The Total Economic Impact Of SAS Marketing Automation

Transcription

1 Prepared fr SAS Institute, Inc. Nvember 2007 The Ttal Ecnmic Impact Of SAS Marketing Autmatin Prject Directr: Jeffrey Nrth, Principal Cnsultant

2 TABLE OF CONTENTS Executive Summary...3 Purpse...3 Methdlgy...3 Apprach...3 Key Findings...4 Disclsures...5 SAS Marketing Autmatin: Overview...6 Analysis...8 Interview Highlights...8 Marketing Autmatin In The Bank s Cards Divisin (Spain)...9 TEI Framewrk...10 Csts...10 Benefits...12 Risk...13 Flexibility...15 TEI Framewrk: Summary...16 Study Cnclusins...18 Appendix A: Ttal Ecnmic Impact Overview...19 Appendix B: Glssary...20 Appendix C: Abut The Prject Directr , Frrester Research, Inc. All rights reserved. Frrester, Frrester Wave, RleView, Techngraphics, and Ttal Ecnmic Impact are trademarks f Frrester Research, Inc. All ther trademarks are the prperty f their respective cmpanies. Frrester clients may make ne attributed cpy r slide f each figure cntained herein. Additinal reprductin is strictly prhibited. Fr additinal reprductin rights and usage infrmatin, g t Infrmatin is based n best available resurces. Opinins reflect judgment at the time and are subject t change. 2

3 Executive Summary In April 2007, SAS Institute (SAS) cmmissined Frrester Cnsulting t examine the ttal ecnmic impact and ptential return n investment (ROI) enterprises may realize by deplying SAS Marketing Autmatin. SAS Marketing Autmatin prvides cmprehensive data management, campaign management, and advanced custmer analytics t enable marketers and analysts t manage sphisticated, timely, and persnalized custmer cmmunicatin strategies and thus increase respnse rates and revenue. This study illustrates the financial impact f implementing SAS Marketing Autmatin in the credit/debit cards business, in ne Eurpean cuntry, fr a glbal retail and cmmercial bank. Purpse The purpse f this study is t prvide readers with a framewrk t evaluate the ptential financial impact f SAS Marketing Autmatin n their rganizatins. Frrester s aim is t clearly shw all calculatins and assumptins used in the analysis. Readers shuld use this study t better understand and cmmunicate a business case fr investing in SAS Marketing Autmatin. Methdlgy SAS selected Frrester fr this prject because f Frrester s industry expertise in enterprise marketing sftware, as well as Frrester s understanding f the cnfluence f technlgy, data, and analytics and the impact n marketers, and fr Frrester s Ttal Ecnmic Impact (TEI) methdlgy. TEI nt nly measures csts and cst reductin (areas that are typically accunted fr within IT) but als weighs the enabling value f a technlgy in increasing the effectiveness f line-f-business activities. Fr this study, Frrester emplyed fur fundamental elements f TEI in mdeling a financial framewrk arund SAS Marketing Autmatin: 1. Csts 2. Benefits t the entire rganizatin 3. Risk 4. Flexibility Given the increasing sphisticatin that enterprises have regarding cst analyses related t IT investments, Frrester s TEI methdlgy serves a useful purpse by prviding a cmplete picture f the ttal ecnmic impact f purchase decisins. Please see Appendix A fr additinal infrmatin n the TEI methdlgy. Apprach Frrester used a fur-step apprach fr this study: 1. Frrester gathered data frm existing Frrester research relative t SAS Marketing Autmatin and the marketing technlgies market, in general. 2. Frrester interviewed persnnel frm SAS Custmer Intelligence Glbal Practice t fully understand the value prpsitin f SAS Marketing Autmatin. 3

