Future-focused fleet managers have always found ways to incorporate industry vision and gut instincts into ROI analyses. Now financial management methods finally offer ways to help quantify this "leap of faith."

We're using technology strategically to change things, to create new capabilities and new opportunities for our company," explains Dr. Christopher Lofgren, chief technology officer for Schneider National Inc. "We view it as essential to growing our business for the future. This means that sometimes, even though we do the math on a technology implementation decision, we know there just won't be enough solid data to cost-justify it entirely from a traditional accounting perspective. There's no data, of course, because there's no history."

Sound familiar? Comments like Lofgren's are being voiced by a growing number of insightful fleet executives. The problem they're considering is this: How can a company make financially sound decisions about technologies that will change the entire business? For some fleets, the solution is to find meaningful ways to incorporate non-financial data into the decision-making process and to make certain that technology initiatives are firmly tethered to the company's overall business strategy - and profitability.

Sooner or later, business decisions today still come down to "crunching the numbers," and virtually every executive wants payback periods fast enough to make shareholders' heads spin. "Everyone crunches the numbers at some point," observes David A. Shamblin, vp-finance and administration for Commercial Carrier Corp. "The trick is knowing which numbers to crunch.

"Information technology involves so many intangibles. Some things may not make very good sense on a spreadsheet, but are very important to take into consideration," he explains. "This means that the basis for calculating ROI (return on investment) will change company-to-company, even for the same systems.

"Let me give you an example," he offers. "A sister company did an analysis of a document imaging solution at the same time we did. Our payback period came out to be five years. Theirs was two years. We had used an entirely different set of assumptions. Furthermore, we both decided to proceed with the project."

"We try to look at all the numbers we can," agrees Angelo Ianello, senior vice president of finance, with responsibility for IT at Contract Freighters Inc. (CFI), "but we have to look at other factors, as well. Our mobile communications decision process is a good example. We were one of the last major fleets to go to a wireless data system. Our on-time and customer satisfaction figures were already very good, and we didn't feel like the incremental efficiencies we could project cost-justified the expense.

"Eventually, however, we had customers who said mobile communications were a requirement to keep their business," he continues. "We felt we had to move ahead, but we worried that our drivers might suddenly feel unimportant to the business if there was no person on the end of the dispatch line waiting to talk with them. After putting a contingency plan in place to give drivers the option of calling, we moved ahead with implementation of the messaging system."

Max Fuller, co-chairman of U.S. Xpress Enterprises, has similar stories to tell. "About three years ago," he begins, "we were looking at Eaton Vorad's collision avoidance system. Our financial people told us we were 'very close' to breaking even, but they really couldn't cost-justify proceeding. The management team decided to do it anyway because it clearly seemed to be the right thing to do. Within a year, the system had reduced our accident-based costs to one-third of what they were before," Fuller says. "The payback exceeded our expectations.

"At U.S. Xpress, we try to qualify ROI ourselves with real-world tests," he adds. "If there's no payback, we don't go ahead. But certain things are so central to your company's culture that you have to rope them into your equation - intangibles like safety, customer satisfaction, and driver retention."

Strategic Alignment "Successful firms begin with the overall business strategy, deciding what results they must have from the business processes in place to carry out the strategy," notes Tom Brier, instructor for IBM's Advanced Business Institute. "Then technologies are weighed against other resources as a possible solution. Today, I conduct more executive programs on aligning IT to the business plan than on any other subject," he adds. "We're seeing a change in thinking, too. Executives are beginning to view IT as another aspect of the business plan rather than as a utility-like cost. This shift is critical. It will open doors to opportunities for increased return on IT investment."

CFI shares Brier's views on the value of strategic alignment. "We decided about three years ago that we had to make sure we coupled our technology plan to our business plan," says Ianello. "Today, IT projects go through a three-part process.

"The first step is Project Initiation, where someone from the user community is paired with someone from IT. They are charged with identifying what solution is needed, and what the economic justification is. This is reviewed by finance, IT, and the company president before it goes any further," Ianello explains. "If the project aligns with our overall goals and the payback is there, then we move ahead to Requirement Definition, and finally to actually developing or outsourcing the solution.

"Our vice president of IT has a very good sense for the overall business besides having technology know-how, and that's another big advantage when it comes to alignment," Ianello adds. "We both meet with our chairman and president, Glenn Brown, monthly to identify all the important issues."

"Top-level involvement in technology decisions is a must," Fuller agrees. "It not only helps ensure that technology decisions support business strategies, it sends the message that they are important to achieving those objectives.

"Senior executives are also best positioned to ensure that end users understand the rationale behind a new system and fully utilize it to achieve the returns the company expects," he adds. "Broad, top-down participation turns up new benefits too, new ways to apply technologies that you might miss otherwise. In fact, we often help our vendors discover how best to use their technologies."

"At Schneider, business alignment is very important," agrees Chris Lofgren. "The important numbers for us are the big ones - profitability and growth. We have an IT steering committee, and IT reports directly to Don Schneider, the company president. Together, we all try to make sure that we are doing the right things and doing the right things right."

