"ROI" is trendy. And too often wrong.
Everyone involved with
incentive programs seems to be talking up Return on Investment (ROI) but we
don’t see much recognition of the complex fundamentals involved. The truth is
that intelligent ROI is a science and an art, driven by skill and experience,
and it’s not always a number. Why? Because the success of a performance
improvement program is always a matter of client definition.
Sometimes, for very
good reason, the definition begins and ends subjectively: “Our best people
qualified” might be just fine. On the other hand, when program ROI
must be defined by a number or set of numbers, be sure you have the
right one(s) and that you have plenty of expert help in balancing them with the
people performance you want.
The best program ROI
measurement is a combination of quantitative and qualitative factors,
anticipated by expert design, used as a guidepost throughout the program and
ultimately delivered with clarity and convincing power at the moment of
financial truth. Why? Because “Raised sales by 15%” might be okay or it
could be awful (eg: cranked up sales of the lowest margin products, fell short
of expectations, etc).
Identifying the right
set of financial goals is only one part of the equation: How you measure
program proficiency is just as important, and it’s often done inaccurately.
Here’s an example (an independent dealer purchase incentive
plan):
TOTAL INCREMENTAL GP $5,000,000
INVESTMENT - $1,000,000
NET TOTAL INCREM. $4,000,000
Looks very successful,
but it’s actually not as accurate as it needs to be. A closer look reveals
that enrolled dealers increased substantially while the unenrolled
declined. How the program generated incremental business from those who
enrolled is a more precise evaluator of program proficiency. Better
answer:
ENROLLED INCREMENTAL GP $6,200,000
INVESTMENT - $1,000,000
NET ENROLLED INCREM. $5,200,000
ROI = 520%
A tailored performance
solution incorporating a credible, expertly calculated ROI combined with the
human factor is always superior to a simple numerical goal.
Intelligent ROI is
defensible. It’s integral to appropriate construction of an effective
performance/reward proposition for the participant. It marries quantitative and
qualitative factors that define “success” in your terms. It’s based on
exacting financial analysis coupled with an understanding of your people, your
products, your particular circumstances and goals. It’s 3-dimensional, useful
and actionable.
It’s ROI2,
inseparable from the most effective program “equation”:
Knowledge
x Motivation
x ROI2
Performance by
Design®.
We have more to tell you about
performance solutions and ROI2. The time you expend will present
an irresistible return on investment.
