We are still in the early days of the cloud IT revolution. Cloud computing is changing many things about how organizations buy, deploy, use, and gain value from information systems. One of the most interesting and dynamic emerging trends is that for many organizations the focus is shifting from the technology itself to the value the organization realizes from using the technology.
The move to “as a service” is also changing the way organizations make decisions regarding the initial purchase and the renewal of the software. If you ask someone who works in traditional service industries – lawyers, accountants, wait staff, bartenders – they will tell you that people decide to come back based on the quality of the experience and the value the individual receives from their experience with the service.
This flips the traditional perspective of technology on its head. Once viewed and evaluated like a product you would purchase and take home to keep, technology is now viewed and evaluated as a service.
Cloud buyers and vendors are slowly catching on to just how important value creation from the use of software is for their success.
One software vendor I spoke to indicated that they were great at landing an initial sale, but they had over 50% turnover in their mid-tier market alone just because the system was not being used and therefore not delivering value to the client organization.
Will you renew your cloud subscription?
When you first decide to purchase a cloud IT system, you do so because of the promise and potential for you to realize value in the future (after you start using it). Even with lower upfront costs, you probably put together a business case that defines your expected costs and expected return.
Before cloud systems became popular, many organizations only looked at their business case during budget discussions when making the initial system purchase. Once the decision was made and the money was spent, few organizations would come back to measure their actual ROI on their IT investment. There was little need to do so – after all, the money was spent and gone.
But what if you could get out of a bad investment before you spent all the money? With cloud systems, you can.
Cloud IT subscription-based pricing changes the buying decision process
Cloud IT, with its subscription based pricing and defined contract periods, enables organizations to evaluate the value they are actually receiving from their cloud investments and pull out of bad investments. In essence, the contract renewal date inserts a logical breakpoint in the buying process.
It also changes how you make buying decisions.
Cloud renewal decisions are different from the initial purchase decision
As I mentioned, the initial cloud buying decision is made based on expectations for future results. With no direct history with the system, you make your decision based on the word of others (the vendors, vendor provided references, online reviews, etc.) and your confidence that you can get similar results.
Renewal decisions are made primarily on your direct experience. You evaluate your experience implementing the system, the level of adoption you have achieved, and any specific success metrics / ROI calculations. This experiential information then creates a context in which you evaluate the potential of the system to deliver additional benefits in the future.
Need to focus on cloud user adoption and ROI
So, what does it all mean? It means that clients (buyers) and cloud vendors both have a vested interest in making sure the cloud system is fully adopted and there’s clear evidence of the value you received from the cloud system. It means that having great functionality and a low price point is not enough to get you to renew your subscription if you aren’t getting any value. It means that there is a new standard for success when it comes to investing in technology solutions. And it means that you will need an ongoing program drive user adoption, making sure you are getting the ROI you need. After all, as soon as the system stops delivering value you will stop paying for it.
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At the end of last month, Tri Tuns went to Cloud Slam ’12 in San Francisco where our CEO, Jason Whitehead, was invited to give a presentation about the newest challenges in cloud adoption: the users.
As one might expect at a cloud conference, Cloud Slam ’12 leaned heavily toward the technical and many people were talking about the amazing changes and possibilities the cloud, now in its infancy, will bring. The conversational overtones were reminiscent of the early days of the Internet.
Jason’s talk was one of the only “business-centric” presentations at a very “techno-centric” conference, and we were happy to offer an alternative perspective on the cloud and cloud adoption. While we were already thrilled to be invited, once there we found out after receiving consistently good ratings from the selection committee, Jason’s speaking proposal was chosen from more than 1,000 submissions! Thank you Cloudcor and Cloud Slam ’12 organizers, we were very pleased to be part of it.
In keeping with Tri Tuns’ focus on the people-side of system implementations, Jason was different from most of the other speakers who discussed urgent and emerging issues regarding the more technical aspects of the cloud. Jason addressed the non-technical side of the cloud: the people using it. As we heard one person say, “It’s never the software that fails; it’s always the fleshware.”
