Rough and Tumble with ROI

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?


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.


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. Example

Disclaimer – Amazon is a great company that has done lots of innovative things. I have been a 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 entry for that book. It would be very easy for 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.


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


  1. Quote

    Yes Sukumar,
    Very valid questions…
    And I completely accept the part that due to the Enterprise 2.0 implementation, the mails have increased..

    Regarding how to try out new ideas and not stifle innovation, I think Tom Kelly’s book, The Ten faces of innovation has good tips..

    He says that the best way to innovate is to try out and in order that we dont lose lot of money on just trying out ideas that dont work out, he says we should make the process of trying out easy and fast called rapid prototyping. He says we should try them out with a small group even with a less polished interface as it would help us try out the idea and based on the initial responses and some intuition may be we can proceed further.

  2. Quote

    Very interesting post and I have few thoughts on my mind, I am not sure I am going to be able to articulate that correctly.

    There are (hopefully) tangible benefits for new initiatives and then there are intangibles. The advantage of tangibles is that the language (of $$$) is understand clearly by everybody. The person proposing to do it, the person sponsoring it, the investors, the market, the media and everybody. Intangibles by definition are. If is your word against my word. Who will spend their own dollars or company dollars against that?

    I am not as experienced as some of you are, but if you think about it, ROI calculation is a very western/modern way of calculating returns. I suspect it is one of those things that were invented specifically with an intent to CYA, whether at individual level or corporate level.

  3. Quote

    An unknown said ” Capitalism is cutthroat and ROI is knife “. Even though i was not part of any company’s management team and i’m a 100% technician person, i was involved in many ROI meetings with start up company. How to increase ROI? What can we do to increase it? Why we are not getting enough ROI from this place?? etc…etc…I can see the tension and desperate from manager’s face, they need some inputs from engineers, associates and everybody working for them. Understandably every companies want to show certain percentage of growth on each Q, hence the pressure mount from top leadership. If we follow stock price and compulsion to show growth create pressure and over time company looses innovative thoughts, but if we follow innovative thoughts and ignore ROI/market, automatically stock price goes up and improves our financial sheet. Greater example is Apple/Google, they never follow stock price and ROI, they are the world leader of innovative products and stock price goes sky rocket.

    Innovation with out losing ROI is key for each companies success, we can create a scalable model to achieve those. What i mean by scalable model? Each time we introduce product into markets, our existing customer should act as marketing for us, now this point of time some one here at Chicago telling to his friend to buy Apple Nano, hence Apple creates a free marketing position for them and using the money for innovation. If a company established for 10-15 years and still using more money for marketing, there is something wrong with them.

    Amazon ideas are great and very pragmatic. But Amazon somehow interested in cloud computing and hardware Kindle etc, so they might not interested in micro sites.

  4. Quote

    I opine that calculating ROI does not make sense in some specific situations/stages in the business but definitely makes sense otherwise. I would like to explain my point of view on where/when it does not make sense first.

    I recently saw a new series in Discovery Channel called “Pitchmen”. The program is about how the two well known & successfull pitchmen Billy Mays and Anthony Sullivan come up with the best pitch for making the informercials to take new products/inventions to the massess. What I observed was, most of the products that we see in the informercials are just a simple idea for a product that will be very useful for a common man on a day to day basis. Most of the people who come up with such product ideas are usually middle class folks without any background of doing business. They put in all their savings, borrow money and even go to the extent of foreclosing their homes to come up with their product, in the dream of establishing a successfull business out of their ideas. At that stage most of them would not have done any surveys or market study as to whether their product will sell. So, they don’t do any ROI at that point in time. They are just confident that they will succeed.

    Then they approach people like Billy and Sully (the Pitchmen) to make a short 2-5mins informericals to introduce their product to the public. Initial price point for all products in the informercials is usually $9.99 or $19.99, or it is like buy one and get one free. So, even at that stage they don’t do any ROI. Then the informerical is aired in select test markets and they anlayse respone from the TV Viewers. It is only after that they know whether their product is a success or not and then they go in for mass production, setting up the price points and also further decide which demographics to target and which market segments to target to sell their products. So, it is only at this point they would even start thinking about calculating the ROI.

    So, in summary, when a new business idea is conceptualized and until the point the business is established I probably feel that thinking about ROI will be a impediment to growth/success. But once the business is established when you think about expanding the business or while transforming it definitely makes sense to consider the ROI.

    – Srini

  5. Quote

    Thanks. i haven’t read Tom Kelley’s book yet. I will add it to my to do list. rapid prototyping is a great idea.

    I take it that you mean, we should try out a number of ideas without regard to ROI, but the trying of the idea should be done cheaply through rapid prototyping etc. Is that right?