4 3. Frrester cnducted a series f in-depth interviews with an rganizatin currently using SAS Marketing Autmatin prducts. 4. Frrester cnstructed a financial mdel representative f the interviews. This mdel can be fund in the TEI Framewrk sectin belw. Key Findings Frrester s study yielded several key findings: ROI. Based n the interviews with a Marketing Autmatin custmer, a bank s credit/debit card divisin, Frrester cnstructed a TEI framewrk with the assciated ROI analysis illustrating the financial impact areas. As seen in Table 1, the ROI fr ur cmpsite cmpany is 296%, with a breakeven pint (payback perid) f less than seven mnths after deplyment. Benefits. The custmer rganizatin expects t realize higher levels f prfitability by ptimizing its marketing campaigns fr credit and debit cards. The ptimizatin prcess ensures that the best custmers are targeted fr each individual prduct imprving cnversin rates and underlying campaign prfitability. Csts. Cst categries include setup csts (infrastructure and assciated implementatin csts), nging perating csts and Marketing Autmatin sftware license and maintenance fees, as well as related hardware acquired t run the platfrm. Based n these findings, cmpanies lking t implement Marketing Autmatin can expect t see increases in the effectiveness f marketing campaigns and verall prfit increases. Using the TEI framewrk, many cmpanies may find the ptential fr a cmpelling business case t make such an investment. Table 1 illustrates the risk-adjusted cash flw fr the cmpsite rganizatin based n data and characteristics btained during the interview prcess. Frrester risk-adjusts these values t take int accunt the ptential uncertainty that exists in estimating the csts and benefits f a technlgy investment. The risk-adjusted value is meant t prvide a cnservative estimatin, incrprating any ptential risk factrs that may later affect the riginal cst and benefit estimates. Fr a mre indepth explanatin f risk and risk adjustments used in this study, please see the Risk sectin. Table 1: ROI, Original And Risk-Adjusted Summary Financial Results Original Estimate Risk-Adjusted ROI 387% 296% Payback perid (mnths) Ttal csts (PV) ( 3,566,981) ( 3,650,877) Ttal benefits (PV) 17,360,132 14,466,777 Ttal (NPV) 13,793,151 10,815,900 Surce: Frrester Cnsulting 4

5 Disclsures The reader shuld be aware f the fllwing: The study is cmmissined by SAS and delivered by the Frrester Cnsulting grup. SAS reviewed and prvided feedback t Frrester, but Frrester maintains editrial cntrl ver the study and its findings and des nt accept changes t the study that cntradict Frrester s findings r bscure the meaning f the study. The custmer fr the interviews was prvided by SAS. Frrester makes n assumptins as t the ptential return n investment that ther rganizatins will receive. Frrester strngly advises that readers shuld use their wn estimates within the framewrk prvided in the reprt t determine the apprpriateness f an investment in SAS Marketing Autmatin. This study is nt meant t be used as a cmpetitive prduct analysis. 5

6 SAS Marketing Autmatin: Overview Accrding t SAS, Marketing Autmatin supprts the entire marketing team and prvides imprved efficiency and effectiveness at every stage f the marketing prcess frm setting strategy t targeting pprtunities, implementing campaign initiatives, and measuring results. SAS Marketing Autmatin helps rganizatins imprve respnse rates and revenues by prviding the ability t easily manage sphisticated, timely, persnalized custmer cmmunicatin strategies. Built specifically t meet the needs f key rles in the marketing prcess campaign managers, business analysts, quantitative analysts, IT and senir management SAS Marketing Autmatin prvides cmprehensive data management, business intelligence and reprting, campaign management, and advanced custmer analytics. With SAS Marketing Autmatin, marketing departments can: Maintain an integrated custmer view. SAS prvides a unified view f custmers acrss the enterprise, incrprating infrmatin frm all tuchpints and channels and ensuring that custmer infrmatin is cnsistent, secure, accurate, and cmprehensible t users. Manage custmer life cycles. Custmer segmentatin and prfiling capabilities cnslidate insight at a custmer level t build and mnitr critical strategic segments ver time. Imprve effectiveness thrugh better targeting, measurements, and analytics. Thrugh advanced analytic techniques such as data mining, market basket analysis, link analysis, frecasting and ptimizatin, as well as segmentatin, prfiling, and behavir analysis, SAS Marketing Autmatin helps marketers understand custmers' past behavir and predict future pprtunities. Drive cmplex cmmunicatin strategies. Thrugh an intuitive graphical wrkflw interface and in-depth campaign management functins, business users can efficiently deply the results f advanced analytics and drive multichannel, multistage cmmunicatins using reliable custmer intelligence. Understand and cntinuusly imprve the results f marketing activities. SAS Marketing Autmatin allws users t fully understand custmer respnses, whether thse respnses invlve direct cmmunicatin r subtle changes in behavir. Reprts n campaign effectiveness cmbine this respnse analysis with budget expectatins t deliver a full picture f the financial return achieved by each marketing initiative and enable marketers t refine subsequent activities much mre quickly. Prvide integrated supprt fr all business units. SAS Marketing Autmatin supprts the activities f the key marketing campaign participants, including decisin-makers, business users, database marketers, quantitative analysts, and IT. Manage IT infrastructure. Allwing cmpanies t take advantage f their existing IT infrastructure, SAS Marketing Autmatin is built n technlgy that can be deplyed acrss the enterprise in a scalable, multitier architecture. 6

7 SAS Marketing Autmatin, part f the SAS Custmer Intelligence slutins family, can be extended thrugh integratin with ther SAS prducts, prviding additinal benefit fr marketing and ther functins within the rganizatin. 7

