Tuesday, July 7, 2009

To ROI or not to ROI

The current structure and way of managing our companies is basically the same as when the first companies started in the beginning of the 1900’s.
Ford and mining companies are really good examples. The focus was on delivering the products as fast and as cheap as possible. People were just a tool to make this possible. A manager was someone who had done that particular job himself before, so he knew all the details. The employees were not supposed to come up with their own ideas, as that was the role of management. And when they encountered a problem, they asked the manager for help. As he knew the details he was able to support them.

The most important investment was the investment in machines. Hence, the metric of ROI (return on investment) became a driving factor in decision-making. The measurement of ROI spread into the Corporate environment like a contagious disease. Nothing can and will be done if there is no ROI projection available. Whether it is a project or a new IT system, or a new service or a change in the business model. They all ‘need’ a ROI projection. A lot of time is spend (‘wasted’) on creating business cases to support these new initiatives. Semi-scientifically people come up with favorable ROI projections, because if they are not, their project won’t be sponsored. In a lot of cases this creates a fake reality, because the numbers are made more favorable than reality permits. Sometimes it is even impossible to come up with adequate numbers, but if you don’t provide numbers, your idea won’t fly.
This way of organizing, managing and measuring a companies performance has become the norm. Even in today’s radically changed circumstances.

In Western countries more than 80% of GDP is related to services, so the services economy is dominant. So, it is no longer the machines which produce the results, but it is all about people who are the service and deliver the service themselves. The emotional value, which you deliver through your services, is becoming just as important as the economic value. A service company is nothing without its people. What remains is a building with a sign above the entrance with your name and that is it. Nothing comes out of this building without the people. So, we need a new definition of ROI, which is more in line with the actual state of the business.

It would be good to add the following definitions of ROI:

- Return On Involvement
- Return On Ideas
- Return On Intelligence
- Return On Integrity

These new definitions are more suited for service-environments were people are the dominant factor, and no longer machines.

However this new perspective on ROI requires a new way of thinking, a change of habits. This is not easy.
In The Age of the Unthinkable, Joshua Cooper Ramo says it as follows: “Unfortunately, whether they are running corporations or foreign ministries or central banks, some of the best minds of our era are still in thrall to an older way of seeing and thinking”.
Only when you have the real will and urgency to change your thinking, you are capable of doing it. The fortunate thing about the current crises is that more and more leaders are feeling stuck. They don’t know how to handle all these challenges. This could be the ideal time to help them with new perspectives and a new way of thinking. New times require new metrics.

Would you like to focus on the old ROI or (also) on the new ROI?



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