Optimising Return On Investment with Intranets

Introduction

An intranet is a private network that is contained within an enterprise. It may consist of many interlinked local area networks and also use leased lines in the Wide Area Network. An extranet is also a private network, however it shares part of a business's information or operations with suppliers, vendors, partners, customers, or other businesses.

Intranets can serve large international organisations and small-to-medium enterprises (MKB). The functionalities within an intranet can include information delivery, training, employee self-service and human resources. A recent Forrester study that 67% of Fortune 1000 companies have an intranet of some form.

There is no industry standard for the definition of 'Return on Investment' (ROI) in eBusiness. A summary of most approaches is ROI a measure of money collected to money spent adjusted over time. If you spend $12,000 and collected $24,000 over one year the ROI is 100% for a single year. More complicated factors such as interest and depreciation must also be considered in the equation. The quality of the metrics and accounting formulas are critical in developing realistic and valuable numbers. Without quality metrics, the exercise of determining ROI is pointless.

ROI is different to cost amortisation. Why? ROI is concerned with improving a company's bottom line; not spreading costs over time and throughout company divisions.

Intranet and Extranet ROI can be structured into two hard metrics and soft metrics categories. Hard metrics are defined by clear financial numbers and arrived at by formulas i.e. €200,000. A soft metric is defined as a measurement of 'perceived' benefit i.e. 22% improvement in staff attitudes.

The ownership of ROI figures within an orginisation should be equally shared amongst sales, IT and Finance divisions. The result of shared ownership has many advantages - realistic numbers, improved delivery and better company-wide awareness.

ROI with intranets and extranets can be hard to determine. Many of the benefits fall into the 'soft' category and therefore lack the weight of clear revenue improvements. However, there is much evidence to suggest the real impact intranets and extranets can have.

Intranet and Extranet environments can create value for organisations in a number of ways. A company can increase sales, decrease costs, improve productivity, improve customer service and build intellectual capital. Understanding the ROI can inform organisations on the best way to invest in their Intranets and Extranets.

The aim of this paper is to outline how companies improve ROI with Intranets and Extranets. The case studies can be a starting point for your company to understand its potential ROI with intranets and extranets.

Decreasing Costs

Intranets and extranets can simply reduce the expense of information delivery within an orginisation. Printing and distribution costs can reduce significantly via online delivery of information.

Polymerland Case Study

Polymerland was formed to offer engineering resins, commodities, custom compounds and colorants from the industry's leading manufacturers through a network of distribution centers and supporting warehouses, strategically located to serve customers around the country.

The first web site to operate for Polymerland was its public web site in 1997. This was a simple and static web site. However by 1999 a transactional extranet was added. This enabled the connection between the company and its customers. Despite initial sales of $10,000 per week, sales within two years have reached $50 million to $60 million each week - accounting for 60% of company orders.

Developing a new sales channel really had impact on the bottom-line. The customer service division of Polymerland has reduced costs by 35% and the company receives 200,000 fewer telephone calls from its customers.

For information regarding Polymerland visit http://www.gepolymerlandeurope.com

Cisco Systems Case Study

Cisco Systems, Inc. is the worldwide leader in networking for the Internet. Cisco's Internet Protocol-based (IP) networking solutions are the foundation of the Internet and most corporate, education, and government networks around the world. Cisco provides the broadest line of solutions for transporting data, voice and video within buildings, across campuses, or around the world.

Cisco successfully implemented an employee self-service tool called METRO. This employee tool enabled cost reduction but also improved efficiency. All employees can submit their personal business expenses via the intranet Cisco's METRO expense reporting application has reduced the cost of processing expense reports (compared to the traditional paper system) from US$50.69 in 1996 to $1.90 in 1999.

Beautiful in its simplicity and powerful in its benefits. METRO translates into a 96% reduction in costs or US$77 million annually. Also gained was the average processing time of expenses was reduced from 21 days to only 4 days.

For information regarding Cisco visit http://www.cisco.com

Productivity Increases

Information is an important tool in everyday business. The company-wide access to information can determine the success of sales, time-to-market, customer service and many other mission critical operations. Intranets and Extranets can, when built with the users needs in mind, improve this information delivery process. Productivity can also be improved with faster and more efficient processing of transactions and orders.

Eli Lilly Case Study

Eli Lilly and Company is a leader in the pharmaceutical industry. The company employs more than 31,000 people worldwide and markets its medicines in 179 countries.

The company launched myELVIS as a corporate portal to improve company performance. Eli hopes to save $27 million a year as a result of increased productivity. How? The benefits of their corporate portal include improved efficiency in searching information and research, extending knowledge company-wide and better tools for marketing and sales.

For more information about Eli Lilly visit http://www.lilly.com

Mentor Graphics Case Study

Mentor Graphics® is a technology leader in electronic design automation (EDA), providing software and hardware design solutions that enable companies to send better electronic products to market faster and more cost-effectively. The company has 3,500 employees, Revenues approximately $600 million in 2001 and 66 locations worldwide.

Solving high tech problems is a demanding task for the customer engineers at Mentor. In the old days the quality and efficiency of customer service was dependant on the memory of any given engineer.

Now all company knowledge and solutions are stored in a central Web-based knowledge database. The customer's query can be run against all company-wide knowledge so improving both quality and efficiency of customer service.