8 Analysis Develping a TEI mdel is a multistep prcess. After reviewing all f Frrester s wn relevant syndicated research, Frrester interviewed persnnel within SAS Custmer Intelligence Glbal Practice t learn abut the Marketing Autmatin value prpsitin. Next, Frrester interviewed the directr f marketing analytics frm a majr glbal bank that recently implemented Marketing Autmatin in Spain (and als in several ther cuntries, althugh thse implementatins are nt included in this study). Frrester used the interview prcess t understand the distinct csts and benefits that the custmer rganizatin saw as a result f its implementatin f Marketing Autmatin. Frrester then cnstructed a mdel based n thse individual cst and value statements. An annual 10% discunt rate was applied t all cash flws t calculate their present values and prduce a net present value fr the investment. Data prvided by the custmer allwed Frrester t prject a three-year risk-adjusted ROI f 296%. The mdel makes up the main bdy f this study and shuld be used by readers as a guide fr determining the ROI fr their wn rganizatins. Interview Highlights The custmer prfiled in this case study is a large bank based in Eurpe, with separate perating units in many cuntries and a wrldwide ftprint. The fllwing pints illustrate the custmer s experience with SAS Marketing Autmatin, drawn frm custmer interviews: Prir t the implementatin f Marketing Autmatin, the bank had n dedicated campaign management r analytics systems fr its cards divisin in Spain. The cards business previusly shared the prprietary campaign platfrm and cntact tls that were created fr the bank s retail businesses. N card-specific sftware and hardware systems existed until Marketing Autmatin was purchased and installed. We had n pprtunity [prir t implementing Marketing Autmatin] t develp ur whle business mdel, which is greatly reliant n having cntinuus cntact with ur custmer, explained the directr f Marketing Analytics. Sharing the cntact management and analysis platfrm with retail, the cards business had t use the custmer segmentatins created fr retail. This hampered the cards business frm develping and acting n the unique understanding f card custmer value, behavir, and sci-demgraphic factrs The cards business had t find time slts fr campaigns amid the bank s ther pririties, limiting the custmer cntact pprtunities t just several per mnth r fewer. Implementing Marketing Autmatin was a majr step in advancing the grwth f the cards divisin because it allwed the business t match campaigns and custmer utreach fr bth prspecting and prtfli management (existing custmers). The cards business is very different frm the bank s ther lines f business that prvide varius lans, mrtgages, and ther retail and cmmercial financial prducts. Cnsumers use their credit and debit cards daily, prducing large flws f data. Cnsumers carry and use cmpetitrs cards in the same wallet r purse as this bank s credit and debit vehicles. Prcessing card data ccurs faster than with ther banking prducts. 8

9 With the launch f Marketing Autmatin, the cards divisin began t exercise new capabilities, including: Creating 35 t 40 campaigns per mnth with a staff f nly fur analysts. Cmparable activity in ther cuntries requires significantly mre staff fr business units that d nt have the benefit f the Marketing Autmatin implementatin fr Spain. Cnducting analysis that was nt previusly pssible, and gaining greater understanding f custmer behavir and value, and increasing custmer acquisitin, repurchase, retentin, and thus revenue. Prvide data t the bank s risk management team, wh brrw data frm the cards data warehuse t cnduct their wn analyses and build risk scring mdels. Marketing Autmatin In The Bank s Cards Divisin (Spain) The cards divisin implementatin f SAS Marketing Autmatin uses the fllwing cmpnents: SAS Data Integratin Server t build the campaign datamart and migrate data frm the current Unix DB2 warehuse. SAS Scalable Perfrmance Data Server as the campaign datamart. SAS Enterprise Miner fr predictive custmer analytics. SAS Infrmatin Map t link data between the datamart and Campaign Studi. SAS Campaign Studi t graphically create the campaigns, targeting and tying cmmunicatins (tracking based n the ffer sent, etc.) t specific targets. SAS Web Reprt Studi t view reprts and evaluate the results f the campaigns. SAS Enterprise Guide t access, manage, transfrm, analyze, summarize, and reprt fr ad hc fllw-up. SAS Web OLAP Viewer fr any brader fllw-up based n specific variables. SAS Management Cnsle t maintain all the uses and privileges. Nte that all f these mdules are included as standard cmpnents f SAS Marketing Autmatin. 9

