UX in the Boardroom: A Solid Case for Investing in UX
Published: September 21, 2009
Some think the best way to demonstrate the value of usability in a corporate setting is to emphasize the resulting cost savings. While that may be sage advice in some organizations and industries, following it in the information technology and government arenas would cost you respect and a meeting. For some years, I was guilty of following this tack—before I discovered what really matters to executives, learned how finances and budgets work, and realized the true value of user experience lies not in cost savings at all, but in intangibles.
What Matters to Executives?
For eleven years, I worked in corporate America, for companies with 6000+ employees. My approach to finagling more funds for growing a usability practice with my companies started out like this: We can save you this much money and improve your customer relationships. I spent hours, poring over an Excel spreadsheet to see how the cost savings would add up and preparing to use my beautiful .XLS file to prove the value. But each time I presented my spreadsheets to managers and executives, it didn’t seem like they even cared.
Regardless of a company’s size, there are just a few things that really matter to executives:
- return on investment (ROI)—the percentage change in revenues or sales you’ve achieved by investing in something
- the opinions of shareholders and investment analysts
- regulatory compliance and the possibility of lawsuits
- competition and market share
- public opinion
There may be exceptions—companies that prioritize other things—and perhaps those exceptions would be the companies that have invested heavily in human factors, usability, and user experience for decades now. But, for the most part, these are the key factors that keep executives up at night and are recurring agenda themes for boardroom and management meetings. Why?
My aha! moment came during a digital business strategy class in business school. My professor, Peter Morici, was a no-nonsense, no-words-minced type. My assignment was to create a business plan and pitch it to some guest venture capitalists and company executives to get their reactions. Morici drilled us over and over on capturable market size and return on investment—two invaluable nuggets of wisdom that served as my primer for attracting executive attention. Executives always have requests for information about money and resources. Given the need for executives to demonstrate value to shareholders, they’ll always opt for the opportunity that shows the largest capturable market share and the best ROI.
ROI & Shareholder Value
For public companies, shareholder value is the driving force. How much value shareholders believe your company offers drives your share price—and, ultimately, market value. (To get your market value, you must multiply your share price by the number of shares outstanding and add in a few other things.) Some shareholders take a mathematical approach and look at factors such as return on investment, price-to-earnings ratio (P/E ratio), and cash flow, while other investors care more about intangibles such as reputation, brand, and their gut feeling about a company.
You can’t control their gut feelings, but, to a certain degree, you can control the financials that influence shareholder and analyst opinions. So most organizations vet all potential investments, selecting those that either are essential for compliance reasons—such as records management systems—or will provide a certain minimum return on investment, and avoiding those that are most likely to generate too little ROI.
Companies and their leaders have a bottom-line ROI in mind. It’s not usually stated, but from what I’ve learned, a 12% ROI is pretty common. Thus, for every $100 a company invests, it expects at least a $12 ROI. That’s return—they expect to make $112 to cover their costs and make a profit.
ROI and how much profit a company can make relate to a couple other things on executives’ minds—who the competition is and what they’re doing, which we’ll look at shortly.
Regulatory Compliance & Lawsuits
Sometimes the most powerful motivator for executives is fear of jail or fines. When faced with regulatory compliance, laws, and potential litigation, most organizations do what it takes to protect themselves. Though, in the United States, there are no enforceable and accepted regulations that require companies to comply with user experience principles, there are some related standards—and hints that companies are paying more attention to usability. Highlighting the changing legal scene and discussing how your UX plan and investment can help protect your company in the future can sometimes tip the scales in your favor.
Knowing what the competition is doing is important to executives. Your company should care if competitors have won high-value customers, because they met requirements for usability and user experience. If your company is a consultancy, list the engagements you’ve lost, along with project durations and contract values. (For large deals, the press may provide some of this information. Your competitors might list smaller deals on their Web sites—or you may be able to estimate their values.) Besides competitor wins, take a look at which of your competitors are hiring UX professionals. That’s a very useful nugget of information that shows what your competition is up to. If the competition is investing in user experience, executives may see the benefit of doing likewise.
Calculating Return on Investment
Will your company’s investment in a UX program create revenue streams that provide an ROI of 12% or more? What does this mean if you want your company to invest in a UX program? It means you need to justify their investment in UX, ensuring that it will earn your company 12% on top of the investment and related costs.
For UX personnel, besides their salaries, you need to cover benefits and overhead, including phones, desks, and office space. A salaried UX professional who earns $75K really costs about $100–150K once you add in the other costs. If you can demonstrate that a UX professional will bring in revenues of that amount times 112% over the years they’ll be with the company—covering both the costs and the 12% ROI, while factoring in inflation and the salary raises all UX practitioners want and deserve!—you’re golden. Forget that math and executives and managers won’t take you seriously. Instead, they’ll turn down your kind offer to save them money and build great customer relationships.
When calculating costs, consider and include the following:
- human capital costs—Factor in both salary and fringe benefits—for example, healthcare and retirement plans.
- software—Whether you plan to splurge on Adobe CS4 for everyone on your team or ration money and purchase applications only as needed, list those costs and the expected timeframes for expenditures.
- hardware—Include expenditures for computers—Macs or PCs—monitors, office furniture, and mobile devices.
- subscriptions and professional memberships—If you offer these benefits to your employees, be sure to include them.
- conferences—If part of your marketing pitch to executives is that you’ll get out there and present at conferences, don’t forget to factor in travel, lodging, and registration costs.
- marketing and recruiting—Remember to factor in the one-time cost of acquiring a new employee.
In your revenue streams, think about
- business you directly execute—for example, user experience design, user research, and usability testing
- business you affect positively and could expand—for example, existing customers to whom UX can provide additional advantages and follow-on sales
Your UX program may not earn that profit in its very first year of existence. Remember, it will take some time to make a positive impact and cover the initial investment costs—especially if you have grand plans for software and hardware investments. So show when you’ll break even and at what point—for example, in Year 2 or Month 16—you’ll begin to reach your projected ROI. Saying you’ll make that ROI on Day 1 or even in the first 6 months isn’t realistic.
The other challenge to consider is competing revenue streams. Most software and IT integration companies factor training into their proposals and cost estimates for customers, so training customers creates another revenue stream. Training can be a competing revenue stream for UX. However, generally, demonstrating expected ROI over the longer term is key. This is also where intangibles such as strengthening customer relationships and minimizing do-overs come in.
Presenting Your Business Case
The format in which you present your business case can vary. I’ve used Word documents, presentation slide decks, or in the midst of a discussion, a whiteboard or the back of an envelope. Find out through the grapevine what format your executives and managers prefer—and even more important, what they hate. (For example, a former manager of mine made it her mission to get PowerPoint presentations out of the Department of Defense. She’s still fighting that fire!) Then, use the format that makes the most sense. Be sure to throw in some charts rather than just long, boring tables of numbers—or worse, spreadsheets. Apply your UX design savvy here to make your information sing. (And yes, I even sang once to get something I wanted at work—a chair—and it worked!) An effective presentation of your business plan can make it stand out from the heap of business plans and budget justifications that might lull even the most energetic and interested of executives and managers to sleep.