Underneath the CAT tool UI, and the logic and data spread across the web, underlying the architecture, and even beneath the motherboard and beyond the length of the power cord, we again find ourselves in the business tier for this article series.
For quite a number of years people have asked me about the return on investment of going global with a product or service. Recently joining Spartan, it didn’t take long for someone to ask about ROI, calculating value, and return on effort. Can we talk about this? Will you speak on the topic again? Can you write about this? Well, yes – let’s discuss!
Thinking on writing about Global ROI as a general topic, the biggest thing that struck me was if anything in this long-running conversation had actually changed, aside from the windmill.
… Sorry Don and Sancho, jet-ski’s not included
In most cases, when people have asked me to weigh-in on this, it was more about bringing an understanding to the costs than the potential. However, this is not usually why companies are formed. Business typically forms around a potential gain, not for how much they can cost. Focusing on costs alone will nearly always create a result no-one likes when it comes time for funding and execution.
Repeating this a few times may make you feel more like you are tilting at windmills, or worse, like Sancho’s donkey, Dapple. Let’s leave the windmills to Don, and try to explore this differently by listening to the donkey who tirelessly bears Sancho around in support of Don’s goals, and is dependably there to get him home again.
A good case for global expansion needs to focus on the top line – revenue, calls out the impacts to the bottom line – cost, and clearly shows expected returns. A great case will require a bit more than that.
Starting from No
ROI Modeling is very complex, can contain a lot of factors, use a variety of forms, and evolves very quickly due to internal and external market influencers. Simply, it has too many levers to provide one universal algorithm that is repeatable both across businesses, sectors, or even over time at a single organization. Often, it is held as a proprietary secret.
Assuming you have all the data, a great reason, and a huge untapped market, you should also assume that the answer to “can I go forward with?” is most likely to be “no”. Assume that the most likely answer is no, and this will all be a lot easier.
There are a lot of reasons for this, and I will include many during the course of these articles. We will start with some easy ones that are typical in all large organizations. Any of these can cause an easy No, and investing the effort in a compelling ROI story is ムダ (Muda = waste) unless you will address these. Long before pulling up Excel and PowerPoint, I need to address some other crucial elements.
Investment contains things which all outweigh the ‘component costs’ that are likely considered in an actual investment equation (e.g. cost to produce, market, sell, maintain, support, etc) which are exacerbated when you scale:
- cost to decide (+mkt inf)
- cost of inaction (+Mkt Inf)
- cost of action vs other potential investment (+mkt inf)
- timing of investment costs vs expected returns (+mkt inf – punting R flatly)
(Your credibility factor can have a calculable $ value in these equations, but we will get into that later.)
These significant factors are themselves impacted by even more significant factors – Market Influencers, that change your success parameters and create timing windows. These timing windows can represent moments when even the best cases will fall down, or moments when the work of a full-blown ROI case is superfluous.
Winning cases include a great story, supported by believable evidence, arriving at a fortuitous, moment to a receptive audience. Sounds simple so far? Good – it is!
Cost to Decide to Decide
The simplest no comes from a lack of available time to make an informed decision. When I am writing an article and my son interrupts to ask me for $3, if I don’t have them in my pocket, the answer is no; if I am not sure they are in my pocket, the answer is no; and if I need to go and get them or think that I might, the answer is definitely NO.
Why? I have a priority and am spending my available time to reach it. The cost of inaction is perhaps an unhappy teenager, the key component of cost of action isn’t the $3, it was the effort – the overhead, the cost to actually think and decide and then to take action. Coupled with the consumption of effort that causes me to not spend time on another – potentially more important – thing I need to do.
The activity of deciding can itself be quite costly. If you consider only the salaries of those who need to become informed and decide, this can be a huge number in a large multinational organization. Internal and external data collection will further divert effort from other priorities, plus deliver direct costs.
Looking for a decision on a large and complex issue is an ask to spend a large amount of time and attention on it. Make sure you can explain what you are after in the elevator in less than a minute. This conversation will literally get you off the ground if you can keep it simple and clearly tie it to your organization’s core goals.
The larger and more complex the decision you need to achieve, the larger the timing windows you need to have. The initial momentum requires a small window, if you keep it simple. In larger organizations it is important to understand the ongoing financial cycles, and the planning and activity cycles they feed and drive. These cycles open and close opportunity windows, and can also bring them closer and drive them further away. Prior to planning and budgeting is a much more fortuitous moment than 4 weeks after the quarter was loaded with the funding to cover the committed work. Timing is not ‘everything’ but it is crucially important. It can also have a huge impact on the direct costs to decide.
Also, it is crucial to look at the decisions needed on a timeline, and also which can occur during execution. This should take into consideration the external factors – market influencers, that will impact this, as well as the internal factors that becomes steps to success. If your organization for example is working on deploying a new technology that will make reaching the goals easier, or through a partnership or acquisition. Being successful in other initiatives can enable your team to not only get decisions sooner, but reduce the cost of execution and the overall effort needed to reach the returns or to even exceed them.
If you can see that the effort involved in planning this will cost more than your expected returns – congratulations, you are done. Bailing out has the best return for the investment of your time.
Your premise still holds? That’s great – but rather than giving you some bones of an algorithm that you and your team can spend weeks on developing a beautiful spreadsheet from, our next step will be into the cost of inaction.
Next time: The Zen of Opting to do Nothing