Jason’s talk addressed how when it comes to the cloud, and migrating thereto, many of us do so because we think it’ll be that Holy Grail trifecta: better, faster, cheaper than what we’re doing right now. But low up-front costs (for the buyer), the often-blinding speed of change, and on-going updates and changes take their toll elsewhere….and in every direction: the vendors, the customers, the users.
What we see time and again is that the laser-focus on “better, faster, cheaper”, defining “success” within the narrow confines of technology (did it go-live on time and on budget?) and managing organizational change in the traditional ways leads to business failures that could have easily been avoided in the first place.
Further, Jason outlined the inherent issues with traditional change management and its inability to accomplish business goals today. The old ways of “go live and go home” and “train and blame” just don’t work, especially in today’s workplace.
In essence, while the cloud has changed the game for vendors, clients and users, the cloud is also an excellent proxy for all the other technological changes organizations go through.
In today’s climate, with today’s workforce organizations must focus on behavior and performance management issues that can easily be addressed by effective user adoption programs requiring specific activities, deliverables and resources. Traditional change management just doesn’t do that. And at the end of the day, ROI will not be determined solely by “up time”. ROI is far more contingent on the people, the “fleshware”, involved.
- How is success defined for your implementation project? Help ensure you're focusing on the right things for business success by reading our new eBook.
- Do you know what your specific challenges are? How will user adoption impact your project? Take our free assessment to start finding out.
- How are you delivering IT change in your organization? Literally, what's the administrative mechanism? Are you trying to build your own? Checkout www.MyUserAdoptionPlan.com to see what pre-built, pre-loaded, customizable options exist.
- If you're wondering how your project is going, try out our free assessment.
- Or, if you have questions about your unique situation, please drop us line.
underestimated costs = underestimated risk
It’s fairly well-known that we weigh many different factors when making a buying decision – some logical, some emotional. When purchasing cloud computing, it is easy to fixate on the most obvious factor - the monthly fee – while developing a blind spot for many other key considerations. For many IT buyers who are used to big dollar projects, the relatively low up-front costs of cloud computing can be as distracting as a sparkling toy to a child. (Ooo…shiny!)
So how do you ensure you don’t overlook key considerations that are lurking in your blind spot when you’re buying a new IT system?
The other day I was talking with the enthusiastic corporate sponsor of a bank’s new cloud-based software system and he told me with the number of impacted staff, ‘the whole thing will only cost $100 per employee.’ When I asked him to describe the process by which this software was chosen, he giddily told me how easy a decision it was, given that the most they’d be out if it failed was $100,000 over the next two years. He was excited by how little risk to which his buying decision had exposed the bank, given how ‘cheap and easy’ it would be to implement.. (I repeat: Oooo….shiny!)
Does this sound familiar?
As our conversation continued, it became obvious that this bank executive was fixated on the $100 per employee cost. It’s how he got buy-in and it’s what he’ll be measured on at the end of the year. However, despite numerous attempts from a variety of people, no amount of persuasion could convince him that there were any other cost considerations besides the check he’d sent to the vendor. His tight focus on the $100 per employee number meant he wasn’t able to consider anything that might change how he calculated the true cost of the cloud investment. It was clear his emotions were affecting his thinking and by significantly underestimating the true cost of the bank’s IT investment, this corporate sponsor also significantly underestimated the amount of risk the bank faced if the project failed.
Industry estimates suggest the true cost of a cloud implementation is anywhere from 3 to 10 times the price of the system. To put that in hard numbers, even if the vendor is selling you the new system for only $100,000 per year, you’re staring down the barrel of a $300,000 to $1,000,000 in true costs.
And industry estimates suggest IT projects fail at a rate of 60 – 70%. (Oh. Not so shiny.)
