INFS5885 E-Business | Impact of Return on Investment

Introduction

Conceptually, Return on Investment (ROI) could be described as a percentage of the net output of the project that would be divided by the total input of the project. The input is sum of all investment such as hardware, software cost. It is used as a measure of performance, which would be able to scale in order to evaluate the efficiency of an investment or would be compare the efficiency of different form of investments. IT executives always tries to track down the cash inflow and cash outflow rates in order to measure the rate of failure or success within their business. Generally, business executives are depends on the IT employees to calculate the ROI. However, the real value of ROI cannot be measured as it totally depends on the business goals and dictate whether the project will survive or perish (Fisher 2009). The impact of ROI within the use of social media has long term of disagreement, and this would seem to likely become ever more so, with the equally lightning spread of both savage cuts and use of social media within the estimated budget of the sector of business.

Discussion:

Impact of Social media in E-business

The market of E-Business is growing rapidly in recent years. There is a huge level of competition within the existing market. The use of social media has been a common place to advertise and target customers who make use of the e-business platform for enhancing their quality of the business and gaining huge level of profits within the business. With the help of social media platform, the customers are interacting with the actual product. USMRW (Universal McCann's Social Media Research Wave) had circulated a survey report where the analyzed approximately 17000 internet user in allover 29 countries. The report shows that social media can impact dramatically on the reputation of the brand. 34% post associates with brands and products based on their personal blog and 36% of them think more confidently about those companies, which have blogs. The major influence of social media on the customers are also analyzed by DEI and they proposed following interesting statics:

• Approximately, 70 per cent of customers had visited the social media platform in order to gather information about products.
• Among the 70 percent customers, 49 per cent decides to buy certain product based on the data they get from social media.

Effectiveness of Typical ROI metrics on Social Media.

The ROI measure used to be very simple to calculate the impact of inline advertising. It professionals used to analyze the page views, unique visitors and cost per click in order measure the ROI. However, the complexity occurs after introduction of new variables in the E-business.  By breaking down every factor into quantifiable pieces is a simply matter of developing and understanding a method for calculating them. Managers needs to determine the returns, savings and cost of every variable in order to calculate the total ROI. AIB’s social media ad metrics definitions filled some gap by providing a clear framework. This framework can assist the business to gain best ROI (Barger, Peltier and Schultz 2016). It helps business to target their ad effectively across the blogs, social media sites and social media applications. However, it is getting a mixed review from experts. Some experts believes it is very effective as it is like measure the weather by thermometer rather open the window to check whether it is cold or hot. However, others were not so overwhelmed by the approach while deciding on the fact whether the qualitative based aspects based on the measurement of social media was entirely circumvented. 

ROI Measuring Process for an E-Business

Jeffery and Leliveld (2002) had conducted a survey on the CIOs of the Fortune 1000 and e-Business companies. It was found that among the 130 respondents of CIO, 59% of them had uploaded a report that their firms had repeatedly calculated the factor of ROI based on several different IT based projects prior to making some form of decisions based on the investment factors. 45% of the respondents had also reported that the ROI factor was a much crucial component based on the process of making decisions. Hence, ROI could be considered as an essential factor based, which is based on the investment decisions within the department of information technology in many large companies. The overall calculation is pretty much straightforward. It is usually conducted by measuring the revenue of base case and cost expectation based on future predictions. Then the flow of cash is been calculated includes potential savings of cost and total revenue. Finally, the cash flow are deducted from the projected flow of cash within the project. The result of the subtraction value is known as incremental cash flow. The total IRR is then calculated from the incremental value. There are also another approaches where the additional cash flow is been calculated in order to achieve the incremental cash flow directly. In the case of complex project, the whole process can be much due to the uncertainty of multiple variables. It is hard to calculate the incremental cash flow by separating the additional benefits.

Case Study Example

Figure 1: Assumptions for the Web-portal case example

Source: ((Bojanc and Jerman-Blaži? 2013))

Web-portal is an e-business site where consumers can buy products from the portal. The front end of the portal act as customer interaction interface where the back end used by IT developers. The cost and revenue are assumed in order to illustrate on the ROI calculation.

Figure 2: Case example based on ROI analysis: (a) The base case free cash, (b) the free cash calculated including the Web-portal initiative, (c) the incremental cash flows, NPV and IRR calculation, and (d) the calculation of payback period.

Source: ((Bojanc and Jerman-Blaži? 2013))

Uncertainty

In the example, the IRR is calculate as 22 per cent which may not be appropriate comparing to the obtained IRR of the project. There are many assumptions in the analytical model and unpredicted risks may impact the project ROI as well. The whole calculation is conducted by a single estimation. Managers will not able to take crucial decision based upon the information. The primary theme within this chapter is that the business drivers rather than the particular technology, are often mostly crucial for any kind of analysis based on ROI. However, there are several types of risks within the implementation of the technology within projects, which could also have a substantial impact on the use of ROI (Murimbika and Urban 2013). As mentioned within the section of productivity paradox, it could be confirmed that the majority of larger projects within IT would majorly fail to deliver within the estimated budget and within proper time factors. Factors like risk and budget issues also has a huge impact on the ROI. Generally, Most of the IT project fail to deliver in the time and on budget. The risks factors which are frequently occurs as follows:

• Conflict between user departments
• Insufficient/inappropriate staffing
• Introduction of newer form of technology
• Lack of solid requirements
• Lack of required professional skills or knowledge within the project personnel
• Changing scope/objectives
• Failure to manage expectations of the user
• Lack of acceptable involvement of users
• Misunderstanding within the requirements
• Failure to gain commitment from users
• Lack of commitment from the top management within the project

Conclusion

E-business, which is popularly known as electronic business is defined as the conduction of the processes of business within the Internet platform. The processes of electronic business would include the buying and selling of products, services and suppliers, serving customers, management of the control of products, collaboration with business partners, recruiting and many others. The e-business comprises of a wide range of services, functions and models. The e-business model would be able to describe the functions of an organization, the process of providing of services and the ways of adaption to the newer technologies within the market. All the models of business are necessarily needed within a particular business in order to work together with a supportive and cooperative fashion. However, the uncertainty associated with the ROI measurement impact the business from the core. The perfect value of ROI is very hard to calculate. However, with lot of effort the estimated value can be conducted that assist business to gain the clear idea of peoples. Though it is not a perfect science, every business used their available system to measure the ROI. Web analytics, buzz monitoring, community management listening are very useful in order to understand the business environment.

References

Barger, V., Peltier, J.W. and Schultz, D.E., 2016. Social media and consumer engagement: a review and research agenda. Journal of Research in Interactive Marketing, 10(4), pp.268-287.

Bojanc, R. and Jerman-Blaži?, B., 2013. A quantitative model for information-security risk management. Engineering Management Journal, 25(2), pp.25-37.

Fisher, T., 2009. ROI in social media: A look at the arguments. Journal of Database Marketing & Customer Strategy Management, 16(3), pp.189-195.

Murimbika, M. and Urban, B., 2013. Strategic management practices and corporate entrepreneurship: A cluster analysis of financial and business services firms in South Africa. African Journal of Business Management, 7(16), pp.1522-1535.