What’s the ROI of the ROI tool?

The most popular business “tool” has a gaping hole in it.

“But, what is the ROI here?”

This question, asked thousands, maybe tens of thousands, of times in businesses of all sizes, positions the asker as a proponent of prudence in the decision-making process. After all, what highlights rational thinking more than asking what the organization can expect in return for the disbursement of some of its hard-earned dollars?

Sadly, this brief inquiry often ends an idea before it is allowed to blossom. The proposer of the idea, having barely hatched the notion, appears shocked by the question, “I have no idea, I only just dreamed it up.” Further still, even some ideas that have had time to mature run into the buzz saw that is ROI.

The great Peter Drucker spoke of three types of risks that face businesses:

  1. Risks that they cannot afford to take.
  2. Risks that they can afford to take.
  3. Risks that they can’t afford not to take.

Return on investment, defined simply as the difference what is the expected income over some period of time for any given expenditure of money, covers the first two types. If the anticipated revenue does not exceed the expenditure by some, usually arbitrary, factor (and usually the arbitrary factor is three), then the idea in question qualifies as a type 1 risk – one the business cannot afford to take. Conversely, if the anticipated revenue exceeds the expenditure by the threefold factor it emerges as a type 2 risk.

The hole now reveals itself as self-evident.

While ROI, at least in theory, can assist with the assessment of discerning between a type 1 and type 2 risk, it is hopelessly silent on the third type of risk, those that a business can’t afford not to take. By definition, ROI presupposes an investment. With no investment, the risk has been averted in the eyes of the proponents of ROI. Back slapping, high-fives, and handshakes ensue. “Wow, we just ‘saved’ the company some serious cash!”

NOT SO FAST!

The ROI proponents need to cease their celebration until another question is answered, “What is the potential cost of NOT doing this (idea)?” Clearly, there are situations where not “investing” in something will have a significant deleterious effect on the business.

Defending ROI

ROIers often dismiss this line of questioning for two reasons.

First, they argue that the money will be spent in some other area with greater upside potential since this other expenditure did produce the needed ROI according to the tool and therefore this more than makes up for the loss of not doing the thing that did not survive the rigors of the ROI tool. This is bullocks stew as it merely deflects the question. It may be true that the other investment was a good one, however the question of the cost of not doing something remains unanswered.

Second, the “cost of doing nothing” is dismissed as conjecture, at best or a wild guess at worse. Perhaps, this is true, but this calculation is no different than the one purveyed about the “return” on the investment which often are just reality multiplied by dreams. In fact, the cost of doing nothing, may be more rightly calculated since the evidence may already exist by looking at data from the past.

Either way, any “return” set in the future calculation must, by definition be based on a theory or belief system and not on conclusive data. As Clayton Christiansen has said, “The only way to look into the future is to use theories since conclusive data is only available about the past.”

By way of analogy, using ROI is akin to a sports team only playing offense and no defense. While it is true that creating a team with a great offense is important, ignoring defense creates a fatal flaw making it certain that the team cannot possibly win.

The ROI of ROI

“Has anyone ever put the use of the ROI tool through the ROI tool?” ROI adherents will dismiss this question on its face, but it is, in fact, quite a valid one. The use of ROI has costs associated with it. Therefore, by basic logic, it must be able to withstand its own scrutiny. Issuing this challenge will likely cause blank stares from ROIers. Indeed, they will note that any argument made to justify the use of the tool will just be assumptions with no ability to prove or disprove.

It is at this point that the argument is won as the same it applies for all users of ROI. Indeed, almost all the R in any ROI calculation is best described as reality multiplied by dreams.

The time has come to discard ROI alone as the de facto decision-making tool. It is nothing more than a busy work assignment for someone who would usually rather be doing something more creative and productive. In short, ROI at best produces a placebo effect. It is nothing more than the illusion of control.

Great, but did anyone learn anything?

I just received a very nice email from the organizers of a professional conference at which I spoke earlier this year. Here is an excerpt:

Your combined speaker ratings from the onsite and virtual attendee evaluations may be found below.

Please note that our rating scale is: 5 = Exceptional, 4 = Better Than Expectations, 3 = Met Expectations, 2 = Below Expectations, 1 = Unsatisfactory

Session Title: Shut Up and Eat Your French Fries: Asking Effective Questions

  • Knowledge of Subject Matter:          4.81
  • Presentation Skills:                                4.72
  • Topic Relevant to My Practice:          4.55
  • Usefulness of Materials:                      4.48

You may use the following overall Speaker Rating averages as a basis of comparison for your scores:

  • Knowledge of Subject Average:        4.71
  • Presentation Skills Average:              4.50
  • Relevance Average:                               4.48
  • Materials:                                                   4.29

And, this means…

The good news, it seems, is that “on average” the attendees liked what I had to share. They thought I was a skilled and knowledgeable presenter who had something relevant for them to hear and useful materials.

The bad news, I have no idea if anyone learned anything.

This is a major problem in all professional education. Think back to your days in school and college. Do you remember rating your professors? The comfort of the chairs? Me, either!