Miscalculating an IT investment’s cost and opening up the organization to more risk means it’s even more important that you take action to make sure the system generates real value and capture a high ROI as soon as possible after go-live. After you adjust your estimated expenditures to reflect something closer to reality, you need a way to create value, produce positive ROI and mitigate the risk. How? It’s deceptively simple: get people to use the system. How do you do that? User adoption plans.
What It Means For You
When you consider all the costs of your cloud system, you probably have a lot more at risk than you originally expected. You therefore need to make sure you get more value from the system to justify the additional risk. You need to be able to demonstrate that your cloud system is being used and is creating real, measureable value. But how do you get people to use the system?
It’s really not about the technology, it’s about behavior. Changing the technology is the easy part (relatively). Changing peoples’ behavior takes a strategy and a way to execute that strategy, including having the organizational infrastructure, necessary skills, knowledge, experience, and, of course, executive support.
Things to Think About
- What non-subscription costs do you need to include when determining your true cost of your cloud investment? Where else are you spending your time, resource, money and effort to purchase, implement and support your cloud system?
As the saying goes, “Time is money”, so calculate it as such. In addition to the price of the software if nothing else, figure in the costs associated with the full disruption of this project, from initial research to cost of training for future employees, by including the following in your calculations:
- how many people are involved
- rate(s) of pay (or a blended average)
- for how many hours
- over how many months
- plus lost productivity
2. If your updated calculation has a higher cost basis, how does this affect your business case/ ROI forecast? What level of user adoption do you now need to make sure you get the benefits you need to justify the investment?
Many IT business cases fall down because they assume 100% user adoption. But what happens if you only get 40% effective adoption? 60%? 80%? Does your cloud investment still look attractive? Think about adjusting the business case for different levels of adoption, over various periods of time and see if the business case still makes sense.
3. Do you have a comprehensive strategy that ensures you reach your target level of user adoption? How will you ensure the highest rate of adoption possible? Do you have the resources, time, knowledge, skills or infrastructure to drive and sustain effective user adoption and achieve your ROI goals? If not, how will you get what you need?
- Take the User Adoption Challenge to see what specific user adoption issues you face on your IT project.
- Read "How to Sustain High CRM User Adoption" to learn more about how to have successful CRM (or other systems) implementations.
- Read "High Stakes Gamble: Many Organizations Bet on IT Success with only a 1 in 4 Chance of Winning"
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OBSERVATIONFor major IT projects, many organizations require a formal business case in order to get funding and approval for the project. The business case typically covers an explanation of the technology, expected changes to the business, the total cost of ownership (TCO) and the expected Return on Investment (ROI). Despite all these efforts to make sure you are making a wise investment, many completed projects fail to realize the anticipated level of benefits and ROI. Why? Because most IT systems don’t actually get used sufficiently to deliver the value you expect.
One major cause for this is that most business cases assume 100% user adoption and ignore the impact low levels of adoption have on ROI. As you know, benefits are only realized if your people actually use the system consistently and effectively. Unless you currently have full and effective adoption of your existing systems, it is naïve to think that you will achieve 100% adoption of your new systems.
To account for less than perfect user adoption, you need to examine how different adoption levels affect your business case. If you find that the projected ROI no longer makes sense you can either scrap the project or determine what additional resources and effort is required to increase adoption to the point that it will deliver an acceptable ROI.
CONSIDER THISRequire that all business cases include a weighting factor for anticipated level of user adoption. Consider the impact that low, average, and high levels of user adoption have on your anticipated TCO, ROI, and level of benefits realization when approving IT projects.
THINGS TO THINK ABOUT
- What levels of user adoption do you have with your existing systems? Why would you expect different adoption levels with your new system?
- Have you included funding and resources to drive and maintain user adoption after go-live? If not, what resources will you need to achieve required levels of adoption? What does including these resources in your business case do for your TCO and ROI forecasts?
- If you could increase user adoption of your existing systems & processes such that you get more value from your current technology, would you still want to move forward with the new project? What can you do increase adoption of existing technology?