I’ve just been reading an article that suggests that ROI (Return on Investment) is some sort of magic bullet that can somehow ensure that you miraculously never lose another deal to “no decision”.
Well, I beg to differ, and not just because the idea that any one factor can guarantee that sort of positive outcome is patently preposterous. It’s because many people’s feelings about ROI calculations are akin to their feelings about sausage: “the more you know what goes into them, the less you feel like consuming them”.
Hard to avoid bias
Any prospect that has ever developed their own internal ROI calculation to support a decision they want to happen knows how these things work. ROI calculations are almost never academic exercises. They are there to support or deny a business case.
Whether they are created by the project sponsor or by the vendor, it’s almost impossible to avoid bias in the assumptions or values that are chosen. Project sponsors know that they would do this themselves: so why would they expect a vendor to behave any differently?
Knowing how the game is played
It’s the reason why ROI projections are often viewed with scepticism bordering on incredulity by the other stakeholders (usually those with less of a vested interest in the project going forwards) who will have to approve the project. They know how the game is played.
That’s not to suggest that ROI projections have no value. But let’s at least ensure that we make the assumptions visible and reasonable, and that the projection isn’t so obviously favourable that it causes others to think there must be something wrong with it.
But I want to return to the notion that a great ROI will somehow eliminate the possibility of a “no decision”. Here’s why:
- Even if the ROI appears strong, the project will often end up competing for resources with other potential investments – and they may appear to have even stronger ROIs (or higher COIs, see below)
- More importantly, a strong ROI does not by itself mean that the project will inevitably go ahead. The need to change must also be strong
Introducing the Cost of Inaction
That’s why I want to introduce another acronym into the equation: The concept of the Cost and consequences of Inaction (COI). The COI focuses on why the status quo is unsatisfactory, and why organisation needs to change.
The reason why understanding (and ensuring your prospect understands) the COI is so important is because unless the costs, risks and negative consequences of their current situation clearly outweigh than the costs, risks and positive consequences of the proposed change, any sensible prospect is likely to stick with status quo.
The key question: “why change?”
The COI is inherently and intentionally a less “precise” calculation than the ROI, but – at least in the markets in which my clients compete – a critical element that shapes both opportunity qualification and deal strategy.
The costs and consequences of inaction are all about what would happen if the prospect’s current situation were to continue into the future. What would a failure to take action cost their business, now and in the future? And what would the consequences of sticking with the status quo be for your contact, their department, other key stakeholders, and the organisation as a whole?
In the market space in which most of my clients operate – innovative, technology-based solutions that are often creating new markets or reshaping existing ones – I’ve learned that prospects are unlikely to act unless the COI is high.
Weak or invisible costs and consequences of inaction are, I have come to believe, one of the primary reasons why so many apparently promising opportunities end with the prospect deciding to stick with the status quo and do nothing.
Qualifying your contact
By the way, if your contact struggles to think in terms of the costs and consequences of inaction, it’s usually a pretty powerful signal that you are talking to the wrong person, because it’s unlikely they will be able to persuade their fellow stakeholders of the need for change.
These are all reasons why I believe that the presence or absence of a compelling COI is a critical early stage opportunity qualification criterion. If there is no obvious COI, and if you cannot help your prospect to recognise one, then you should seriously consider qualifying out and returning the prospect to a long-term nurturing programme.
Uncovering the COI
Here are some of the questions that can help you uncover the COI:
- What would happen if you simply carried on as you are today?
- Who else is likely to be affected?
- What is the likely impact on them?
- How have you tried to address this issue before?
- What were the results?
- Why is it important that you address this issue now?
- Who else will need to be convinced of the case for change?
I strongly recommend that you bake these questions into your early stage opportunity checklists. If your sales people aren’t asking them early on, “no decision” could end up as your most significant competitive threat.Business & Finance Articles on Business 2 Community