The Balanced Scorecard Non-financial measures, much less indicators of "the right thing," have no place on a typical spreadsheet, however. This has kept some fleets from moving ahead with technology decisions as effectively as the Great Wall of China held the modern world at bay. What to do?

A tool called the "Balanced Scorecard" offers companies a workable system for merging financial and non-financial measurements into a single, comprehensive view of company performance, relative to the business strategy. "How to factor intangibles into the ROI equation is not a problem unique to trucking," says Dr. Frank Selto, professor of accounting at the University of Colorado at Boulder. "It is a really tough issue. Until now, the approach has been largely intuitive, but businesses must have some systematic way to consider and value non-financial indicators that are strategically important.

"The Balanced Scorecard is a good start," Selto adds. "Like a truck's instrument panel, it provides various indicators of performance that together can give managers a total picture of their organization."

The Balanced Scorecard is the concept of Robert Kaplan and David Norton, first introduced in the Harvard Business Review in 1992. It concisely combines financial measures with performance indicators in three other areas: customer satisfaction, business efficiency, and growth and development.

Because it offers a broad view of a business, trade-offs between alternatives and additional opportunities become more visible on the Balanced Scorecard. Since business strategy is expressed in terms of quantifiable indicators, it also facilitates the strategic alignment process, and gives managers another way to communicate the importance of often-disruptive technology projects to employees.

Perhaps the key benefit of the Scorecard, however, is its incorporation of intangibles into the measurement and reporting system. Companies such as the insurance and financial services giant, Skandia of Sweden, use it to help identify and assign value to what Skandia calls "the hidden values in the balance sheet," or "intellectual capital."

The "Skandia Navigator" (see illustration on page 52) is the company's reporting model, used to provide a picture of both financial and intellectual capital. "This broadened, balanced type of accounting and reporting results in a more systematic description of the company's ability and potential to transform intellectual capital into financial capital," Scandia explains.

Every business using the Scorecard framework will include different measures within each of its four domains, based upon the issues that are strategically important to them. Fleets might include indicators such as accounts retained/lost, number of complaints, or percentage of on-time and late deliveries in the "customer satisfaction" category, for example.

"Business Efficiency" might include measures such as number of drivers and vehicles by lane, cycle times, errors per hundred invoices, rework percentages, or new accounts per number of sales calls. In "Growth and Development," some fleets might include training time per employee and employee satisfaction, while others track turnover, absenteeism, and complaints. Economic Value Added measurements (operating profit minus cost of capital), cost-to-income trends, cost per account, or activity-based-costing data might go into the "Finance" section.

"The purpose of math is insight, not answers," notes Chris Lofgren. "At Schneider, we try to gather insights from every area of the business, so we implemented the Balanced Scorecard about a year ago. What it does for us is give people a yardstick to help focus discussion on the important things. It also helps us make good decisions right now, with the assurance that they are tied to longer-term goals."

The silver bean? Is the Balanced Scorecard accounting's silver bullet (or silver bean) then? "Not quite," according to Robert Benson, principal of the Beta Group. "Does it help clarify strategy and identify the things we used to call intangibles? Absolutely," he says. "But what companies have to do in addition is analyze cause and effect. They have to establish the impact of technology on the critical factors the Balanced Scorecard can track.

"Rarely does IT create profit directly," he explains. "Instead, managers know which parts of the business contribute to profitability, and they work to continually improve performance in those areas. Information technology, therefore, produces profit by improving the company's performance in the areas that drive profit.

"IT profitability is a management program, not just a matter of number crunching," he cautions. "It is a mistake to seek a silver bullet for computing the value of an IT project. The appropriate approach is to demonstrate a clear cause-and-effect connection between a technology initiative and improvements in businessperformance."

Benson's management tool, called the Profit Model, utilizes many of the same elements included in the Balanced Scorecard, such as strategic indicators of performance for each area of the business. Overlaying the Profit Model process on the Balanced Scorecard format, therefore, may truly help fleets better evaluate technology investments. If managers treat the Scorecard as a dynamic model of the status quo, and choose to track key indicators that are what Benson calls "profit-drivers," then what-if analyses can actually help measure the potential impact of technology projects on company profit. Not bad.

Are we there yet? We're getting closer. Alignment of technology initiatives with business strategies, incorporating critical financial and non-financial indicators into performance measures, and analyzing the impact of technology on key profit drivers is, at the very least, an approach better matched to the complex, inter-connected systems companies today must somehow evaluate.

"The more strategic the activities, the more complex they are, the longer they take to evaluate and implement," observes Chris Lofgren. "So you really have to find good ways to look ahead and decide how your company will continue to deliver value to your customers in the future."

"When you are making a technology decision, the question isn't really about payback," adds David Shamblin. "What you're really deciding is how you want to do business today and in the future, and nobody ever said that would be easy."