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Blindly Chasing ROI: The Perils of Short-term Thinking

Ralph Perdomo

“If you can’t measure it, you can’t improve it.”

You’ve heard this quote before. It’s ubiquitous within business schools. You can probably even see it as a caption in one of those posters from the ‘90s. It’d be printed there alongside some rustic barn and grain silo or maybe a landscape of a majestically wind-formed dune.

That poster doesn’t exist—and that quote shouldn’t, either.

wristwatch and calculator on top of paper money for measuring ROI
ROI can be more than dollars and hours. - Nvoicepay

The problem is it forces you to look for and measure an ROI in everything—even if it doesn’t warrant it. Some things are more qualitative than quantitative and measuring their ROI may be near impossible.

Sure there are ways around this little nuisance. You could be particular about the numbers you use and decide to cite only the stats making a case for your narrative. After all, this is what Mark Twain (ostensibly) was referring to when he said lies, damn lies, and statistics.

But don’t.

Instead, embrace and accept the intractability of things. Recognizing this will become increasingly necessary when considering IT upgrades—especially when it pertains to subscription-based software, which has become increasingly commonplace.

The cost of failing

Suppose accounting is faced with a decision: Do you upgrade to the latest and greatest version of ACME accounting?

Well, let’s do some breakevens and figure it out.

There are 12 accountants in the department so we’ll need a license for each. Multiply it, carry the one—and we mustn’t forget the consulting hours required for the whole roll out. Suddenly, the project costs much more than you realized. It looks like we’ll be skipping this version. Maybe next year.

But can you accurately measure the value of an incremental version update? How do you correctly measure intangible, qualitative features—even after the pro-cons list you tirelessly prepared?

Take for example the newest version of Excel, which adds machine learning tools to the perennial spreadsheet application:

“Excel will try to understand the connections between your data as you enter it (like whether the words represent companies or people) rather than just determining if they’re numbers or text.”

The implications for this are staggering. For starters, once Excel understands context, a simple typo would quickly be flagged, maybe even preventing a costly error. That feature would have certainly come in handy for Clallam County, Washington, where an Excel error cost the Sheriff's Office close to a half million dollars.

How would your cost-benefit analysis have fared in assigning a value to prevent such unknown and near-catastrophic event?

If you build it, they will come

Consider other line-item entries that aren’t given this same level of scrutiny. Consider employee perks—a great example where even a small investment can have incalculable benefits in the long term.

Perks are offered to employees to get them in the door, retain them, and get the best work out of them. From a kitchen stocked with Kind and Clif Bars, to break rooms with Breakout and other arcade games, all the way to the 401k and tuition reimbursement, employee perks aren’t only nice-to-haves, they’re expected.

And nowhere else are those expectations superseded than at Silicon Valley.

Google, quite possibly at the forefront of employee perks, lavishes its workforce with such amenities as chef-prepared meals, round the clock access to in-office gyms, and massage therapy, all in the sake of allowing its talent to work on "good and interesting things."

But Alphabet—Google’s parent company—didn’t just stop at employee perks. Instead, they outright shunned ROI at X Development—Alphabet’s moonshot company with ambitions to match:

“...we look for a technology breakthrough that exists today; this gives us the necessary hope that the solution we’re looking for is possible, even if its final form is five to ten years away and obscured over the horizon.” [Emphasis ours]

It seems Alphabet heard the same voice Kevin Costner did in Field of Dreams.

Adding it up

Software, then, is another tool to help your employee better perform his or her job. Empowering employees with the cutting edge—from the newest hardware to incremental software updates—keeps their skills in tip-top shape, allowing you to attract and retain the very best. After all, would you want to work at an organization still using 10-year-old PCs?

Viewing software through this lens can very well help you avoid a fate similar to Clallam County Sheriff's Office. It’s short-sighted thinking that fails to account for those larger, more abstract situations—those unknown unknowns. And there's the giant asterisk in measuring ROI.

 

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