Updated 25 Apr 2009:  Jim McGee has a brilliant post on bridging analytic and management cultures. Is it that ROI is a catchphrase from the oral management culture which is fundamentally in conflict with ideas which are from the literate culture of the organization?

Prolog

In the Soul of Success series, i am still not happy with what we have on how-to-set goals and also how to spot opportunities. What we have seems very high level. If any of you have any ideas, please comment on those posts.

ROI

Being a part of the management staff of a large organization, the term ROI comes across my desk at a remarkably high frequency. I absolutely see the need for ROI and i think it is an important tool to make decisions about various initiatives.

However, i think  looking at the ROI may not always help.   I can clearly see that calculating ROI does not make sense in some situations, but i have not figured out what are those situations?

Some of the strange behaviors i have observed around ROI, make me think that, there is some problem with ROI calculations, we haven’t quite nailed yet.

My observations:

1. Some people brandish ROI as a Devil’s Advocate to kill promising ideas.

2. Interestingly, we never seem to know what is the ROI for all the existing practices in the organization, but when we want to introduce something new, people ask for ROI? why does this happen? Is this due to resistance to change?

3. Many a time, the person coming up with the idea, does not exactly know about ROI. The person just has a vague hunch. Under such circumstances, would we be better off trying the idea out?  If yes, how do we decide which ones to try? If we expended effort around every idea, won’t we  end up with wasteful expenditures , especially if the idea doesn’t work?

4. There are also some vehement proponents of ROI who say you must not do anything without ROI which seems to be an extreme position. Can that be correct?  For my part,  I am always sceptical of extreme positions.

5. Many a times, benefits received from initiatives are intangible, which makes it hard to put a $ number required for calculating ROI. Does this mean that intangible benefits don’t matter?

6. In my experience, i have tried initiatives without regard to ROI and found later that the ROI has been tremendous. Had we relied upon ROI calculations, we never would have embarked on those initiatives?

As you can see, at this time, i have too many questions and very few answers.

Recently, some one argued with me vociferously that an Enterprise 2.0 implementation should reduce mail traffic and that is an ROI. My experience, shows that mail traffic actually increases significantly because of all the mail alerts the social systems generates. This is because all of us live in our Mail client and hence these notifications are needed to pull us back into the E2.0 systems.

Amazon.com Example

Disclaimer – Amazon is a great company that has done lots of innovative things. I have been a Amazon.com customer and i love that company. This example i write below is not reflective of Amazon as a company. It is just to illustrate my point about ROI.

In March 2006, Robert Scoble made a presentation to Amazon employees about blogging and the discussion abruptly ended with the ROI question popped by Amazon. The discussion later spilled over into the blogosphere, with yours truly joining the discussion with a post.

Even now, the ROI question for blogging has not been nailed. So in March 2006, nobody had any real answers. Although i didn’t agree with Amazon’s position (reflected in my post), lot of people agreed with Amazon’s position.

Now, why is this important, you ask?

What i found over the years is that Amazon never really leveraged the blogging platform to the extent it could have. In my view, it missed a great opportunity because blogging is very closely linked to the business of books (both are forms of writing, right?).

Some of the missed opportunities:

1. Today every book author worth their name, has a blog website, tries their best to promote their blog alongside their book, but are rarely successful with their blogs. It goes without saying, that they have to buy a domain name, design a website, market it etc. and many of it at considerable expense. Why couldn’t Amazon have developed a platform to allow each author to have a microsite for each book where the author can blog and actively promote it.. (I know Amazon has a program of this kind, but it is a shadow of what it could be).  Authors may even be willing to pay a fee for such a service because they have to do all of this themselves today.

2. Millions of bloggers (including yours truly) write reviews of books on their blogs and the reference link they use is the Amazon.com entry for that book. It would be very easy for Amazon.com to pull those reviews into the book’s microsite.  These reviews would give the would-be buyers of the book a valuable input.

These are just 2 opportunities that i could get off the top of my head. In my view, Amazon didn’t pursue blogging with the vigor it typically pursues opportunities because they thought blogging had no ROI.

Epilog

What do you all think? What are your views on ROI?