How Are You Measuring ROI Managerial Performance?
Got into an interesting discussion recently about how managers are measured relative to their job performance. During this dialogue I suddenly became aware of one of the major pitfalls in the measurement process.
What is getting measured has a direct impact on the performance of an organization – revenue growth or cost containment?
The truth is managers have found it much easier to cut or control costs than to focus upon revenue growth. In fact, most managers do not believe their functional group has anything to do with revenue growth. This is a sad yet truthful statement.
The reality of this point is any organization to have long term stability needs growth – especially organic revenue growth. There is a huge need for organizations to commit to having a sales based culture.
When managers are only concerned about achieving their measurable goals due to only controlling cost – well, this usually means a reduction in head count and suspension of customer oriented services. Sound familiar? It has been the main focus on organizations over the past three years.
Now, here is what is truly bad for the organizations who use the “slice and dice” method for cost control. They will be out-performed by their competitors who chose to keep their existing “knowledge” and expand their knowledge and competencies during the downtime. These are the future growth leaders. Why?
Because they did not contribute to the brain drain effect that short term focused managers are currently engaged in with their organizations. When the economy comes back -at any level- the prepared organizations will immediately take advantage of these opportunities for revenue growth.
Another way to look at the measurements used to evaluate your management staff is to take a closer look at the ROI numbers – both the denominator and numerator.
The numerator is the revenue part of the ROI equation. It depends upon actually revenue growth to improve the ratios.
The denominator is the cost side of the ROI equation. It reflects the cost of investments, people and process management. The denominator is the home of most manager types in today’s world. They take the easy way of cutting people and investments with only a short term mentality. In most cases, very talented people are removed from the organization without an thought about the future and any economic growth (This is what I can accidental growth, since it the economy”s natural growth rather than corporate designed growth.)
As a leader, you must take the time to examine the actual numbers – including trends of both the company and market – to gain a true picture of how your organization is preforming.
Remember the real number is to find a revenue growth number exceeding the market growth percentage. Then you have true grow. By the way, acquiring other companies and using their numbers to show growth is mismanagement in my opinion. You need to separate the organic growth from the acquired growth to discover what is really going on within your organization.
Voss Graham
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Tags: Focus on Short term Actions, good and bad of ROI measurement, Performance management, real revenue growth, roi measurement, Voss W Graham
