Stop thinking ROI, think success

Many people in knowledge management and social media have expressed frustration in defining return-on-investment or payback for implementing one of these projects.  Some people (Luis) suggest that there is no point in defining the ROI -- at least not in the way it is traditionally done.

It is the nature of default ROI calculations.  They go along these lines: "If we implement A, costing Z, we will gain Y.  Thus ROI = Y/Z."  (An alternate version looks at how fast one recoups their investment.) 

The problem is that the technology doesn't provide the return.  It is the use of the technology in the business setting - the setting of humans interacting toward some common goal - that creates the return.  If the change being proposed doesn't help the people reach their goals (better, faster, differently), the return cannot happen. 

To make this goal, do you think it will be the technology that will get you there?  Then why do we keep asking for ROI of the technology?  And why do we claim that the technology fails when all the surrounding systems and processes aren't updated to account for the needed changes.  If you implement a wiki and still need ten layers of approval, NOTHING is going to change (other than annoyed 2.0 early adopters). 

The real measure of "return" is whether the whole project is successful and you are able to meet your goals, whether those are financial or speed or something else.

A recent commenter on this article and a bunch of other discussion has inspired me.  And this has come up in the past a number of times (reviewing my own blog).  Vivian Kaye wrote about it in 2006 and I wrote in response.  Thanks to my network!

4 Comment(s)

Phil Hodgen said:

Good point. The technology doesn't make money, any more than a hammer makes money. It's the humans. It's always the humans.

These ROI calculations always seem to be an exercise in working backwards to justify the conclusion you want to reach in the first place.

I am in favor of spending money on tech and experimenting with new tools. I favor this strategy not because the tools will make my business vastly more efficient. That is a failed assumption.

No, I favor spending money on tech and experimenting with new tools because this is an accelerated way to learn about the limits of the humans involved in the business.

My latest example to myself: project management software can't possibly produce the beneficial results achieved by list of pending projects on a piece of paper, followed by a face to face informal chat and some scribbled notes on the paper.

It's the humans. Humans write checks. People > machines.

But machines are fun. :-)

Euan Author Profile Page said:

I reckon there's another possible solution to the ROI issue:

http://theobvious.typepad.com/blog/2004/11/a_scotsmans_tip.html

Jack Vinson Author Profile Page said:

Thanks, Phil. I have seen this "ROI of a hammer" comment a few other places recently. Is it yours? I really like it.

Your point about the importance of trying new things is interesting, and an angle I hadn't particularly considered. There is a subset of the company that needs to be continually exploring new ideas and new materials and new technology just to see if it makes sense. This is why people go to conferences and read books and ... buy shiny new toys.

And on a personal level, I think there is a blog post coming about the value of spending the time to try, explore and find new things to see where they fit into the context of my life. It's particularly important when my life changes underneath me. It's also important as the world changes and different ideas and capabilities emerge.

The tools can only enable the lasting difference that a larger change starts. Install new project management software without the PM process, and you are in the same sinking boat as before.

Stephanie said:

Agreed. ROI is so complex--with so many different ways and models to track it--I think the way we use it/understand it could use a switch-up.

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