Thursday, December 18, 2008

Return on Effort

Most business school programs focus on the financial aspects of an business endeavor, and most specifically tend to focus on one simple parameter: Return-on-Investment, or ROI. Specifically, ROI is determined by calculating the profit (or gain) from any investment or expenditure, subtracting the cost of that investment or expenditure, and dividing the difference by the cost of that investment or expenditure.

While this is a great metric for determining actual expenditures’ returns, it does not really bode well when dealing with intangibles such as services, or activities such as sales, marketing, accounting, etc. A long time ago (30 years ago) I started measuring to a different metric, Return-on-Effort, which took into account how much time, energy, additional assets (such as people), and change any new project will cost and weighed those "costs" against how much easier, faster, or more efficiently you could perform the process by expending that additional effort, to which a formula evolved that will give you a good idea on what ROE is all about. 

Of course, you HAVE to quantify what the 'value' of the effort is, and that is the hard part.  A good starting point is to calculate YOUR time and everyone else's at $1,000 per hour. 

When determining how to increase sales, improve market awareness, reduce costs, or go into different markets, keep this Samuel Clemens quote in mind, “If you have a difficult task, give it to a lazy man. He will find an easier way to do it.”  The quintessential essence of Return-On-Effort!


Friday, December 5, 2008

An Automobile Parable

A Japanese company (Toyota) and an American company (Ford Motors) decided to have a canoe race on the Missouri River. Both teams practiced long and hard to reach their peak performance before the race.

On the big day, the Japanese won by a mile.

The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.

Their conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 7 people steering and 2 people rowing.

Feeling a deeper study was in order; American management hired a consulting company and paid them a large amount of money for a second opinion.

They advised, of course, that too many people were steering the boat, while not enough people were rowing.

Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to 4 steering supervisors, 2 area steering superintendents and 1 assistant superintendent steering manager.

They also implemented a new performance system that would give the 2 people rowing the boat greater incentive to work harder. It was called the 'Rowing Team Quality First Program,' with meetings, dinners and free pens for the rowers. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses. The pension program was trimmed to 'equal the competition' and some of the resultant savings were channeled into morale boosting programs and teamwork posters.

The next year the Japanese won by two miles.

Humiliated, the American management laid-off one rower, halted development of a new canoe, sold all the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses.

The next year, try as he might, the lone designated rower was unable to even finish the race (having no paddles,) so he was laid off for unacceptable performance, all canoe equipment was sold and the next year's racing team was out-sourced to India.

Sadly, the End.

Here's something else to think about: Ford has spent the last thirty years moving all its factories out of the US, claiming they can't make money paying American wages.

TOYOTA has spent the last thirty years building more than a dozen plants inside the US . The last quarter's results:

TOYOTA makes 4 billion in profits while Ford racked up 9 billion in losses.

Ford folks are still scratching their heads, and collecting bonuses.

IF THIS WEREN'T SO TRUE IT MIGHT BE FUNNY



Monday, December 1, 2008

Nano Marketing

One of my colleagues, Patti Hill, former CEO of PR Firm Blabbermouth, and now PenmanPR, asked the question about the value of having "nano" inside. She points out that the consumer marketplace has become rich with nanotechnology-based or enhanced products from sunscreens to water repellent and stain-resistant clothing, gum, car wax, sporting equipment, heat-resistant windshields, consumer electronics, and nanoparticle-laden cosmetics. Do consumers really care?

This goes to the heart of what I always talk about: technology v. benefits. Having "nano" means nothing unless there are concrete benefits of having nano technology. Also, nano has become so generic (like quality, value, etc.), that it really does not mean anything anymore.

Now, if you are using nano-technology to improve something, or invent something new, it could be considered beneficial (ie. WiFi capable printers).

The big mistake that technology companies always make is assuming people understand the technology they are selling. You HAVE to make sure that you sell benefits and experience.