10 TEI Framewrk Intrductin Frm the infrmatin prvided in the in-depth interviews, Frrester has cnstructed a TEI framewrk fr thse rganizatins cnsidering an implementatin f Marketing Autmatin. The bjective f the framewrk is t identify the cst, benefit, flexibility, and risk factrs that impact the investment decisin. The financial mdel presented in this study cnsiders a three-year investment by the custmer in SAS Marketing Autmatin sftware and assciated hardware and labr csts, and the resulting grss margin frm the verall grwth in the cards business ver a three-year perid. Framewrk Assumptins Table 2 lists the discunt rate used in the PV and NPV calculatins and the time hrizn used fr the financial mdeling. Table 2: General Assumptins Ref. General assumptins Value Discunt rate 9% Length f analysis Three years Surce: Frrester Research, Inc. Organizatins typically use discunt rates between 8% and 16% based n their current envirnment. Readers are urged t cnsult with finance t determine the mst apprpriate discunt rate t use within their wn rganizatins. Csts The key cst categries assciated with this Marketing Autmatin implementatin are: 1) hardware; 2) Marketing Autmatin sftware and maintenance fee; 3) prfessinal services; and 4) internal labr. The fllwing sectins describe the cst inputs t the financial analysis. Hardware IBM servers running Unix were purchased fr 1.2 millin t huse the develpment, test, and prductin envirnments fr Marketing Autmatin and the assciated datamart. Sftware The standard cst f Marketing Autmatin sftware amunted t 990,000 fr 5 millin recrds. The maintenance fee f 27% r 267,300 is charged annually, cmmencing the secnd year f use. 10

11 Prfessinal Services Implementatin assistance frm a third party was engaged fr a ttal f 350,000 ver the curse f six mnths. The utside team cnsisted f a prject manager and fur cnsultants. Internal Implementatin Labr Three teams f internal bank staff were assigned t: 1) set up the hardware and install sftware; 2) develp the data flws and the datamart; and 3) establish the analytics fundatin with business rules and user testing and implement the analytics. Full-time equivalent (FTE) effrt fr these grups amunted t 6.3 FTEs fr a perid f six mnths. The ttal cst f this effrt was apprximately 155,000 based n an average fully laded (including benefits) annual cmpensatin rate f 49,250 per FTE r 6.3 x 49,250 x.50 years. Onging Management Of Marketing Autmatin Onging management, maintenance, and executin f the bank s Marketing Autmatin platfrm require a staff f fur (4) analysts and staff, including Marketing Autmatin users designated t maintain the system. Their fully laded annual cmpensatin averages 43,500 each fr a ttal annual labr cst f 174,000. Nte: If the cmpensatin rate used in this prtin f the mdel is increased t reflect Nrth American salary levels, i.e., $95,000 salary and benefits (r 67,500), the ROI in the mdel is nly mdestly affected. It remains a rbust 272% n a risk-adjusted basis. Ttal Csts Table 3 summarizes the ttal three-year csts f this Marketing Autmatin implementatin and related expenses. Table 3: Ttal Csts Csts Initial Year 1 Year 2 Year 3 Ttal Hardware csts 1,200,000 1,200,000 Sftware license fees 990, , ,300 1,524,600 Prfessinal services 350, ,000 Planning and implementatin labr csts: Analytics team 28,275 28,275 Implementatin labr csts: Tech team 1 50,750 50,750 Implementatin labr csts: Tech team 2 76,125 76,125 Campaign and analytics team: Spain 174, , , ,000 Ttal 2,695, , , ,300 3,751,750 Surce: Frrester Cnsulting 11

