In today's business environment, the strongest competitors do more than respond to market changes — they anticipate them. But to forecast trends, the IT and business sides of an organization must work in concert toward the same goals, dovetailing their efforts for maximum speed and effectiveness. In the "do more with less" era of shrinking IT budgets and rising expectations, companies cannot afford anything less than top performance from the systems they choose, which is why consulting firms like Mainstay Partners have developed particular expertise in analyzing total cost of ownership (TCO) and return on investment (ROI) for technology projects.

Founded in 2001 and based in San Mateo, California, Mainstay Partners is led by co-founder and managing director Amir Hartman. Mainstay consultants have completed hundreds of engagements with some of the most prominent and respected companies in the world. Sun recently spoke with Hartman about his perspective on TCO and ROI analysis.

Sun: What's the advantage of hiring an ROI specialist rather than simply analyzing costs and benefits in-house?

Hartman: Companies can certainly measure TCO and ROI on their own. But we've done hundreds of these studies, so we can refer to particular industry benchmarks and recommend best practices based on our own experience.

Objectivity is also a huge benefit to customers. Thanks to compliance regulations like Sarbanes-Oxley, pressure has increased on both business and IT leaders to be more versed in what value they get out of their investments. There's a need for more accountability, and sometimes an outside perspective is the best way to achieve that.

Sun: How do clients typically use the information from TCO and ROI analysis?

Hartman: Technology providers can use these studies to generate credible proof points for their products. In that arena, our objectivity is a big deal. We don't have any incentive to find particular benefits, so our findings carry more weight with buyers than internal studies conducted by the technology provider.

On the enterprise side, companies use the findings as justification for future or further investments. It's also quite common for executives to use the findings to build political capital — a way to show leadership by quantifying the good things their teams have done.

Sun: What types of companies are looking for help in analyzing TCO and ROI?

Hartman: There are typically two kinds of clients. First, there are technology providers. They want fact-based, quantified proof points that demonstrate the value their solutions can provide to users.

Then there are enterprise customers who are the buyers of technology. Customers can perform a study either before or after they implement a new solution. Often companies ask us to analyze a solution they have already implemented. Others are about to make a significant investment, and the board or the executive team wants to validate that investment.

Sun: What happens in the process of working with a client on an ROI study?

Hartman: Again, the most important thing clients need to realize is that ROI consultants aren't working to find either good or bad results — we're just trying to find results. We're an independent third party. We try to provide an accurate picture of the truth, which isn't always visible from a single vantage point within an organization. And we go beyond how much was spent and what benefits were received. We really try to put the solution into its proper context.

For example, on a Mainstay engagement, our deliverable is usually a 30- to 50-page storyboard, often in PowerPoint presentation form, that puts our findings into context based on the history of the customer's strategies and challenges. We put together a snapshot: how did things look before, and how do they look now? What were the key operational improvements and key performance indicators or metrics? And then, of course, we analyze the financials — total cost and benefits realized. We try to draw a rich picture, not just a spreadsheet.

We gather all this information through a series of interview workshops with key constituents at the customer. We talk with the line executives, an end user who actually touches the solution on a regular basis, and an IT person who maintains the solution. We also like to have a finance person because finance people are usually very conservative. We want to make sure that person buys into our findings, since he or she is the one signing the check for the system.

Typically, if you go to one of these people and ask what benefits he or she is seeing, you'll get one of two answers — either "I don't know" or "nothing." Unfortunately, that's not good enough for our process. When we get those answers, we have a dialog to try to peel back the onion. We want to paint the picture of how things were before the solution. How many people used to support the solution? How many people support it today? Sometimes we have to coax the information out of the people we interview, since it isn't always on the tips of their tongues.

Depending on the scope of the assessment, this interview process can take anywhere from one day to maybe three days. Then we go back and crunch the numbers to build the storyboard. After we have the basic story fleshed out, it's an iterative process to get the customer to truly understand the storyboard and buy into the facts that we put on the table. Because if we just say hey, here's what we found, see you later and good luck, that's no good. We need customers to really understand our analysis and believe that what we've found is true so they can make solid decisions.

Sun: TCO and ROI can seem like fairly abstract concepts sometimes. How do you calculate value for a technology system?

Hartman: We're pretty conservative on that front. Often, companies make the mistake of not getting a full picture of what a solution costs. It's not just the acquisition costs, but also the support and post-implementation costs. We look at hardware software, consulting effort, internal manpower on both the IT and business sides, and any licensing or maintenance fees. We break it down into the components that go into the equation and project those costs out over five years. So we show customers what it costs not only to build but actually to run the solution, and we put all of that information in the context of the organization's overall goals and culture. After all, ROI calculation is a science, but it's also an art.

About Amir Hartman

Prior to forming Mainstay Partners, Amir Hartman was the managing director for Cisco Systems' Corporate Internet Strategy and the Internet Business Solutions Group. In this role he was responsible for shaping Cisco's Internet business strategy and advising key customers in the same capacity. An international best-selling author and sought-after advisor to senior business leaders in a broad cross-section of industries, Hartman also teaches at both Columbia's Graduate School of Business and Berkeley's Haas School of Business.