ROA- getting the most out of your assets

Interest in Generating Earnings?  why wouldn’t you be?

Return on investment after training and resour...

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Measuring hope

If your business found 2011 challenging, the business press heralding the boom in 4Q sales may restore your faith and hope that 2012 may prove to be a better year.  I know the President remains hopeful, as his re-election may depend on it.

More than an uptick in sales needs to support your growing confidence in a brighter future.  The political, environmental and ongoing commodity pricing volatility that occurred in 2011  challenged the most sophisticated analysts and their understanding of cause and effect relationships. This breakdown  in understanding seems to force the hand of management to reassess their own behaviors, expectations and adapt to the new reality that technology enabled connectivity introduces.

I’m not a finance person but too often the media and an organization’s management focus on revenue drivers in their discussion of a firms’ relative performance.  They overlook the significance in which a  firm’s existing resources or assets contribute to realized earnings –though they don’t miss noticing  when the resources drain earnings.

In every business, management sees merit in measuring investments, competitive business activity and computing ratios to test their own relative performance. Other, more peripheral measures however seem to be contributing to organizations that out do their peers if not lead their industry.   What am I talking about?

I’m proposing broadening the strategic applications of  ROA and ROE, or Return on Assets and Equity respectively, as well as ROI-Return on Investment.

Scale and Efficiency

Technical management consultants for decades leveraged their understanding of growth based on efficiency or the inter-relationship between cost, time and output.Think about it, the more you do the same thing, the faster and better you get. Popularized by the likes of BCG, the experience curve framework demonstrates how a competitive advantage results when this value gain accrues to the firm in time making it more capable of increasing its level of output without having to increase its labor costs.

Many organizations benefit from incorporating this thinking into their decision-making and planning.  Experience curve derive easily from existing data, and thanks to champions like Jack Welch, prediction help can be readily found in subcultures obsessed with perfecting scalable efficiency.  Though powerful this approach is not a sustainable strategy.

In 2011, innovation consistently appeared at the top of many a CEOs wish list. The uncertain economy compromised many intentions and capabilities to invest in organizational transformation to realize this new agenda.  Falling profits, reduced stock prices and investment capital dried up. Where or how could a new initiative find finding?  Even if resources could be identified, the nature of innovation incorporates uncertainty.  Few firms are capable of estimating innovation’s payoffs to plug into a P&L model let alone calculate an acceptable,  timely ROI.

John Seeley Brown, John Hagel at Deloitte and Peter Senge, among others, identifies an alternative that uses technology and its ever-growing connectivity.  (see http://www.businessweek.com/managing/content/apr2009/ca2009043_775383.htm)

Six sigma and the experience curve’s efficiency framework estimations project learning curves to flatten or plateau over time (because production and training costs fall off proportionally as total volume accumulates.) Collaborative environments by contrast naturally welcome increased connectivity and impact the growth rate on the learning curve.  In this latter environment, innovation occurs organically. Correspondingly so will returns on your existing assets with little or no additional investment required.  For too long the focus has been to build process around efficiency of scale.  Don’t get stuck in the  that Dan Pink describes as the mismatch between what science knows and what business does.

Appreciating value

Traditionally, returns like savings occur when an underlying investment appreciates in value over time. It can also occur when costs come in lower than expected and create a budget surplus. How often are you measuring appreciating asset values?  If you limit design of your measurements and set corresponding rewards too narrowly, the quality and impact achieved will be equally narrow.

Recently, I sat in on a conference call  while being logged into an interactive collaboration platform called think-tank by Group Systems.  The other participants, primarily  video conferencing system consultants, used ROI to make their financial cases.  The C-Suite teams, always looking for bankable savings, could instantly understand how to self-fund implementing video conferencing using savings they could collect by reduced travel needs.  This approach pressed the comparative price points between the vendors except Group Systems whose presentation surprised me.  They weren’t talking about new installations, but about upping the usage of existing systems, already installed and, sometimes, fully depreciated.  In other words, they sought to convince firms to realize the appreciation in value from their underlying investments and calculate the Return on their existing assets.  For fully depreciated assets, even higher earnings can be realized  merely by changing internal operating behaviors.