12 Benefits We nw have the pprtunity t develp ur whle business mdel, which is strngly reliant n having cntinuus cntact with the custmer. The value is huge fr us. Directr, Marketing Analytics, Cards Divisin The interviewed custmer identified the ability t decuple frm the analytics infrastructure f the retail units and begin t manage the cards business as a separate and distinct business and thus realize verall grwth f the business as the key benefit that the rganizatin has realized with Marketing Autmatin. Anther majr benefit is the ability t exprt the business capability t ther cuntries where the bank has card business r wuld like t expand. This is discussed in greater detail in the Flexibility sectin belw. Dedicated Analytics And Cntact Management Platfrm The custmer interviewed fr this study cited the main benefits f Marketing Autmatin as nthing less than having the pssibility, fr the first time in Spain, t market the cards fferings in such a way as t apprach the true ptential f the business. After installatin and testing f Marketing Autmatin, a prcess that required apprximately six mnths, the cards unit acquired a pwerful platfrm t accmmdate the vlume, frequency, and cmplexity f custmer cntacts t run the business well. Many f its campaigns are sphisticated, with multistage (at least mnthly) cntacts. Campaigns seek t prmpt, fr example, early card activatin in the first fur mnths. Analysts are cnstantly checking n custmer behavir t understand it and create fllw-up activities t prmte desired respnses. Marketing Autmatin has made this and greater levels f sphisticatin pssible. The bank nw executes 35 t 40 campaigns per mnth, encmpassing 450,000 cards per mnth. This activity level wuld require many mre staff if nt fr Marketing Autmatin, and even then the business wuld suffer frm less accuracy, lwer levels f cntact sphisticatin, and ultimately a lwer level f cmpetitiveness and prfitability in a cmpetitive market where all banks ffer cards. The Cards business experienced significant grwth in Much f this grwth can be attributed t the implementatin f Marketing Autmatin. The bank is still evaluating the value f the investment, but interviews indicated the value f the SAS prduct ffering at a high level. Frrester wrked with the custmer s financial results (and disguised these slightly t ensure the custmer s annymity), and determined that the grwth in net incme f the cards divisin was 35% ver 2005 incme levels, an amunt f apprximately 12.5 millin. By cnservatively estimating that half f the increase was attributable t the deplyment f the dedicated analytics and cntact management capabilities f Marketing Autmatin, the benefit amunt wuld be 6.25 millin in Year 1. This equals an increase f apprximately 4.00 grss prfit per card fr 1.5 millin cards, althugh the number f cards was increasing ver the time perid. Frrester further assigns a cnservative cmpund annual grwth rate fr the business, applied t Year 2 and 3, f 10%. The Risk sectin belw describes hw Frrester treats uncertainty arund this estimate. Users f this study are encuraged t create calculatins t answer the questin, What is the minimum level f incremental grss prfit that wuld be required t justify an investment in Marketing Autmatin? Frrester believes that many rganizatins, using mdels based n the financial framewrk presented in this study, will determine that the minimum required lift in their business is achievable in a shrt perid, and thus a cmpelling business case exists fr investing in Marketing Autmatin. 12

13 Efficiency And Effectiveness The custmer estimated that withut Marketing Autmatin, headcunt wuld need t be between 5 and 7 FTEs cmpared with the 4 FTEs currently managing the cards campaigns and analytics. Withut having ur wn analytics capabilities, explained the bank s directr f Analytics, we were nt able t build the types f cntact strategies based n, fr example, when custmers use their card and fr what. And f curse we did nt have infrmatin that wuld help us imprve ur targeting. This translates int accuracy in wh yu address in a specific campaign and fr what purpse. The bank is nw able t use the very precise infrmatin that it maintains fr cards, including all transactin data, which results in mre accurate targeting and greater campaign impact at lwer cst. Ttal Benefits Table 4 summarizes the ttal three-year grss margin benefits f this Marketing Autmatin implementatin. Table 4: Ttal Benefits Benefits Year 1 Year 2 Year 3 Ttal Incremental grss prfit 6,250,000 6,875,000 7,562,500 20,687,500 Ttal 6,250,000 6,875,000 7,562,500 20,687,500 Surce: Frrester Cnsulting Risk Risk is the third cmpnent within the TEI mdel; it is used as a filter t capture the uncertainty surrunding different cst and benefit estimates. If a risk-adjusted ROI still demnstrates a cmpelling business case, it raises cnfidence that the investment is likely t succeed because the risks that affect the prject have been taken int cnsideratin and quantified. The risk-adjusted numbers shuld be taken as realistic expectatins, since they represent the expected values cnsidering risk. In general, risks affect csts by raising the riginal estimates and they affect benefits by reducing the riginal estimates. Fr the purpse f this analysis, Frrester risk-adjusts cst and benefit estimates t better reflect the level f uncertainty that exists fr each estimate. The TEI mdel uses a triangular distributin methd t calculate risk-adjusted values. T cnstruct the distributin, it is necessary t first estimate the lw, mst likely, and high values that culd ccur within the current envirnment. The risk-adjusted value is the mean f the distributin f thse pints. Fr example, in the case f the prfessinal services required t install Marketing Autmatin, the riginal assumptin f 350,000 used in this analysis can be cnsidered the mst likely r expected value. Yet this amunt will vary based n a number f anticipated factrs as well as unfreseen events and discveries. The variability represents a risk that is captured as part f this study. Frrester assumes that the cst fr prfessinal services culd be as much as 50% higher than the riginal estimate, s 525,000 is the high estimate. The lw estimate is cnservatively kept at 100% if the riginal estimate (indicating that the cst is unlikely t be less than the riginal estimate). Frrester then creates a triangular distributin t reflect the range f expected benefits, with 409,500 as the mean f 525,000, 350,000, and 350,000 the high, expected, and lw 13

