The traditional use of the term ROI means return on investment—the result of something you’ve already done. But by then, it is too late. It’s time to rethink ROI and focus on the front end—revenue, operations and innovation—rather than the end result.
Revenue for revenue sake is dangerous. Too many chief executives are enamored with boosting the top line. The theory goes, “where revenue flows, profit will follow.” Not always, just look at Groupon (GRPN), which struggled after going public because of its early high-volume/low-margin business model.
There is a cost to obtaining revenue. It costs the organization time and expense, resources that could be employed elsewhere for better use. Revenue is worth having only if it is of high quality and can be obtained at the least cost. Too many CEOs get hung up on having a “big” company rather than a highly profitable company, regardless of the size.
General Electric (GE), on the other hand, is a good example of a company that focuses on profit—and carefully manages for profit. The top executives won’t get into or stay in businesses that don’t meet their profit expectations. They never grow for growth’s sake.
Your focus should be on the operations and innovation side of the equation. If you do that, high-margin revenue will follow. But don’t think of operations just in terms of manufacturing. All people in the company should understand their mission is to support this business model.
In an increasingly crowded field of fast-moving global competitors, innovation is no longer something that only “technology” companies do. It is something every company must do to survive. So you better get real good at it. Here is how:
• Measure every department’s contribution to the attainment and production of highly profitable revenue.
• Train the whole organization in the principles of innovation. Create an environment that fosters creativity, collaborates more effectively, and implements new ideas more rigorously.
• Make it part of everyone’s job description to develop and implement innovative ideas. And don’t limit this effort to new products. I’ll bet there is plenty of room for innovation in the internal operations of your company.
• Provide the resources, the environment, and the time for people to “think.”
• It won’t matter what you innovate if you can’t deliver it at the lowest cost on the planet. Provide the expertise and the resources to do this across the company, not just in manufacturing.
Rethinking ROI will take years, so you must be patient. But you must also be relentless in its pursuit. Don’t lose focus when times get tough. If you do this right, your business will flourish.