The impact this is having on the staff is significant. Engineer workload has been reduced by 15% and continues to fall. This enables the engineers to service more customers over the same period.

For more information about Mentor visit http://www.mentor.com/

Xerox Case Study

Xerox provides solutions to help you manage documents - paper, electronic, online. Annual sales in 2001 of $16.5 billion

In 2000, Xerox saved more than $10 million with a browser-accessible database called Eureka. Over 3,800 technicians worldwide input their best practice maintenance and repair tips. Eureka now has over 30,000 logged tips, accessed by 20,000+ field customer service professionals.

Eureka helped technicians solve more customer problems faster. The bottom line impact of Eureka in savings is more than $10 million prior to 2001.

For more information about Xerox visit http://www.xerox.com/

Customer Service Improvement

Many facets of customer service are dependent on face-to-face contact. This can never be replaced by any technology. However, there are components of the customer relationship than can profit from optimisation via intranets and extranets. The benefit of extranet-based customer service can be mutually shared between both the end customer and the company.

NOL Group Case Study

The NOL Group today provides services in more than 100 countries and operates one of the largest containership and Aframax tanker fleets worldwide. It is also the largest shipping company listed on the Singapore Exchange with a market capitalization of S$1.24 billion as of 7 June 2002.

In an effort to avoid large reproduction of paper work for their clients, NOL moved a number of customer transactions online. These include electronic bills of shipping, online versions of the letters of credit required for insurance, and real-time rate quotes for specialized cargoes.

Currently 38% of APL's customers conduct their business via online transactions, up from 8% in 1999. Amazingly 25% of APL's North American customers never see a paper bill of shipping. Over the past two years volume of shipments has increased by nearly 10%. Significantly a 20% reduction in the cost of processing bills of shipping has occurred at the same time.

With the benefits passed on to customers, NOL Group enjoys more efficiency and more profits and happy customers.

For more information on NOL Group visit http://www.nol.com.sg

Mary Kay Case Study

Mark Kay is a manufacturer of beauty products in the USA. Revenues for 2001 were $2.6 billion.

Rather than casuing a channel conflict, Mark Kay decided to use the Internet as a medium to support is sales representatives. By helping its beauty consultants set up and improve their business the company believed it could increase sales.

Anecdotes from the sales professionals showed how the intranet enabled them to distribute sales information quickly to their customers via email and faster sales cycles followed.

The total investment to date is $15 million during the past five years. 24% of the sales force have their own web page and use the intranet regularly. The sales force also now orders 70% of Mary Kay's revenue online. Most importantly, huge efficiencies have been created. The cost per order in the company used to be over $3, now it's below $1 due to the intranet.

For more information about Mark Kay visit http://www.marykay.com/

Human Resources Improvement

As we saw previously with Cisco Systems, Human Resource services via Intranets can have significant financial reward to a company. The 'self-service' concept with Human Resources has been very successful to date. The concept empowers the employee to manage such items as their holidays, insurance and pensions. This avoids costly and slow paper work on the administration side of a company.

HP Case Study

The new HP is a leading technology solutions provider for consumers and businesses with market leadership in fault-tolerant servers, UNIX® servers, Linux servers, Windows® servers, storage solutions, management software, imaging and printing and PCs.

In October 2000, HP launched @HP portal. Prior to this HP had a number of internal web sites and it was HP's goal to reduce this by a number of 2000. The broad functionalities in the portal meant HP could eliminate benefits and payroll paperwork, streamline processes such as travel bookings, eliminate the need for call centers, consolidate websites, and reduce costs for printing, fax machines, copiers and servers.

The ROI of @HP is $50 million annually based on the companies initial $20 million investment.

For more information about HP visit http://www.hp.com

Increased Buying Profit

Any medium to large sized company understands the benefit of combined buying power. However, the execution of combined buying is often the challenge in large, decentralised and autonomous orginistaions. Intranets can be the gathering point of company purchasers and the extranet can quickly connect them to suppliers with the best price.

Case Study Unilever

Unilever is an Anglo-Dutch company producing washing powder, shampoo and toothpaste, teas, ice cream, oils and spreads for consumers all over the world.

As $46 Billion company, potential buying is very high at the company. Unilever's Global Buying Service developed an intranet application that centralizes computer equipment purchases. The application let Unilever consolidate all its contracts with vendors, giving the company far greater purchasing power - and driving down the cost of most equipment by 20% to 40%.

For more information about Unilever visit http://www.unilever.com

Summary

Intranets and Extranets have undoubted impact on a company's bottom line. From delivering simple contact information to sophisticated group purchasing the evidence is clear.

However, companies must vigorously understand their business and the manner in which eBusiness initiatives can benefit them. Many companies have unique situations that require tailored solutions that really integrate into the orginistaion. Many companies do not discover what users goals are. Therefore, the final solution does not generate the desired results.

The choice of technology has often been a leading factor within an intranet or extranet. Issues such as security, compatibility and vendor relationships often are considered when the full facts are not known. How can a company make a technology/functionality decision on an intranet without first determining what the users need are and the financial return for solving this need?

An informed decision based on the business, user and technology goals will balance the key disciplines within eBusiness. An optimisied ROI is understanding of the disciplines with eBusiness and based on sound metrics and formulas.

Research Note

Material from the following publications were used CIO Magazine, Ganthead, darwinmag.com, Business Week, Cisco Systems and intranetjournal.com