  6. Quote
    Sukumar (subscribed) said April 25, 2009, 4:01 pm:

    Thanks. Yes, i think there is an element of CYA to it. But are you saying, that is there is to ROI? As i said, i am not against ROI per se. I am just asking under what circumstances does ROI does not make sense?

  7. Quote
    Sukumar (subscribed) said April 25, 2009, 4:05 pm:

    Thanks Subba. Those are interesting thoughts? Google’s 20% time model is definitely one way to try out ideas cheaply to Ananth’s point. But i hear they have deemphasized that?

    As for Apple, i don’t exactly know how they do that? Unlike Google, they don’t seem to be trying out a lot of products in the market. They seem to be hitting one home run after another. Wonder how they do that?

    Yes, Amazon cares more about cloud than microsites. but i believe it is because they were in ROI mode on blogs without realizing its power. I think they lost a great opportunity due to that.

  8. Quote
    Sukumar (subscribed) said April 25, 2009, 4:06 pm:

    Thanks. That is a great insight told with a great story of the infomercial pitchmen. yes, i think, calculating ROI in the early stages of the idea will most likely kill it. But are there other areas where ROI does not make sense?

  9. Quote

    ROI is a necessary thing and a must in some cases. But principles/methods around calculating ROI are decided by the very people who are making the case. For example, ROI assumes the implementation of the project (assuming it is a project the ROI is done for) is perfect. The effectiveness of implementation is not captured in ROI calculation. I am not necessarily saying it should be. But where does (the effectiveness) get captured?

  10. Quote

    Good point RK. However, most often isn’t effectiveness of the implementation part of the ROI calculations?

  11. Quote

    ROI needs to be understood as one small piece of the broader management task of allocating scarce resources. No organization has unlimited money, time, or brains to do all the things that the people in the organization might think are good ideas. Given that, the problem is to select which projects and programs to direct the available resources to. ROI (among other analytical techniques) provides a way to summarize a business case down into a single metric.

    You can’t look at the ROI analysis for a single project in isolation. ROI calculations are always embedded in a human and social context. I can think of at least two levels of analysis/debate that need to be worked through.

    1. Do I believe all of the assumptions and claims making up the ROI calculation for this particular project? Are the assumptions solid or speculative? Can the team really deliver or are they over estimating their abilities? What’s their track record been in the past?

    2. How well does this project fit into the organization’s strategy? My personal managerial agenda? Are there projects that fit better?

    Neither of these levels of debate can be resolved on an analytical basis. They involve judgments about the people and the organization that don’t fall within a purely economic story. The challenge is frequently to understand what the real objections to a proposal are vs. the objections being voiced. No spreadsheet is going to reveal those; you need to be working the social system that resource allocation is embedded within. A lot of that depends on keeping your eyes and ears open and your mouth shut in the early stages of figuring out what’s really going on.

  12. Quote

    Thanks a lot Jim for those insights. You are absolutely right about the social/managerial context and how important that is for ROI.

    One of the main reasons, i wrote this post because people don’t articulate the context, the real objections are but instead choose to hide behind ROI.

    Yes, an organization cannot try every idea that comes its way. However, not all ideas come dressed in nice ROI clothes. If ROI isn’t clear, how do i make a decision to try certain ideas and not certain others?

    Would i make those decisions purely based on managerial agenda/context? If we did that wouldn’t we miss ideass that may change the managerial agenda/context (the classic innovators dilemma?)?

  13. Quote

    Regarding whether there are other areas where ROI does not make sense…I could think of few more situations (please see them below). But I am not an expert. So, comments are welcome.

    • When the Business is spiraling down at a rapid pace and hence it requires immediate action from the management to save the business or slow down the pace of decline to gain some time to put in place a better strategy to bring the business back up. In this case, assumption made is…..though the business is spiraling down rapidly there is enough liquidity/cash to pump in some money.

    • When there is a risk of losing a long term customer who is contributing to a significant % of your revenue.

    • When there is a good opportunity to penetrate into the client/customer base of a competitor who is facing significant challenges in delivering product/services.

    – Srini

  14. Quote

    Interesting scenarios. It seems to me each one of those scenarios have the ROI buried in them. For example, what could be a better ROI than getting a new customer away from a troubled competitor?

    I think we should pick scenarios where ROI is non-existent but may have ROI in the future.

  15. Quote

    Yes Sukumar,

    Yes, by trying out a lot of ideas cheaply, we can find some good ideas and leave the rest. Even with one success, there would be enough ROI to make such trials. By making that trying out part easy we can surely realize some ROI on them.

    Regarding how to measure the intangibles – surveys with open ended questions might help capture that.

  16. Quote
    Sukumar (subscribed) said April 26, 2009, 11:54 am:

    Thanks Ananth. I think Toyota has made this philosophy of trying out ideas cheaply into an art form.

