If you want to drive more value and innovation from your technology initiatives, stop asking this one question.
Ryan Anker | April 18, 2017
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From the inception of a great idea, the first question an executive often asks is, “What’s the ROI?” But what if I suggested that executives stop asking their technology teams this question?
This is a controversial proposal. ROI is the de facto measure of success for technology initiatives—but it’s notoriously hard to predict. And when teams can’t immediately answer the “What’s the ROI?” question, great ideas can quickly fizzle.
It doesn’t need to be this way. Executives and technologists should shift from trying to predict ROI, to learning how to test and prove ROI from other areas of the business.
Marketing teams have figured out a great way to test everything in real time. With A/B testing and advanced analytics, marketers can quickly test their digital assets to optimize everything from campaigns to customer experience.
In the Harvard Business Review article How CMOs Can Get CFOs on Their Side, author Jean-Hugues Monier explains how marketing is in the midst of a value storm:
“The arrival of advanced analytics and plentiful data has allowed marketers to demonstrate a return on investment with a degree of precision that’s never been possible before. The opportunity is enormous.”
“When teams can’t immediately answer the ‘What’s the ROI?’ question, great ideas can quickly fizzle.”
A/B testing is a “champion vs. challenger” theory. If A beats B in a test, B gets eliminated, and a new challenger takes its place. Technology teams can apply the same theory.
Every year, companies traditionally make their big bets on a few large technology initiatives by trying to predict ROI. Often innovation is idled, as executives pressure technology teams to prove immediate value and move forward with safer bets.
A new approach is to allocate a small percentage of your annual budget to a larger number of pilot projects, designed to be rapid prototyping or proofs of concepts. These projects could then compete with one another, similar to marketing’s A/B tests. The remainder of the annual budget would be allocated once the champions emerge—the ones that have proven to bring the most value to your organization. You’ll no longer need to predict ROI, because the projects will prove their value (or lack thereof) before significant investments are made.
In the HBR.org article The Secret History of Agile Innovation, author Ikujiro Nonaka writes about agile innovation and how product teams are getting things done faster and faster. The author calls the method of product development a rugby approach, where “a team tries to go the whole distance as a unit, passing the ball back and forth.”
“You’ll no longer need to predict ROI, because the projects will prove their value (or lack thereof) before significant investments are made.”
Companies should adopt product teams’ agile engineering methodology to rapidly pilot technology initiatives. Technology product managers that truly understand the business should determine which ideas will be piloted to ensure that business demands and values are driving the testing budget. Your technology teams will be able to take more chances on outlier ideas and new innovations knowing that ideas will have to prove their value before your organization makes any significant investments.
We all want to get the most ROI from our technology investments, and that will never change. But taking a different approach to the ROI question—by testing and using agile product engineering instead of trying to predict ROI—will help you foster innovation and avoid squashing ideas that have a lot of potential. So, the next time you’re asked, “What’s the ROI?” maybe your answer will be, “We’re out of the predicting game. We’re going to test the idea to prove value and get back to you.”
This post was originally published on LinkedIn Pulse.