The ROI Monster Is So Because He Often Leads Us Down a Path of Futility . . .

A few days ago, I wrote a post titled, "Social Media Strategy: Let's Stop Talking ROI Already". This is a delicate subject and I may not have been as direct as I should have been. Let me cut to the chase as I'm not suggesting we come to the table with no financial justification. It's bigger than that. Let me explain:

1. ROI is a weak metric. It's the laughing stock metric of the Finance world. If we're going to come to the table speaking ROI, we need to be prepared to get laughed out of the room. ROI doesn't account for time and risk, so unless the Finance Execs are so misguided that they don't care about time or risk as it relates to return, we better bring out the big guns. That means EVA (i.e. account for the cost of capital as well) and NPV (discounting projected returns back to net present value). My point: If we're going to talk finance, let's not come in with the weakest calculation as if it actually means anything.

2. There is a long-term benefit that isn't quite as easy to project in a high-probability range. In addition, it's dependent on competitive counter-moves. For example, let's say we move forward with a Social Media Recruiting Strategy to achieve parity with the competition. Where is the ROI there? On paper, it would look like little to none . . . but in actuality, this is not the case. Again, ROI fails to tell the whole story. Now let's assume that we move forward with a Social Media Recruiting Strategy and the competition lags behind. On paper, perhaps ROI looks to be nothing more than reduction in Exec Search fees, yet if we look deeper, we may see we've weakened our competitors by hindering their own ability to recruit niche pockets of top talent. Again, ROI fails to tell the whole story.

Case Example: Let's say the IT Dept and Recruiting Dept each come to the table requesting $100k in revenue. For the sake of discussion, let's say the business leaders of each department only know ROI because it's the 'easiest' calculation. IT suggests an ROI of $250k to implement a new ERP, while Recruiting suggests an ROI of $200k in saved Exec Search fees. On the surface, the IT Dept would win out if all we looked at was ROI. In reality, however, the IT Dept investment may have a higher total-cost-of-ownership (training, additional customization, etc.), while the Recruiting Dept may have an indirect benefit extending beyond the initial savings in Exec Search fees. Let's say one of those key hires earns their way to the HiPo program and 5 years later, successfully leads the firm into a new sector . . . while the former ERP system now needs replacement as it falls in the 'legacy' category? If all we considered was ROI, we'd have made the wrong decision.

Ultimately, I think it's a misguided decision to make decisions exactly the way that the Marketing function does, because we're talking about Talent Acquisition . . . an endeavor much farther reaching than a new-customer acquisition program, an advertising campaign, etc. While I am a fan of decision theory, I hesitate to recommend our market uses a plug-and-play approach to reviewing investments. We need to dig deeper.

To conclude, I'm not saying ROI doesn't have some part in the conversation, but it's my recommendation to leave the 1st yr undergrad Finance metrics at home and come to the table with legitimacy. When you know what ROI is and means, you realize the futility of it since it only tells 1/3 of the story (i.e. the "what", ignoring time and risk). We can think deeper, meaning we need to take in the noise of the Marketing world trying to calculate ROI for their own needs . . . but keep in mind that our game isn't quite apples-to-apples.

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