ROI Worship Can Be Bad For Business
ROI Worship Can Be Bad For Business
Balance is important. Even in situations where we think we are following best-in-class wisdom we have to stay alert to the possibility we will push that wisdom beyond its objective and into extremes that deliver unintended consequences.
If you are a Business leader who is struggling to get your teams to consider the ROI of their efforts and investments you might think I'm insane. Of course, everything is relative. If you are on that end of the spectrum you likely don't need to worry about the opposite. But maybe. Maybe with foresight you can drive positive progress without falling into the traps of your ROI-immersed counterparts.
If you are an analytics professional or manage a data team you have more than likely been asked to show the ROI of your work and the insights or outputs you deliver. This is good business sense and a muscle you should build. But an overcommitment to that endeavour might also cut your team off from real value adding initiatives.
Advertising
Advertising as a discipline receives more scrutiny on the value of its existence than any other I can think of. An age-old accounting question is whether it should be counted as a cost or an investment: such is the doubt in the return on the latter.
I worked for six years in a department of Meta's Business Group called "Marketing Science". The whole objective of this large organisation was to help companies build their rigour and confidence in assessing the impact of advertising spend. Or put differently – Marketing ROI.
So when I joined the team focused on the Gaming industry, a vertical very comfortable with assessing the ROI of every dollar, my colleagues thought I had the easiest job in the world.
Why?
Because they had spent years trying to educate traditional advertisers that a click or a like on a social media post is not the same as marketing impact. They would have held a parade if some of their clients introduced ROI as a KPI of advertising dollars.
It's all relative.
Data, data everywhere
Gaming companies, and mobile gaming advertisers in particular, have long been swimming in a Data-rich ocean. The nature of their business is such that they measure the impact of their marketing down to a very granular level.
Working with advertisers of this profile has shown me the other side of the coin: The downside of an ROI fixation and challenges that can come with that approach if we aren't balancing it with strategic direction and trade-offs.
Measuring the Roi of all initiatives, marketing and otherwise, is the right thing to do. Ensuring our resources are driving a return is good business practice and if we are cashflow-constrained it is even more vital.
But. If we go too far into the ROI tunnel we can lose sight of all of the things happening around it and all of the opportunities we miss if our definition and our tactics are too rigid to adapt.
This temptation is especially present for data professionals because by our nature we trust empirical evidence and quantifiable results more than, what we might perceive as, anecdotes or long-term bets. As such, we need to work even harder to make space between the KPIs and, better still, to enable our business teams to measure benefits outside of immediate ROI.
Here are three ways I've seen ROI worship damage businesses. Consider what the parallels are for your industry so that you can avoid these pitfalls and ensure your ROI metric does its job in the best possible way.
- Over-optimisation and saturation:
Careful what you wish for.
Every metric must be defined. ROI included. And in defining this metric we determine the period that is relevant (when should the return be delivered) as well as a threshold of acceptability or success for decision-making.
As I mention above, if you are cashflow-constrained these steps are of paramount importance to ensure your spend is paid back in a way that keeps your business afloat.
Assume we are no longer in that period of risk. We are profitable and growing and the ROI of our marketing efforts is healthy.
Does it still make sense to restrict our campaigns and strategies to only those that deliver a specific guaranteed return in a short window?
The number of customers that fit a very narrowly defined behaviour is small. And cutting your opportunities to acquire them into only those tactics that have done so in the past reduces the universe further.
In a digital marketing algorithm context we call this issue being over-optimised. Relying so much on a small group and historical results means that we are repeatedly fishing in a smaller and smaller pool and can saturate our opportunities more quickly than we would like. This can lead to increased cost of finding and acquiring these opportunities but can also limit our ability to scale.
In a world where AI and automation are increasingly part of our toolkit, we need to keep this behaviour top of mind. In my article "Please make this AI less accurate" I speak about the risks associated with asking AI to deliver some output and not considering what the extremes of that will mean for our results.
If you can only accurately deliver the ROI you want for one customer is that a good strategy for business health?
Data teams should take responsibility to increase the literacy around models and accuracy with business stakeholders so they can engage with trade-offs in an informed and strategic manner.
- Return on Investment, not Innovation:
Above I spoke about our need to be cautious about relying on historical results for future decisions.
A big reason why this is a problem is because it almost guarantees you won't innovate for the future.
Not every new thing we try will deliver ROI immediately but that doesn't mean that given time or exploration it can't emerge as a new top strategy.
If we demand ROI delivery on all efforts of our teams we are telling them to err on the side of caution and safety and not to be creative and think about the next best way of doing things.
It doesn't take a genius to see the issues with that directive. What works today won't keep us competitive for long so we need to make space for experimentation, failure and innovation. Blanket ROI goals suppress that innovation and send a message not to try.
- Success today doesn't guarantee survival tomorrow:
Which brings me to the last downside of an ROI obsession. It is inherently short-termist.
In addition to closing off opportunities that "might" be amazing, a singular ROI focus closes off opportunities that don't deliver short-term returns but build the foundations of our business for later.
Brand development is one such example of this challenge.
If all of our advertising efforts are focused on driving customer actions immediately and we negate building more meaningful connection with them and what will be important to them in future then our brand can suffer.
My favourite explanation of Brand is that it is what happens when you switch your direct-response advertising efforts off. It is what remains of your reputation and how present you are in your customers' mind when they are about to make a decision.
We don't want to sacrifice the benefits of that, or other longer term plays, because they don't deliver results today.
Resilient businesses need a combination of immediate results and the building blocks for longevity. The latter may not satisfy your definitions of ROI but that doesn't mean they aren't important.
This might be an uncomfortable area for data leaders to play but if you can identify relationships between short and long-term results you might be able to support in development of innovation frameworks.
ROI and….
I'm not advocating for throwing ROI out altogether. It is valid and it is valuable. But like anything, it has its place and this shouldn't be overstated.
Whether you are thinking about advertising or other initiatives in your business think about the opportunities that could be missed if your team over-focus on the ROI of every component. Ensure everyone understands the bigger picture of what you are trying to achieve so they can highlight when trade-offs on ROI could be worthwhile.
Put processes in place and give your team the freedom of flexibility when it is the right thing for the business overall.
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If your teams are using data for all their decisions but not driving the business results you had hoped – I can help.
Check out my website Kate-Minogue.com
Through a unique combined focus on People, Strategy and Data I am available for a range of consulting and advisory engagements to support and enhance how you deliver on your strategy across Business, Data and Execution challenges and opportunities. Follow me here or on Linkedin to learn more.
