ‘State of Marketing’ survey did not ask about click-throughs specifically, but found marketers worldwide were most likely to measure their campaigns through page views, registrations, and the volume and origin of site traffic.

The original article can be found at:
http://www.emarketer.com/Article.aspx?R=1007679
Source: “Is the Click Still King?” eMarketer

Tuesday, August 03, 2010

Strong IT Spending Growth Predictions from Forrester Assures IT Sales & Marketing Success?

George Colony, CEO of Forrester, in Forrester's most recent earnings conference call, indicates that: "As we move beyond mid-year, Forrester continues to predict growth in the IT market both here and abroad."

This is good news for IT vendors, who were predicting that perhaps the issues in Europe or US unemployment would put a damper on growth in the second half of 2010.

Forrester indicates to the contrary, with analyst forecast for a tech spending increase of 9.9% in the U.S. for the full year 2010, and 7.8% globally.

Growth is expected to be led by computer equipment and software spending, growing a dramatic 19.4% and 10.5% respectively.

The areas of slower growth include: IT services at 6.4%, Asia Pacific at 7.8%, and Western and Central Europe at 4.1%.

The growth figures predict a good time for most IT sales and marketing teams, however, not all analysts are predicting such expansive growth and good times. Both Gartner and IDC lag in their IT spending predictions by 4-5% less than Forrester's estimates -  so why such a difference?

Evidence points to Gartner and IDC looking more at formal budgets vs. actual spending, with Forrester highlighting high discretionary spending. This means that IT decision makers will be lobbying for incremental projects, making the case and getting approval for the most worthy investments. Based on the discretionary spending opportunity, the successful vendors in 2010/2011 will work proactively with prospects to uncover needs, and have strong business cases ready to capture the ad-hoc spending increases.

The full transcript is available via SeekingAlpha at: http://seekingalpha.com/article/217395-forrester-research-inc-q2-2010-earnings-call-transcript?