14 values, respectively. The risk-adjusted amunt is f 409,500 is 17% higher than the riginal estimate. The fllwing implementatin and impact risks are identified as part f this analysis: Installatin and testing culd demand mre days f cnsulting services and internal staff labr due t: Challenges in cnnecting t siled data. Delays in rganizing infrmatin t adequately supprt targeting prcesses. Delays in creating a datamart and data mdel specific t the campaign prcesses. Frrester assumes that cst amunts fr hardware and sftware will have been determined by cntract, s n risk adjustment is applied. The fllwing tables shw the values used t adjust fr uncertainty in cst and benefit estimates. Different cst and benefits estimates have different levels f risk adjustments. Fr example, Frrester applied a higher risk weighting t technical labr fr implementatin as cmpared analytics in part due t the assumptin that there is mre variability in the implementatin estimate. Readers are urged t apply their wn risk ranges based n their wn degree f cnfidence in the cst and benefit estimates. Table 5: Risk Adjustment Factrs Csts Risk Adjustment: Cst Categry Lw Mst likely High Mean/riskadjusted % Hardware csts 100% 100% 100% 100% Sftware license fees 100% 100% 100% 100% Prfessinal services 100% 100% 150% 117% Planning and implementatin labr csts: Analytics team 100% 100% 125% 110% Implementatin labr csts: Technical team 1 100% 100% 150% 117% Implementatin labr csts: Technical team 2 100% 100% 150% 117% Campaign and analytics team: Spain 100% 100% 100% 100% Surce: Frrester Cnsulting The actual value in these cst areas culd be lwer than the mst likely, expected values. Yet Frrester has made the ROI calculatins very cnservative, insfar as the lw values are typically set equal t the mst likely amunts, thus capping lw side bias. 14

15 Risk adjustments fr benefits reduce the riginal benefits estimates. Frrester applies a risk range f 50% n the lw end f the estimate and 100% n the mst likely and 100% again n the high end. This has the effect f reducing the benefit estimate by 17%, equal t 83% f the riginal value. Thus the mst likely (expected) and the high values are 6,250,000, while the lw value is 3,125,000 in Year 1 (Years 2 and 3 assume a cmpund grwth rate f 10%). Table 6: Risk Adjustment Benefit Metric Calculatin Year 1 Year 2 Year 3 Ttal Ttal (Expected) 6,250,000 6,875,000 7,562,500 20,687,500 Ttal (Lw) 3,125,000 3,437,500 3,781,250 10,343,750 Ttal (High) 6,250,000 6,875,000 7,562,500 20,687,500 Ttal (Risk-adjusted) Average (Exp, Lw, High) 5,208,333 5,729,167 6,302,083 17,239,583 Surce: Frrester Cnsulting Flexibility Nw we have a franchise. We can g t, say, Pland, and knw what needs t be dne [t implement Marketing Autmatin fr that cuntry]. We can exprt the functin, the capability. Befre Marketing Autmatin, it was nt exprtable. We wuld require t many additinal staff, and the mdel wuld nt wrk. Directr, Marketing Analytics, Cards Divisin Flexibility, as defined by Frrester s TEI methdlgy, is an investment in additinal capacity r capability tday that can be turned int business benefits fr sme future additinal investment. This prvides an rganizatin with the right r the ability t engage in future initiatives but nt the bligatin t d s. There are multiple scenaris in which a custmer might chse t implement Marketing Autmatin fr marketing analytics and campaign management and later realize additinal uses and business pprtunities. By adding ther SAS tls, fr example, the custmer derives even greater value frm the riginal investment, fr ther lines f business, perhaps with nly mdest additinal cst. The Marketing Autmatin custmer in this study identified a number f flexibility ptins, including the ability t exprt the technlgy, business prcess learning, and analytic framewrks develped in Spain t ther cuntries where the bank has cards businesses r t thers where it plans t launch new cards lines. Anther flexibility ptin that the rganizatin plans t take advantage f is the ability t share data frm the cards datamart with the bank s risk management team and its effrts t meet Basel II requirements. The data assembled fr cards can serve multiple purpses and be integrated int the risk management team s analytics platfrm, which is made easier insfar as that team uses ther SAS prducts. A third area where flexibility ptins are manifested is in giving business managers access t data abut their business lines whereby they are able t query the data stres themselves, t d their wn reprting, withut the aid f IT r the cards analytics team. This is a pilt prject at the bank in which selected tp managers are prvided with selfservice analysis capabilities. 15

