The conventional wisdom is that ROI drives sales. It's a variation of the old saw that buying events occur because of greed or fear. Since 1945, the assumption for consumer purchases has been that everyone wants more stuff. The "solution" to "recessions" is to get people to buy more stuff so that the "economy" improves. The purpose of mass market advertising morphed from informing consumers about the stuff available to creating a new needs for more new stuff.
But quietly a different reality has been growing. Now, as the funny money world of the most recent bubble is disappearing, that different reality is turning into an effective market, at least in the North - USA/Europe/Japan. Below are some excerpts from a
blog out of the Harvard Business School. It's worth the click.
How Recession Will Accelerate Consumer Downsizing - John Quelch: "Watch out for a new brand of consumer in 2008: the middle-aged Simplifier. She finds herself surrounded by too much stuff acquired. She is increasingly skeptical in the face of a financial meltdown that it was all worth the effort. Out will go luxury purchases, conspicuous consumption, and a trophy culture. Tomorrow's consumer will buy more ephemeral, less cluttering stuff: fleeting, but expensive, experiences, not heavy goods for the home."
I would suggest that it's not only the "middle-aged Simplifier". In a world that already has enough stuff, the underlying reality is becoming more clear. The truly limited resource is time.
It's a natural evolution of the forces of automation that were unleashed by the industrial revolution. In the physical world, that automation keeps allowing us to make more stuff in less time. In the cognitive world of communication, that automation keeps allowing us to get more information in less time.
"Less time" to produce x amount of stuff, is the result of more efficient human intervention. Increasing efficiency of human intervention is the result of using the time that people invested in creating labor saving technology. Stuff that is produced faster, better, cheaper becomes a commodity. And that's the good news!
But there is also bad news. As less people are needed to produce the same amount of stuff, old jobs start to disappear. When stuff that was hard to produce becomes easy to produce, it has less value in the market. Companies that make and sell stuff have to quickly become as efficient as possible to maintain profit margins. They have to find new stuff to make cheaper, better, faster and they have to find new markets filled with people who want to pay them for it.
That's the problem for printers.
The mechanisms of the problems created by automation is obscured by focusing on ROI. If you can't clarify the proximate mechanisms, it's almost impossible to identify the right things not to do. I say "not to do" because the essence of effective strategy is to waste as little time as possible. There are a gezillion things that a business manager could do. Vendors are producing a huge number of options. The internet has so speeded up the exchange and availability of ideas, that it has become reasonable to say, there are no unique ideas.
The "I" in ROI is a stand in for "money." ROI is a stand in for "profit." Every business is in the same business - making a profit. The stuff being sold is just a way to do it. The problem with ROI is that while it makes sense in the some time horizon - the quarterly report, pay day or the end of the month - it is not present now. Decisions have to be made now. Plus getting to ROI requires many things that are not controllable now.
What is needed is a proximate indicator to inform minute by minute decision making. Dr. Joe Webb coined ROT, return on time that helps.
Here's how why it works. As everyone goes through the day, they are answering an implicit question "Is it worth doing?" In business, step one is to make that implicit question, explicit.
But, when sales people ask the question, "worth" means how much money am I going to make. Unfortunately, unless you get paid by the hour, that question is impossible to answer with certainty. Often impossible answer yield blah, blah, instead of evidence based decision making information.
Will time invested in a relationship with a customer turn into money? No way to be sure, unless you are at the purchasing stage. Prospecting, relationship building, "educating" are necessary, but not sufficient, to get to money for the sales person. For the firm, it's much more complicated. There are many intervening steps from purchasing to payment. If the focus is the life time value of the customer, as opposed to one purchase, it's even worse.
ROT is one approach out of this mess. It's still qualitative. In some organizations it's more quantitative. But in any case, it supplies a pretty good rule of thumb. Does that sales meeting on Thursday morning have a high ROT or a low ROT? Does chasing down an estimate have high or low ROT? Does following a job through the plant, sending out proofs, or going over the billing have High or Low ROT?
Once a salesperson sees that the sales process is first identifying suspects. Then moving those suspects into the prospect bin, then the customer bin, then the client bin, it's a lot easier to answer "Is the time I'm investing worth it." "It" becomes a clear indicator that every potential client is moved one step up the ladder.
The decision making rule then becomes "If the ROT of a customer exchange is below a certain point, don't do it." If it seems a "necessary" part of the sales process, make sure it really is. The best way to get a high ROT is to eliminate anything that is low ROT. If you can't eliminate it, at least automate it. If you can't automate, at least figure out a way to do it faster, better, cheaper.
