Software Quarterly

IBM and Lotus:
User Friendly

by Scott C. McCready


IBM's proposed acquisition of Lotus Development Corp. -- the biggest software merger in history -- sent analysts scrambling to work out the deal's financial impact. But, despite the number crunching, Wall Street and IBM's competitors are missing the point. The financial ramifications of the deal are less important than the customer benefits that will come from the combined strength of IBM's enterprise expertise and workgroup portfolio, which includes workflow, message queuing, and other client/server functions, and Lotus' broad array of productivity applications, including AmiPro, 1-2-3, and Notes.

For customers deploying Lotus Notes, for example, the deal's impact on their businesses will dwarf the $3.5 billion price tag. Any discussion of Lotus Notes quickly gravitates to technology and how Notes compares to other workgroup products. However, the real story is the return on investment (ROI) Notes has helped customers realize.

International Data Corporation (IDC) studied 65 companies that were using Lotus Notes in a variety of ways, and the financial returns were nothing short of staggering! Notes users' ROI ranged from 16 percent to an incredible 1,666 percent on a median investment of about $100,000. Over three years the average ROI was 179 percent; the median payback took just over two years.

These results are even more impressive when one understands two key facts about the study. First, IDC only measured the productivity of the initial Notes application deployed. Second, 59 percent of the companies studied had to purchase their PC/LAN infrastructure from the ground-up, increasing implementation costs.

Beyond measuring Notes' financial impact, IDC found that companies deploy this technology in three distinct ways. Each method results in different benefits, costs, and service needs, and no one approach is necessarily better than another.

The most common method of deploying Notes is a discrete fashion in which companies use Notes to automate a single business function, such as customer service. Here, the average ROI is 162 percent with a median payback time of two years. Since a discrete implementation involves a well-defined process with a limited number of people, most information technology (IT) staffs are well-equipped to roll Notes out in this fashion.

Many companies elect to deploy Notes to all employees enterprisewide, creating a communications foundation. The average ROI for this approach is 150 percent with a median payback time of 2.9 years. With this approach, IT involvement is critical for network planning, configuration design, and support.

The study shows that the most exciting method of deploying Notes is in redefining the enterprise. In this case, companies use Notes as a means to change the nature of their relationship with their customers and/or suppliers. Employing Notes in this fashion leads to dramatically shorter decision cycles, improved time to market, and more efficient communication. The financial implications of this method are impressive with an average ROI of 204 percent and a median payback of 1.6 years.




The Future

The trend is clear: IT professionals are increasingly investing in technology that contributes to the bottom line. Professional services are a key component to ensuring that productivity benefits kick-in as soon as possible. With Lotus Notes, success means selecting the right applications, getting applications up and running quickly, having them well documented, ensuring a consistent look and feel, training users, and having a good support and administration infrastructure. Also, most successful Notes users require excellent support, integration with existing automation environments, and, in some cases, help migrating to a client/server infrastructure.

Lotus Notes is the most innovative software product delivered in the 1990s, but customers often need more than great software. They need examples of what other companies have done, and they need a detailed assessment of costs and benefits. IBM has the resources to be able to answer these types of questions; Lotus alone simply did not.

Some Notes customers assumed that Notes was "packaged" software that didn't require a systems mentality for development, administration, or support. But IT professionals quickly found that users bet their business on the product, and when Notes was down, the company essentially stopped doing business. Notes is systems software, requiring a systems software mentality to ensure customer satisfaction. IBM understands this mentality better than anyone.

In the end, no matter how a business chooses to implement Notes, the critical issue is having the appropriate professional services in place and available for purchase in an assortment of ways. IBM's purchase of Lotus will ensure that they are.

When considering mergers and acquisitions, Wall Street analysts look for two companies where the whole is greater than the sum of the parts. With IBM and Lotus, the synergy is obvious: the customer. IBM and Lotus combined will do for many organizations what neither could do on its own.


Scott C. McCready is an analyst with International Data Corporation, a high technology research and consulting firm.


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