Increase ROI by Focusing on I, not R
Everyone wants a good return on investment. It’s no way to run a business, as many lean thought leaders have written about. But whether calculated or just a mental impression, we want a high return on investment, or ROI.
But why does everyone only focus on the R?
When I see projects, problems, initiatives, and investments prioritized, the primary filter seems to be in looking for high return projects. IT departments are too busy with major initiatives to tweak and improve existing systems. Large capital equipment is being bought while the existing equipment is sitting idle. A new branch or store is opened rather than improving traffic at the existing one. People are focused on the high R, high return opportunities.
I believe we are looking in the wrong place.
I think if you want to increase your ROI, focus more on decreasing the I. This means the small opportunities, but the ones that can be gathered quickly and with little effort or little money. Now if you pride yourself on math, be careful. The argument back is that we need the dollars so we need the high return projects. Wrong.
10 projects that return $101 each is still greater than 1 project that returns $1000. And if the investment was less for those 10 projects, then the ROI is higher. It’s seems pretty straight forward. But…
It’s not a shiny as spending big bucks. It doesn’t make you feel important to work on small and rapid improvements. You may have to think harder, even if not work harder, to come up with 10 projects when 1 will do.
These are NOT good arguments for the high-R projects.
What’s the argument for focusing on low-I, high-ROI opportunities?
1. The risk is lower. If projects have a failure rate, which they do, the impact of one big failure is harder to avoid and work around than the small ones, even if there are more smaller failures. Consider driving down the road: low impact with a few little potholes, but a sinkhole becomes unavoidable.
2. The learning is faster. If you are trying to be a learning organization, then every time you turn the wheel of improvement, learning is generated. If you turn the wheel one big turn, you get less learning further down the road. If you turn it many small times, the learning becomes cumulative and benefits you must sooner.
3. The effort is more distributed. Often big-R projects involve very concentrated leadership and involvement. Many resources are involvement, but the decision making is often well controlled to minimize risk. When it is a focus on many small projects, that involvement and decision making is more distributed, taking better advantage of the resources you have.
How does your organization deal with maximizing ROI? Do they focus on the big-bucket high-R items, or truly look at ROI no matter how high or low the R?