    Yes, surveys may help with intangibles.

  17. Quote

    I strongly believe in evidence/data based management and hence an idea that needs to be implemented needs to be whetted out atleast a bit in terms of its value to the organization based on its strategy. Here is an example – In IBM, when an acquisition is made, there is a flurry of activity around finding ‘synergies’ between products of the company acquired and traditional IBM products. Now, it is good that there is enthusiasm around finding new solutions by integration products as well as potential to maybe enter new markets.

    However, this needs to be weighed against

    1. priorities on which the acquisition is based
    2. resources that will be consumed and
    3. value of the integration.

    I believe all the above can be quantitatively measured. Not only is data essential, but also the risks surrounding assumptions needs to be stated. And overall failure dollar associated with the project would be useful.

    And as I was thinking about a response to this blog, I heard this HBR podcast on “Use failure to grow your business” and I think some of my takeaways are relevant to this discussion, and these would be –

    * Rapid prototyping and customer feedback
    * Fail fast, Fail cheap, move on
    * Intelligent failure

    Rapid prototyping and customer feedback is self-explanatory. “Fail fast, Fail cheap, move on” is interesting. Lots of times, managers/executives being close to a “prototype” project have the tendency to drag the project on, even though it has not yielded any positive results. So, you see skunk work projects dragging for 2-3 years consuming valuable resources. This just states that we need to have a short timeline for the prototype to yield stated results and if it does not happen, cut the cord rather than prolong a non-result yielding prototype. “Intelligent failure” is that even if a project fails, there are things that we learn that either can be applied can be applied elsewhere or the project itself can morph into something different. Be on the look out for such opportunities.


  18. Quote

    Thanks. ROI is an essential tool and as Jim pointed out above, only one of the tools in the repertoire. I am not denying that.

    My main grouse has been that ROI gets applied incorrectly even in areas where it is not applicable. It has become a key tool of the devil’s advocate to kill promising ideas.

    Yes, failing fast and cheap and moving on is spot on. We do need to figure out how to do that to test ideas. Learning from failure is also an important thing.

    Thanks for those insights.

  19. Quote

    Great post Sukumar.

    ROI to me is definitely an essential tool to give focus towards success for any project.I do not see it as an obstruction to innovation. If you focus “what will ROI of this project be “it will lead you to more focused questions towards your success.By preparing for the answers of these questions you can prepare a more robust plan with a. clear “begin with the end in mind” Somebody doing an ROI should have an open mind. It may be that we do not have the answers to all the questions that is coming up ,but that does not mean that we stop doing that project.We think of multiple channels to address the questions .

    I am in training industry for quite some time now, and training is a function which apart from couple of organizations who focuses on learning as a key tool for growth ,others treat it as a cost centre. So at every step we have to think of ROI.I personally am challenged by ROI for all programs I plan. Not that my leaders ask for it i.It is something I try to start working on as I plan a program. I have seen that helps me to convince myself, when I take a call before suggesting investment for a program.

    The objective of the program becomes much clearer when we focus on the ROI of the program. When we do a training need analysis we try to see if we launch this program how will I show an ROI to the sponsors .Rather we ask the requestor what improvement will you see when we plan this program for you? If it is a new program which we think is needed in the organization –we need to ask what will be the benefit, how can we show the benefit, is it measurable?(normally not ) list down the intangible benefits, how can we capture those? We need to ask what will happen if we don’t do it ?…and we need to go on…

    Though in the same breath I would say it is extremely difficult.

    So sometimes even when we do not see a clear ROI in the beginning we start, but we need to keep the ROI in mind.

    Maybe if there is a clear guideline that all programs above XXXX amount should have a ROI plan that will help. You see what I mean I am not telling you need to have an ROI , I am telling a ROI plan should be there.

  20. Quote
    Sukumar (subscribed) said April 28, 2009, 5:49 pm:

    Thanks. Yes, ROI is needed, i am not questioning the need for calculating ROI.

    What i am worried about is, how many ideas are we nipping in the bud because we don’t know the ROI when we start? This is why some of the commenters have suggested rapid prototyping, failing fast etc. The main reason you consider ROI is when you have a significant investment to make. But if you use rapid prototyping/fail fast pilots etc, your cost of trying ideas may be more. That way you are less likely to kill promising ideas because the originator could not come up with the ROI upfront.

    Does that make sense to you? Are there other ways?

  21. Quote
    Ganesh said May 12, 2009, 1:42 am:


    Just happened to read this – by Seth Godin. It may not apply that well to what you are asking for, but atleast in some situations, the best way to shut the nay sayers is by not fighting them.

  22. Quote

    Interesting perspective. Thanks for sharing Ganesh. Makes sense.

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