So many times we get a call from a client wondering what to do next with an organization that’s struggling. They know they have a problem, but they’re not sure what will help – executive coaching or team building or a complete overhaul of the organizational design. We need to speak in terms of financial returns on dollars spent in the investment of their services.
We start with the basics by asking the right questions:
– What is the business problem?
– How is the issue affecting productivity, morale, attrition or effectiveness?
– How does this issue affect your bottom line/profitability?
– What are the success criteria? Or, what does good look like?
We need to know what success looks like so that the investment is justifiable. Return on investment in organizational development is key. You have to know what you’re trying to achieve. We find that there are number of challenges for clients: unclear program objectives, credibility in data and calculations (I don’t trust your numbers), and accountability inherent in ROI (if we’re measuring, then we’re accountable).
“Knowing what to measure and how to measure it makes a complicated world much less so”
Freakonomics by University of Chicago economist Steven Levitt and New York Times journalist Stephen J. Dubner
Let’s say a CEO think her company has a culture problem and that employees start with a “that’ll never work here” attitude instead of focusing on the possibilities. A culture shift takes time – and a lot of leadership. Is this effort going to pay off? You have to focus on the result of the culture change: increased competitiveness, increased efficiencies, and reduced attrition. Here’s an example:
– Why change the culture? Increased efficiencies and competitiveness?
– Why are increased efficiencies and competitiveness important? Larger market share and production cost savings?
– Why are larger market share and production cost savings important? Higher profitability
So here’s when it gets interesting. We start talking about big numbers. Larger market share might mean an increase of 1M in revenue. Production cost reduction might mean 1M in savings. Total value created is then 2M. If the cost of intervention is 500K, we can calculate our ROI.
Revenue – Cost Savings/Cost of the intervention = 300%
That’s a great ROI, and a great choice to start your culture change effort.