Return on Investment.
ROI.
Not since WMD has a three-letter-acronym had the same capacity for fear, destruction and chaos. Single-mindedly laying waste to the best-laid plans of change architects everywhere.
However robust your research, meticulous your planning, and innovative your solution, few change plans get the requisite approval from those holding the budget unless you can show a nice multiple (or at the very least a black figure) in the ROI column. But is a monetary ROI really necessary? Can (and should) we always be looking to assess the outcome of change in financial terms? Well, yes and no – let us explain…
CAN all change be measured in financial terms?
Well your Finance Director will tell you it can! The reality is it probably can be, but the degree of difficulty will vary massively. Introducing a change that introduces standard processes to an invoicing function, leading to greater productivity and therefore a smaller staff base is a relatively easy calculation. Increased employee satisfaction scores leading to an expected reduction of staff attrition levels and therefore lower recruitment costs is also nice and straightforward.
But not all change is neat and tidy like that. Say we had an ageing workforce and were looking to increase ‘organisational memory’ through greater knowledge and skills sharing. There will be a myriad of effects. Training spend might decrease, but productivity might decrease as more time is spent on teaching the job than doing the job. Also, we may not ever know the true impact of our efforts, as the change could take many years to really make a difference to the business, and the difference it does make could be so fundamental as to determine the very existence of the business itself.
In some cases, the measurable outcomes of change feel like Schrödinger’s cat. All are possible, in fact all exist, at the very same moment. Until we actually open the box we simply do not know.
SHOULD all change be measured in financial terms?
This is perhaps the more spiky question…
J.P. Morgan, the famous American banker and philanthropist famously said that “A man always has two reasons for doing anything: a good reason and the real reason.” The “good reason” is the reason the one their role dictates, the one they are expected to make. A Finance Director’s good reason will be a finance reason, whereas a Human Resource Director’s good reason will be a human resources reason. The “real reason” is however a little more complicated, as it is likely to be highly personal.
Consider the use of an everyday item, such as a watch. The “good reason” to wear a watch is simply to tell the time, however that does not explain why we choose to wear a particular watch. Fashion, personal taste and how we want to be viewed by other people will dictate our choice. Business decisions are comparable – individual’s will consider what decision they want to be seen to make, what legacy do they want to leave, what does their morale compass tell them is ‘right’.
The most important word in J.P. Morgan’s statement is however the AND, “a good reason AND a real reason”. In order to get sign-off on our change initiative we have to tick both boxes. The financial ROI figure must be there because the budget holder will require a “good reason”, but forget the “real reason” at your peril.