The Intranet:
Slashing the Cost of Business

By Ian Campbell
Director, Collaborative and Intranet Computing
International Data Corporation

Bottom Line: The preliminary results from IDC's return on investment study of Netscape intranets found the typical ROI well over 1000%--far higher than usually found with any technology investment. Adding to the benefit, with payback periods ranging from six to twelve weeks, the cost of an Intranet is quickly recovered--making the risk associated with an Intranet project low. The results to date clearly show that for any company, not just those already contemplating an Intranet, the best strategy is to begin an Intranet deployment today. The sooner an Intranet becomes a core component of the corporate technology infrastructure, the sooner the company can reap the benefits.

The Intranet promises to fundamentally change the way workers communicate to a degree not experienced since the telephone. To quantify this impact, International Data Corporation has undertaken a study of Netscape customers to measure the return on investment (ROI) from a corporate Intranet.

Internet technology used within secure bounds as an Intranet offers many advantages, most notably ease-of-use and communication to any hardware platform that supports a Web browser. While most people interviewed during the study felt using an Intranet to support their application was a clear benefit to their company, what is surprising is just how significant the ROI from an Intranet can be. When IDC investigated the returns, the typical company achieved an ROI well above 1000%--far higher than usually received from a technology investment.

Even more significant than the high ROI; companies in the study are recovering the cost of an Intranet within six to twelve weeks, making the risk of not recovering the money spent on an Intranet extremely low.

Calculating the ROI:
Costs

When IDC investigated the costs associated with an Intranet, the cost of hardware and software was far less significant than the cost of personnel. Personnel costs fell into two distinct categories: the one-time cost of application development, and the ongoing costs associated with supporting the system and maintaining a steady flow of information content.

Still looking at costs, the ease-of-use of a browser has translated into a low cost of training. The typical application rollout plans for outside trainers and time lost in training classes as a necessary part of a rollout plan. In sharp contrast, intranet implementations are experiencing minimal training expenses. This savings is particularly valuable when deploying to a broad number of people, to remote workers, or to high-level management, typical areas where training costs can be expensive.

Calculating the ROI:
Savings

On the savings side of the ROI equation, IDC found the Intranet providing quantifiable benefits in areas such as reducing the use of paper or supporting ISO 9000 initiatives.

However the greatest area of savings is in increased productivity. For every company profiled so far, having immediate access to information through an Intranet made employees more productive.

Where possible, IDC calculated the actual impact of time saved on the profitability of the company. When this was not directly possible, IDC quantified the savings in time per employee and then corrected that amount to calculate increased productivity. While an average increase in productivity of 10 minutes a day might not seem like much, project this across 4,000 employees and a company can experience a measurable gain in productivity that can impact the income statement.

Trends:
Deploying and Doing

Looking at trends, IDC found three themes that continued to emerge during the interviews. First, on the client side, companies that have heterogeneous environments view the use of a browser as a universal client a real benefit in reduced administration, lower cost, and ease-of-use. In companies where the browser was already deployed, creating a new Intranet-based application required development only on the server. For these companies, deploying a new application required nothing more than e-mail to the entire company with the URL. One comment put it succinctly: "In the morning ten people were testing it, by the afternoon 4000 people could use it!"

Second, many interviewees spoke about finally experiencing the true promise of openness; that is, the confidence that software can be freely substituted if need be. More than once an interviewee commented that one benefit of Netscape browsers and servers was the freedom to replace them at any time.

Not that companies are replacing software, just the opposite is true, this confidence has lead to an aggressive attitude towards applications. For many companies contemplating an application development project, the Intranet has replaced the old process of defining and deciding with deploying and doing.

Lastly, companies were often surprised at the rapid growth of department-level web initiatives. The barriers to deploying a web server are turning out to be far lower than companies initially expected. In these companies, departments are creating and managing their own web servers.

The Changing Role of the Information Systems Group

As the intranet gains prominence in an organization, the role of the Information Systems organization becomes more critical to its success. As IS moved from the centralized to the decentralized computing infrastructure it evolved from a management to a service focus. The Intranet is offering a new set of challenges that is forcing the IS team to make another evolutionary step. That is, from service provider to coach.

Summary

The preliminary results of this IDC study show that the openness of Internet technology is allowing the internal intranet to become a medium through which employees can interact with business applications and co-workers. With a web browser, it is no longer necessary for all employees to use the same brand of software and hardware before they can share information. The Intranet is eliminating the barriers to communication and allowing groups within companies, and groups across companies to communicate and share knowledge.

The corporate Intranet is finally offering the medium to follow through on the promises of GroupWare. Communication and collaboration works best in the same language--and that common language is now web-based.

Case Methodology

IDC's approach in the formulation of its assumptions and in the analysis for each customer case is to state accurately the values for the costs and savings associated with the Intranet project.

In cases where the cost or savings are not directly quantifiable, steps have been taken to conservatively estimate values. For instance, in cases where time has been saved, the value of that time has been discounted by a correction factor to account for the inefficient transfer of time between projects.

In all cases IDC has chosen to calculate values such that the ROI would never be overstated. Assumptions in tax rate and discount rate are conservative when compared to the values used by most financial managers.

A Short Primer:
Return On Investment

For every business dollar spent, how much more than one dollar is returned? Is a ten million dollar project that returns an extra million dollars better than a one million dollar project that returns an extra two hundred thousand dollars? One makes more money for the corporation while the other returns a greater percentage of the money invested. To compare these two projects, corporations use two financial measurement criteria: Return On Investment (ROI) and Payback Period.

ROI is the effective interest rate a corporation receives from an investment. In the example above, the ten million dollar project has an ROI of 10% while the million dollar project has an ROI of 20%. To further evaluate the choices, let's add a third option to the mix and assume banks were offering 15% interest on savings accounts. For the company with ten million dollars the best decision would be to undertake the one million dollar project and put the remaining nine million in the bank rather than undertake the ten million dollar project.

What if the company did not have ten million dollars available and must borrow from the bank at 15% interest? Only the smaller project would cover the interest expense and return a slight profit to the company. The larger project would result in a loss for the corporation after the loan including the accrued interest was paid.

The value of ROI is in understanding the cost of the project compared with other business opportunities or with the cost to borrow money. In the real business world, any project with an ROI greater than twice the current cost to borrow money would be considered a worthwhile endeavor. Most financial managers look for projects where the ROI exceeds 20%.

A Short Primer:
Payback Period

While ROI calculates the effective interest rate, payback period calculates the time before the project returns enough money to cover the investment. Two projects may have similar payback periods but different flows of money. One project may return a large amount of money in the first month (which can then be re-invested) combined with a small trickle of money over the rest of the year. A second project may have the same ROI but not return any money until the end of the year. Payback period therefore allows a company to understand its risk by calculating how long until the cost of the initial investment has been covered.

Corporate Sales: 415/937-2555; Personal Sales: 415/937-3777; Government Sales: 415/937-3678
If you have any questions, please visit Customer Service, or contact your nearest sales office.

Copyright © 1997 Netscape Communications Corporation

This site powered by Netscape SuiteSpot servers.