In an environment where investment capital is scarcely flowing, the need to understand ROA  and raise its profile among all levels of management offers some interesting opportunities.  The number of desktops with intranet access within your organization offers the best start.  Chances are your IT department has plenty of tools at its disposal that with  support from training , leadership and example from senior management, together could release a sea change in communications, boost productivity, generate measurable return on human capital and offer additional cost benefits.

A lesson in Magnitude

Beyond your IT department who is looking at the volume of internet related activity or even monitoring the communications activities within your organization?  Perhaps your administrator or facilities staff track the usage rates of your conference rooms.  What do either of these volume metrics offer by way of generating insights  to your organization on how work gets done, or the efficiency and effectiveness of internal communications?

The Following statistics are offered as a  perspective frame for  technology enabled changes in communications.

  • There are close to    1.97 billion – Internet users worldwide and 1.88 billion email users (June 2010).
  •  25% of all email accounts are business accounts and
  • Corporate users typically send and receive about 110 messages daily—18% comprising both real spam and “graymail” (i.e. unwanted newsletters, alerts, etc.).  (see  The Radicati Group, Inc  reportas of April 2010)
  • 73 percent of Americans use their mobile handsets for both text messaging and picture taking. (see The Pew center for internet research report).

Note that in the wider world,  people are communicating in greater numbers on platforms other than email.

175 mill

600 mill

1.88 bill

1.97 Bill

Twitter

Facebook

Email users

Internet users

Sep-10

end of 2010

end of 2010

Jun-10

I’m betting that your communications behavior is one sure source of inefficiencies in your organization.  Try studying the electronic trail of decision-making, project management and progress reporting that transpires on redundant email threads and see for yourself.  Alternatively, if your office inbox has any message threads in which you are one of a series of recipients…chances are great that you’ve identified a large source of communications inefficiency, confusion and  redundancy.

Communicate to further learning

How many conference rooms or meetings, principally focus on getting work done vs. updating project or activity status? Cristobal Conde, CEO of Sungard in a New York Times interview articulates not only how to reap the time-saving benefits  micro-blogging offers, but  how deploying Yammer  (an enterprise social network like Twitter) across his organization was a boon to overall performance.  (http://www.nytimes.com/2010/01/17/business/17corner.html) He gladly swapped the hours on his schedule tied up in meetings to review results for time spent in the field talking directly to customers and clients, or helping teams solve problems.  How did he do it?  Leading by example–using SMS and the open accountability from shared, real-time BI.  Meetings were now always working sessions, never updates on project status.   The phrase Time is money takes on new meaning when considering people’s  time as a valuable asset and as such should waste it with activities or behaviors that fail to offer measurable returns.

Now,  I’m not suggesting a return to the days of time and motion studies to extract every ounce of productivity.  Rather I am suggesting that injecting some new discipline will generate returns and rewards that don’t all directly hit the bottom line.  How much continuous learning is going on in your organization?  I’d love to learn how others are acknowledging or even tracking that learning.  Impersonal  communications  or skipping direct interpersonal engagement deprives people and organizations  alternative perspectives and perceptions–the critical catalysts that lead to innovation.  Unlocking the thoughts and migrating the energy expended on routine note-taking, or email dialogues into a think-tank, such as group systems virtual collaborative platform  guarantees to accelerate results.

I’ve had the pleasure of collaborating informally with several different professionals who all understand the value of experience to differentiate and rank preferences.  One of the  more valuable insights helped me to understand that when we share news, we often intend to increase our knowledge or further our learning.  The more we all know that more likely we are to make use of that knowledge to mutual benefit.

Try focusing on optimizing learning efficiently  and you may surprise yourself with the value add that results.

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