16 While Frrester believes rganizatins can take advantage f these flexibility ptins, sufficient data inputs were nt available at the time f this study. As a result, quantificatin f the value assciated with these ptins is nt included in the analysis. TEI Framewrk: Summary Cnsidering the financial framewrk cnstructed abve, the results f the Csts, Benefits, Risk, and Flexibility sectins using the representative numbers can be used t determine a return n investment, net present value, and payback perid. Tables 7 and 8 shw the risk-adjusted values after applying the risk-adjustment methd indicated in the Risk sectin abve. Table 7: Risk-Adjusted Csts Csts Initial Year 1 Year 2 Year 3 Ttal Present Value Hardware csts 1,200,000 1,200,000 1,200,000 Sftware license fees 990, , ,300 1,524,600 1,421,386 Prfessinal services 409, , ,500 Planning & implementatin labr csts - Analytics Team Implementatin labr csts - Technical team 1 Implementatin labr csts - Technical team 2 Campaign & analytics team: Spain 31,103 31,103 31,103 59,378 59,378 59,378 89,066 89,066 89, , ,000) 174, , ,445 Ttal 2,779, , , ,300 3,835,646 3,650,877 Surce: Frrester Cnsulting Table 8: Risk-Adjusted Benefits Benefits: Risk-adjusted Year 1 Year 2 Year 3 Ttal Present value Incremental grss prfit 5,208,333 5,729,167 6,302,083 17,239,583 14,466,777 Ttal 5,208,333 5,729,167 6,302,083 17,239,583 14,466,777 Surce: Frrester Cnsulting Nte that values used thrughut the TEI Framewrk are based n in-depth interviews with ne rganizatin and the resulting financial framewrk built by Frrester. Frrester makes n 16

17 assumptins as t the ptential return that ther rganizatins will receive within their wn envirnments. Frrester strngly advises that readers use their wn estimates within the framewrk prvided in this study t determine the expected financial impact f implementing Marketing Autmatin. 17

18 Study Cnclusins Frrester s in-depth interviews with Marketing Autmatin s custmers yielded several imprtant bservatins: Based n infrmatin cllected in interviews with a Marketing Autmatin custmer, Frrester fund that rganizatins can realize benefits in the frm f greater efficiency and effectiveness f the firm s direct marketing activities, which translates int a significant increase in the tp-line revenue and prfitability f the business. Marketing Autmatin, implemented in ne divisin in ne cuntry, can later be leveraged by purchasing additinal Marketing Autmatin sftware and hardware fr businesses in ther parts f the rganizatin r in ther gegraphies. Marketing Autmatin ffers a data and analytics platfrm that can prvide value t ther grups within the rganizatin that are able t brrw data and analytics and plug in their wn tls subsequent t the initial marketing autmatin installatin. The financial analysis prvided in this study illustrates the ptential way an rganizatin can evaluate the value prpsitin f Marketing Autmatin. Based n infrmatin cllected during indepth custmer interviews, Frrester calculated a three-year risk-adjusted ROI f 296% with a payback perid f less than seven mnths. All final estimates are risk-adjusted t incrprate ptential uncertainty in the calculatin f csts and benefits. Using the TEI framewrk, many cmpanies may find the ptential fr a cmpelling business case t make such an investment. Table 1: ROI, Original And Risk-Adjusted Summary Financial Results Original Estimate Risk-Adjusted ROI 387% 296% Payback perid (mnths) Ttal csts (PV) ( 3,566,981) ( 3,650,877) Ttal benefits (PV) 17,360,132 14,466,777 Ttal (NPV) 13,793,151 10,815,900 Surce: Frrester Cnsulting Users f this study are encuraged t create calculatins t answer the questins, What is the minimum level f incremental grss prfit that wuld be required t justify an investment in Marketing Autmatin? What is the expected value and what is the highest grss prfit increase that can be envisaged? Frrester believes that many rganizatins, using a financial framewrk based n the mdel presented in this study, will determine that the minimum required lift in their business is achievable in a shrt perid, and thus a cmpelling business case exists fr investing in Marketing Autmatin. 18

