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The ROI of nothing is nothing
Posted on: Tuesday, August 11, 2009
We are all familiar with the saying that we all know the price of things but not their costs (e.g. low price food can have an enormous environmental cost) but I wonder how many business leaders are familiar with Einstein's assertion that 'not everything that counts can be counted and not everything that can be counted counts'.
Over the last decade the acronym ROI has permeated organisations. No project, however insignificant was immune to having to prove its ROI. An entire ROI industry was built to help project directors calculate the ever elusive number that would give them a green light.
But here is the problem, not withstanding the fact that most calculations fall far short of scrutiny (as all "support" functions claim an ever shrinking proportion of increased customer loyalty as their big R), the drive for Return on Investment calculations makes organisations fail.
Problem one is cultural. By refusing to acknowledge that the imapct of some efforts cannot easily be calculated (or that it is so removed as to make an ROI calculation irrelevant), organisations encourage people to cheat. To make the project work everyone ends up claiming the same thing and make up numbers (see for yourself take your last 3 "strategic initiatives" and really, trully, genuinly, has it delievered anything like the claims made in the plan?). When we encourage spurious calculations and game playing we can't then wonder why the organisation has become a game.
Problem two is philosophical - that's where Einstein comes in. Now philosophical is not really a favourite word in the corporate dictionary but hear me out. The definition of philosophical is 'of or relating to the study of the fundamental nature of knowledge, reality, and existence'. In today's knowledge economy everything becomes philosophical. The problem with ROI is that it forces you towards the lowest common denominator in knowledge terms. You cannot create new knowledge if you are asked to measure its effect in advance (iof you knew it wouldn't be knew now would it). So we go for the sure bets, the measurable, the understandable, the done before, the average.
There are far simpler tests than the ROI test to decide if we should go for a project or one choice over another. A clear vision of excellence + Common sense + honest, tough discussions is one. Return on Imagination is another.
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