How the ROI Game Works

When people say “my return-on-investment” or “my ROI” or “my value” for a program, sometimes they are asking for a number such as 125 percent, but more often, they are not. They are using ROI as a codeword a codeword that means something different for each person who uses it. To see how fast the definition of value changes and why it is important to be able to connect your answer to what is meant by each individual person, let’s reminisce about a childhood game of communication called “Rumor.”

Children usually play “Rumor” with eight to 10 people. The players sit in a chain, and someone volunteers to go first. The first person makes up a rumor: the more fantastic, the better. He or she then whispers the rumor into the ear of the next person, who in turn whispers it to the next person, and so on. When the rumor reaches the last person, he or she announces what he or she heard. Then the first person in the chain shares the original rumor, which usually bears little resemblance to the rumor after it’s been passed along by all the children in the chain.

Important Understanding value in an organization works much the same way as the game of “Rumor.” What is described as valuable in an organization changes as it moves from the beginning of the chain (a senior executive) to the end (the individual performer). What’s different in an organization is that the change in how value is described is much more predictable than in a simple game of “Rumor.” That predictability is the key to breaking the ROI codeword.

Using the principle of cascading metrics, the financial measures at the top (profit, liquidity ratios, cash flows) are always broken down into more specific measures for the next layer of management. That management layer breaks the metrics down again. Eventually, what began as the financial measures of the top officers becomes the performance metrics of the individual contributor.

Cascading Metrics

Just as it is well known that people manage their behavior to meet their performance metrics, the idea that organizations have cascading metrics is not new. This concept has been described in such famous business management methodologies as the Japanese Hoshin process (Kenyon, 1997) introduced in the 1970s and 1980s and in the balanced scorecard movement (Kaplan and Norton, 1996) of the 1990s and 2000s. If it seems sometimes that you just do not understand what your audience is asking, it may be a signal to take a step back and reexamine what you know.

Individual Performer

The first level is the level of the Individual performer. This is the level that WLP professionals are most comfortable with simply because this is where most of the people in an organization reside and where the majority of the WLP professional’s work is focused. WLP professionals know how to “talk” at this level because they often think of the success of their WLP programs in terms of performance objectives in other words, in terms of the Individual performer’s metrics.

First-Level Management/Operations

The second level is the First-Level Management/Operations (1st/Ops, pronounced first ops) layer. This is a tactical layer comprising first-level supervisors and high-level operations contributors who have a great deal of influence over the financial performance in other jobs. An example of a 1st/Ops person is a lead buyer in a purchasing department. This person may be an individual contributor but, depending on the business, would need to be highly positioned to work closely with other 1st and Mid-level managers in manufacturing, distribution, or marketing units.

Middle Management

You will recognize the Senior level by the use of certain words in their titles. Chief anything (chief executive officer, chief financial officer, chief information technology officer, and so forth) is a tip-off that a person occupies the Senior layer.

The word senior or executive coupled with a title is another clue. For example, many corporations use several levels of vice presidents. Senior executive vice president is a typical senior title. In other organizations, such as the government, there can be many levels of directors. Senior executive director is a higher form of the title of director and is more likely to be used at the top of the organization. The focus of the Senior layer is to create the vision, direction, and pace for the rest of the organization. This layer has the most discretion in moving funds across the organization and the most clout in supporting key initiatives that get time, resources, and attention.