When professionals are asked questions during CPE (Continuing Professional Education) sessions online it is only done to make sure they are paying attention. Yeah, THAT shows a high level of trust!

My take

If the professions wish to remain relevant, it is time for them to rethink the way they have implemented CPE.
Amazon

Are You a Step-Up or Step-Down Transformer?

This article was originally published in the Maryland Association of CPA’s quarterly magazine, The Statement

Anxiety and creativity are always inversely proportional to each other. The more anxious you are, the less creative you can be. Therefore, trying to increase your creativity only makes you more anxious. Thinking, “I need to be creative, now!” is unlikely to work.

If you want to increase your creativity, you must focus on lowering your level of anxiety. Note that anxiety is different from stress. You can be in a stressful situation but be non- (or at least less) anxious about the situation. Stress is the circumstances you are in, whereas anxiety is the emotion you feel.

Most people I speak with about this concept are very accepting of the idea, at least for themselves. However, I have found that while people resonate internally with the idea, their leadership style does not reflect it in how they approach others. In leading people, they tend to increase the anxiety of a situation by their behavior. They are “step-up anxiety transformers.”

Transformers are amazing

An electrical device that transfers electrical energy between two or more circuits through electromagnetic induction is known as a transformer and are used to increase or decrease the voltage of electric power of the power grid.

These amazing devices work by wrapping wires around a piece of metal at different densities. If the density of the wrapped wires is lower on the incoming side than the outgoing side, then the voltage is stepped up. If the density of the wrapped wires is higher on the incoming side than the outgoing side, then the voltage is stepped down.

A great example of this is the A/C to USB adapter on your iPhone. One hundred and twenty volts (standard US electrical outlet) would instantly fry your phone. The adapter reduces the voltage to the needed 5 volts for the phone. The little gizmo is a step-down transformer.

In their ground-breaking book, Healing Leadership, Howard Hansen and Steve Geske, postulate that like electrical transformers, leaders can be one of two different types of transformers. They can either step-up the level of anxious energy in an organization or step it down. Sadly, many people are step-up transformers. They write:

The least mature in any group, including families, tie up energy resources.  They are eager to create a negative presence.  We have come to call these people, ‘step-up transformers.’ Neutrally anxious energy goes in. Highly anxious energy comes out.  The net outcome is that leaders’ energy levels are reduced along with the capacity to focus on creative work. They are… skilled at making mountains out of every mole hill.

Far too many leaders fail to recognize this trait in themselves. They think they are helping by “creating a sense of urgency” or “getting people to be accountable.” This is nonsense as it is not only unhelpful, but instead sows the seeds of the leader’s own destruction. They are smothering the ability of their people to develop new and creative alternatives to the problems faced by the organization. Instead, fear takes root as the basic emotion of the group and after fear toxicity quickly follows.

What can be done?

Simply put, nothing, except for the leader to recognize that they are step-up transformers and make a conscious choice to become step-down transformers. Like their metaphorically electrical cousins, step-down transformers attempt to lower the level of anxiety by being a non-anxious presence themselves. They do this by becoming a self-differentiated person – someone who is aware of and acknowledges the anxiety of the group, but does not get enmeshed in the anxiety themselves.

In times of crisis, a self-differentiated leader seeks out a balance between being responsible for what they are in fact responsible for and being labeled as obstreperous, that is difficult to work with. This is not an easy task for many leaders, even leaders who we have traditionally viewed as “good.” Many “good” leaders all too often step in and save the day. In many cases, this behavior is out of benevolence, they truly care and want to help. Curiously, this ultimately leads to a) people thinking they need the leader in more and more situations rather than relying on themselves and b) the leader thinking they must continue to save the day and thus it becomes a vicious circle that sucks the creative energy from the group and replaces it with anxious energy.

Characteristics of step-down transformers

One of the key tools of the step-down transformer leader is humor. (Note not sarcasm.) Humor, especially if a bit self-deprecating and well timed can significantly defuse the anxiety of situations. The reason is that our human limbic (emotional) systems are open to the influence of others, they are not closed. This is why you might laugh at a comedian while in a comedy club, but barely chuckle at the same jokes if they are listening to them on TV while you are alone in a hotel room. Great comedians have the ability to actually link up an audience’s limbic systems.

A step-down transformer leader also knows to make a decision when the same questions keep getting asked over and over again. Alternatively, they sometimes reframe the question in a new way that allows the conversation to take a new less anxious direction. Reframing questions is a learned skill that can be practiced, however, recognizing when to do so is an art form in step-down transformer leaders.

Lastly, step-down transformer leaders know how and when to confront people with their own freedom. This is perhaps the greatest challenge of any leader because it takes not only the ability to recognize the situation, but the courage to act upon it. Often, people who are confronted with their own freedom recoil at the thought. They would rather view themselves as being imposed upon by others. “I have no choice,” is a frequent reply. Great step-down transformer leaders demonstrate by their own actions that human freedom, especially of one’s own feelings, is a choice.

They are not Perfect

Lastly, the most interesting aspect of this type of leadership is that those who practice it are often flawed in the ability to put it into practice. I have studied and struggled with these ideas for a decade. I believe I am better than most people at recognizing the rising level of anxiety of a group, yet still I think I only succeed in putting it into practice about once in three times.

