Brainpower: The return on investment in interaction (ROII)
Posted on July 14th, 2009 by Michael••• Click through to the original article …
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, and increasingly value creation has migrated from what we can see (physical assets) to intangibles (ideas that define products or services).
Understandably, seasoned executives 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, which accentuates 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 at the point where re-engineered business processes collide with a participative and interactive ecology of information flows.
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.
Of course, 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 gets you to the inner circle of those who control budget dollars. So, let’s look at what ROI was, how it needs to be changed and how to recapture its original intent for application in the network era, in which continuous learning and knowledge work are becoming inseparable.