How to avoid 'death by ROI' in data and analytics

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Editor’s note: The following is a guest post by Brian Foster, executive vice president of Gartner.

It’s hard to pick up a business publication today without reading a breathless blurb about AI’s opportunities to unlock the value of enterprise data assets. As a result, most organizations are waking up to one reality: They need AI-ready data.

AI may be “glamorous,” but the low-key work of implementing and financing effective data management and developing effective AI management practices is decidedly unglamorous.

Today, most organizations have a data and analytics (D&A) organization, often led by a chief data officer or, more recently, a chief data and analytics officer. These functions first emerged in financial services companies after the 2008 financial crisis to ensure data integrity and protection and to establish a common data infrastructure.

Over time, these functions have multiplied — about 85% of large organizations today have some type of senior data and analytics leader. And the nature of these roles has evolved from a role much more focused on data protection to one focused on improving their organization’s ability to use data to create business value.

Interestingly, as these organizations expand their scope, they have historically struggled to justify their budgets and investments. Because they are typically set up as a support function with budgets allocated centrally, it is very difficult to separate the direct value created by D&A from the overall value created by business initiatives.

Finding the true value

D&A leaders often face a classic support function challenge: organizations know there is business value there, but it is difficult to prove it directly.

Consider a professional athlete: What is the value of a professional basketball player’s left arm or leg? I’m sure Lloyd’s of London could come up with some dollar value. But what if our professional basketball player loses the use of that arm or leg? What is that arm or leg worth now, on its own?

The same can be said for investments in support functions such as D&A.

Recently, Gartner set out to measure the financial impact of specific D&A activities, such as data governance or data management. We also wanted to understand whether certain D&A practices were accelerating or hindering business value creation.

Our analysis has shown that investments in D&A practices have an impact. In fact, we see organizations with more mature D&A practices see up to a 30% improvement in key measures of company financial performance.

But the most interesting finding was one that highlighted HOW NOT to try to justify value. It turned out that the practice of creating an ROI model to justify D&A investments actually had a significant negative impact on company performance. We called this problem “death by ROI.”

This didn’t make much sense to us at first. But after digging deeper and speaking with several successful practitioners, we realized that focusing ROI calculations on individual D&A investments is a bit like obsessing over the value of a professional basketball player’s left hand: It’s not the hand that matters, it’s the whole thing.

Because of the narrow ROI lens, these organizations are likely not seeing investments that provide broader business benefits. While our results are specific to the D&A practice, it’s safe to assume that any similar support function could face the same trap.

To avoid the “death by ROI” trap, Gartner recommends focusing on two key practices:

Don’t draw your lines: blur them

It’s easy for functional leaders to fall into the trap of making it clear what they have and what they don’t have and looking for the portion of value creation that is directly attributable to their function. However, leading organizations tend to focus on blurring the lines between their function and others.

Brita Andercheck is the chief data officer for the City of Dallas. Over the course of several years, she has transformed the function from a transactional reporting organization to one focused on strategic enablement of the city’s many departments.

Andercheck achieved this by developing consulting and advisory skills within its data team, diagnosing the underlying issues behind data requests and then identifying creative new ways to use the information to achieve departmental goals.

The manager emphasized partnership and the blurring of boundaries between his own department and the departments he supported, emphasizing that the victory for him was that his partners saw him as an extension of their team.

Return on investment towards company goals

Leaders should focus on the goals that matter to the organization and cast all ROI discussions in that light. Marcelo Zottolo is senior director of D&A at Lee Health, one of the largest public health systems in the United States.

When he took office in 2018, the hospital had to pay nearly $7 million in fines to health regulators for failing to meet certain health outcome benchmarks. In response, the D&A team focused on helping department leaders meet those goals, tracking their progress while clarifying the variables in their work that mattered to organizational success.

By 2023, fines had fallen below $1 million. In the process, the D&A function evolved from “reporting information” to providing actionable guidance to leaders to help them achieve CEO-mandated goals.

It’s important to note that avoiding the “death by ROI” problem doesn’t mean organizations should abandon efforts to measure the business value provided by D&A or any other support function. The most effective leaders can reframe value assessment conversations based on the whole, not the parts.

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How to avoid ‘death by ROI’ in data and analytics

Finding the true value

Don’t draw your lines: blur them

Return on investment towards company goals

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