ROI -- More Than A Numbers Game

"I have this huge decision hanging over me--the Return On Investment looks good on paper, but I'm not positive it's a good move…"

Our client, the President of a mid-sized firm, agonized over a decision he and his team had to make, knowing the impact it would have on his company. He kept coming back to the financials -- but suspected he was missing a piece of the puzzle and couldn't figure out what it was.

You often hear ROI bandied around in business meetings, but what does it really mean?

ROI is the language of measurables. It's proof that your decision/action is paying off. When the decision-making process works, all the factors that compose the ROI are considered and compared to the big picture and vision.

When the process doesn't work, the decision is made first, and then ROI is used as justification.

Examining the return on investment is a cornerstone of strategic thinking and risk-taking. This traditional financial measure was developed by DuPont and once credited with making General Motors manageable. But there are many more layers to the definition and utilization of ROI.

Outline of the process

Let's look at a breakdown of the core process. If you don't understand all the components of your ROI, you will find your leadership will be a huge struggle. Start with your outcome in mind, then look at the financial piece:

Financial: cash in/out, long-term financial cost, taxes,

Now ask yourself how many other kinds of investment are involved? Can they be put into numbers? How can you measure the following?

People
Time
Effort
Soul/heart
Efficiency
Enjoyment
Morale
Gained/lost sales
Other?

Other than cash, what other types of return will you achieve?

People
Time
Money
Effort
Soul/heart
Efficiency
Enjoyment
Reputation
Cultural enrichment
Education
Other?

How many kinds of approaches?

The one you have considered and the ones you haven't considered

To simplify it, ROI is an input/output equation, helping you see the cause and effect of your actions. Where we get stuck is not looking at the much bigger vision -- and asking, what do you really want to happen?

Making it work

Our client was stuck because he was trying to justify a decision he had already made. He thought he wanted to invest in software that would improve productivity. When we stepped back and looked at the big picture…beyond the issue he was trying to solve…the answer was less clear.

His big vision is that his company delivers product on time and provides outrageous customer service. Upon closer examination, his customers would suffer for at least six months during the implementation of this new software. In our client's words, "this does not compute!"

Instead, our client took the productivity issue to his employees and asked for their ideas. We looked at the entire process, what was working and not working, and using color markers, we drew everything out on paper (getting silly and having fun!) Two ideas emerged that also included new software, but they were products that would require a much shorter implementation cycle and little customer disruption.

We then ran the new ideas through the ROI process and everything clicked into place. Six months later, sales have increased, customers are happy and, to the President's amazement, employee morale has increased.

Tip From the Coach: Keep your huge vision in front of you (which includes tangibles as well as intangibles.) As decisions come up, check where they fit in the vision. ROI is far more than the financial piece.