Breakfast Club
Philadelphia: The Next Frontier for Learning and Development
Mar 18, 2010 07:30 am
Four Seasons Philadelphia
Philadelphia, Pennsylvania

Webinars
Improving Emotional Intelligence Through Behavioral Style
Mar 18, 2010

CLO Symposiums
The Networked Organization: Leading Learning in the New Economy
Apr 12, 2010 - Apr 14, 2010
Boca Raton Resort & Club
Boca Raton, Florida

See More Events

Features

Published July 2009

Productivity in a Networked Era: Not Your Father's ROI

  

  Jay Cross and Jon Husband

Today's networked era requires a new way to make investment decisions that incorporates intangible assets and more accurately depicts how value is created.

The industrial age has run out of steam. Look at General Motors. Look at Chrysler. We are witnessing the death throes of management models that have outlived their usefulness.

The network era now replacing the industrial age holds great promise. Networked organizations are reaping rewards for connecting people, know-how and ideas at an ever-faster pace. Value creation has migrated from what we can see (physical assets) to intangibles (ideas). Look at Google and Cisco.

Understandably, seasoned executives, chief learning officers among them, are having a devil of a time shifting from the industrial age mindset of logic, certainty and bounded constraints to the network gestalt of interaction, self-organization, unpredictability and fewer limits to potential. The pressure is constantly on to meet quarter-to-quarter revenue and earnings targets that in turn accentuate the need to take decisions that support achieving those targets. At the same time, we are shifting into an era in which knowledge work and learning occur where re-engineered business processes collide with a participative and interactive ecology of information flows.

How can a chief learning officer hope to make informed judgments in this continually expanding networked environment that’s flowing ever faster, spreading power among its members and producing outsized impacts in unpredictable ways? What to do?

One cherished industrial age concept that is proving particularly difficult to let go of is return on investment (ROI). But like Pontiacs and Oldsmobiles, old-school ROI’s day in the sun is waning. In an environment of continuous flow and interaction, there’s a need to consider an emerging metric: return on investment in interaction (ROII). The working definition of ROII is the observable development of capacity and capability to create economic values out of intangibles.

Consultants and smart-aleck MBAs will tell you if you want to sell a big project internally, you’ve got to talk ROI. It’s the language senior managers understand. Being fluent in ROI talk addresses the “hard” tangible returns stemming from an investment in a specific project or capacity. It is supposedly the secret handshake that gets you to the inner circle of those who control budget dollars.

Let’s look at what ROI was, how it needs to be changed and how to recapture its original intent in the network era, in which continuous learning and knowledge work are becoming inseparable. As Steven Forth of the LeveragePoint division of the Monitor Group puts it, “Too many people who talk about the ROI of learning are focused on being precisely wrong rather than directionally correct.”

Traditional ROI
ROI is an accounting and financial management concept businesses use to decide where to make investments and to assess the success of investment decisions after the fact. ROI reduces both return — R, what you expect back — and investment — I, what you expect to put in to numbers — making it possible to compare one investment opportunity to another. The numbers tie back to categories on the balance sheet and income statement, (i.e. tangible assets and hard-dollar returns).