My advice to those of you intrigued by these ideas and want to put them in practice is to learn how to be self-forgiving for not putting them into practice. Ironically, in trying too hard, you will more likely increase your own anxiety. In other words, you will become a step-up transformer of yourself.

Yeah, don’t do that.

Speaking at Sage Summit in Melbourne, Australia

I am thrilled to announce that I will be speaking at Sage Summit in Melbourne, Australia which takes place on Thursday, March 2 and Friday, March 3 at the Crown Melbourne, 8 Whiteman Street, Southbank VIC 3006.

Check back here for specific session times, but I know that I will be speaking on two of my favorite topics – Healing Leadership and Innovating Beyond Technology.

I am so excited, I decided to do a trailer video. Enjoy!

Innovation Beyond Technology

This session is dedicated to the possibility that innovation goes beyond just technological developments. Technology is important, but it is only a small part of innovation. For innovation to be more fully complete we must look at other areas including the internal processes of the organization and most importantly the very language we use. Innovating like this is hard work and not for everyone because it requires deeper thinking than is most often thought. If you believe you can attain this level of thinking, you are invited to attend this session facilitated by Ed Kless, Sage senior director of partner development and strategy.

Healing Leadership

This session is dedicated to the possibility that the majority of leadership thinking is wrong as it is ultimate based on manipulation – trying to “get someone to do something.” Coming to terms with this idea is difficult and not for everyone because it requires us to examine some of our most deeply held beliefs and either dismiss them or at least think differently about them. If you are interesting in having a conversation about healing leadership, you are invited to attend this session facilitated by Ed Kless, Sage senior director of partner development and strategy. This material is based on the work of Howard Hansen and Steve Geske, who have presented at previous Sage Summits.

Tim Williams’ Landscaper Story

I hope you enjoy this video I recorded late last year recalling a story I was told by the great Tim Williams of  Ignition Group. Below the video is a slightly edited transcript if you prefer to read it.

The Video

The Story

About a year ago, I heard this great story from a fellow VeraSage Institute colleague, Tim Williams.

Tm is a brilliant strategic mind and he shared this story with myself and a group of VeraSage folks and I’ve been meaning to put this down on video now for quite some time but finally got around to it after a year. (So yes, I have stuff on my to-do list for a year.)

But here’s the story. Tim owns a rental property and one of the things that is always concerning about a rental property is the maintenance of the yard. It has got a small little yard in front of it – perhaps a goat could really take care of it – but what he wanted was a landscaper and he called up, of course, three people to come out and take a look and give them him an estimate or price on what it was going to take to take care of the property.

I need a landscaper

The first guy comes out and says, “Hey listen, I’m gonna be 50 bucks an hour and will probably take me somewhere between two and three hours a week, sometimes longer, if I’ve got to do something else that’s {not in scope]. That’s what I’m going to charge you. Tim was like, “Okay.”

The next guy came out and instead of giving an hourly price, he gave a list of things that he was going to do. He’s gonna mow the grass and he was going to take care of the bushes and edging and you know throw down some fertilizer and whatever was needed to take care of the property in yard.  He listed out the services he was going to do and he said, “That’s going to be a hundred and fifty dollars a week for me to do that.” Tim said, “Okay.”

The third guy came out and he actually asked Tim some questions. “So tell me a little bit about this property?” Tim replied, “Well it’s a rental property I’m not here very often just want to make sure that it’s nice for people who are coming and staying here.”

The guy said, “Here’s what I’m going to do. I’m going to make sure that your property here has the best curb appeal in the neighborhood. I’m going to charge two hundred dollars and it includes absolutely everything. You’re gonna have the best curb appeal in the neighborhood. If I have to change out the bushes or the flowers. Bush dies, I’ll fix it. Change the flowers seasonally. Best curb appeal in the neighborhood. Two hundred bucks a week.”

Tim’s Decision

Which one do you think Tim went with? He had us all waiting with bated breath and most of the folks in the room clearly the third and he said, “Actually I went with the second.”

We’re like, “Well why is that”

He said, “Because the third one doesn’t exist. It was what I had hoped for, but nobody would give that to me, so I had to go with somebody who ended up giving me the second one.”

When you think about this, what Tim is describing here is three different ways of viewing delivery of stuff to a consumer – in this case someone who’s got a rental property. One is by charging for the inputs. The first guy was going to charge for the inputs at 50 bucks an hour. The second was going to charge for the outputs and there was a list of outputs. This is what you’re going to get. This is more menu-type pricing. He was charging for a series of outputs. This is the output that you’re going to get from whatever it is that I have to do.

The third guy, who of course only exists in Tim’s mind, was going to charge for an outcome – the best curb appeal in the neighborhood.

The point

I think that is precisely what professional organizations across the board: lawyers, accountants, engineers, architects, media, bookkeepers, all people who offer professional work should be looking to position themselves as selling and providing an outcome.

Not outputs, and not certainly not inputs, but an outcome. As a professional you are responsible for delivering an outcome, not outputs. but an outcome and that’s what your customers want from you.

My advice is charge for the outcome.