19 Appendix A: Ttal Ecnmic Impact Overview Ttal Ecnmic Impact is a methdlgy develped by Frrester Research that enhances a cmpany s technlgy decisin-making prcesses and assists vendrs in cmmunicating the value prpsitin f their prducts and services t clients. The TEI methdlgy helps cmpanies demnstrate, justify, and realize the tangible value f IT initiatives t bth senir management and ther key business stakehlders. The TEI methdlgy cnsists f fur cmpnents t evaluate investment value: benefits, csts, risks, and flexibility. Fr the purpse f this analysis, the impact f flexibility was nt quantified. Benefits Benefits represent the value delivered t the user rganizatin IT and/r business units by the prpsed prduct r prject. Often prduct r prject justificatin exercises fcus just n IT cst and cst reductin, leaving little rm t analyze the effect f the technlgy n the entire rganizatin. The TEI methdlgy and the resulting financial mdel place equal weight n the measure f benefits and the measure f csts, allwing fr a full examinatin f the effect f the technlgy n the entire rganizatin. Calculatin f benefit estimates invlves a clear dialgue with the user rganizatin t understand the specific value that is created. In additin, Frrester als requires that there be a clear line f accuntability established between the measurement and justificatin f benefit estimates after the prject has been cmpleted. This ensures that benefit estimates tie back directly t the bttm line. Csts Csts represent the investment necessary t capture the value, r benefits, f the prpsed prject. IT r the business units may incur csts in the frms f fully burdened labr, subcntractrs, r materials. Csts cnsider all the investments and expenses necessary t deliver the prpsed value. In additin, the cst categry within TEI captures any incremental csts ver the existing envirnment fr nging csts assciated with the slutin. All csts must be tied t the benefits that are created. Risk Risk measures the uncertainty f benefit and cst estimates cntained within the investment. Uncertainty is measured in tw ways: the likelihd that the cst and benefit estimates will meet the riginal prjectins and the likelihd that the estimates will be measured and tracked ver time. TEI applies a prbability density functin knwn as triangular distributin t the values entered. At a minimum, three values are calculated t estimate the underlying range arund each cst and benefit. Flexibility Within the TEI methdlgy, direct benefits represent ne part f the investment value. While direct benefits can typically be the primary way t justify a prject, Frrester believes that rganizatins shuld be able t measure the strategic value f an investment. Flexibility represents the value that can be btained fr sme future additinal investment building n tp f the initial investment already made. Fr instance, an investment in an enterprisewide upgrade f an ffice prductivity suite can ptentially increase standardizatin (t increase efficiency) and reduce licensing csts. Hwever, an embedded cllabratin feature may translate t greater wrker prductivity if activated. The cllabratin can nly be used with additinal investment in training at sme future pint in time. Hwever, having the ability t capture that benefit has a present value that can be estimated. The flexibility cmpnent f TEI captures that value. 19

20 Appendix B: Glssary Discunt rate: The interest rate used in cash flw analysis t take int accunt the time value f mney. Althugh the Federal Reserve Bank sets a discunt rate, cmpanies ften set a discunt rate based n their business and investment envirnment. Frrester assumes a yearly discunt rate f 10% fr this analysis. Organizatins typically use discunt rates between 8% and 16% based n their current envirnment. Readers are urged t cnsult their rganizatin t determine the mst apprpriate discunt rate t use in their wn envirnment. Net present value (NPV): The present r current value f (discunted) future net cash flws given an interest rate (the discunt rate). A psitive prject NPV nrmally indicates that the investment shuld be made, unless ther prjects have higher NPVs. Present value (PV): The present r current value f (discunted) cst and benefit estimates given at an interest rate (the discunt rate). The PV f csts and benefits feed int the ttal net present value f cash flws. Payback perid: The breakeven pint fr an investment. The pint in time at which net benefits (benefits minus csts) equal initial investment r cst. Return n investment (ROI): A measure f a prject s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus csts) by csts. A Nte On Cash Flw Tables The fllwing is a nte n the cash flw tables used in this study (see the Example Table belw). The initial investment clumn cntains csts incurred at time 0 r at the beginning f Year 1. Thse csts are nt discunted. All ther cash flws in Years 1 thrugh 3 are discunted using the discunt rate shwn in Table 2 at the end f the year. Present value (PV) calculatins are calculated fr each ttal cst and benefit estimate. Net present value (NPV) calculatins are nt calculated until the summary tables and are the sum f the initial investment and the discunted cash flws in each year. Example Table Ref. Categry Calculatin Initial cst Year 1 Year 2 Year 3 Ttal Surce: Frrester Research, Inc. 20

21 Appendix C: Abut The Prject Directr Jeffrey Nrth, Principal Cnsultant Jeffrey Nrth is a principal cnsultant with Frrester's Ttal Ecnmic Impact (TEI) cnsulting practice. The TEI methdlgy fcuses n measuring and cmmunicating the value f IT and business decisins and slutins as well as prviding a business case based n the csts, benefits, flexibility, and risk f investments. Jeff came t Frrester with cnsulting and perating experience, ntably wrking with fast-grwth cmpanies. He was a funding member f the digital strategy practice at Cambridge Technlgy Partners, where he specialized in business value justificatin f technlgy investments and custmer advcacy. As a directr in the internatinal and catalg business units at Staples, Jeff built and managed metrics and reprting prgrams in Nrth America and Eurpe as the cmpany experienced significant grwth. He has als cnsulted in a business-it capacity t retailers and life sciences cmpanies. Jeff hlds a B.A. frm St. Lawrence University and an M.B.A. with cncentratins in internatinal management and finance frm the Thunderbird Schl f Glbal Management. 21