Todd Herman Associates e-Update — February 2008

The ROI of Doing Nothing

I have recently been thinking about the concepts of investment, cost, and return — and how these relate to action and inaction.

The ability and prerogative to act.  That's why I enjoy my job so much — I get a rush from the creativity and activity a successful consulting practice requires.  I believe successful, action-oriented companies share this feeling!

Inaction — ignoring problems or deferring decisions — may be viewed as playing it safe.  As author Seth Godin puts it, "Playing it safe. Following the rules.  These seem like the best ways to avoid failure. But being safe is risky."  When sales or profits begin to unravel, inaction is risky.

When a potential client doesn't accept our engagement letter, it's typically not because they select another firm, or handle things themselves — they choose to do nothing!  From over 18 years of consulting experience, I feel justified in saying our biggest competitor is — by far — "do nothing."

Now, keep in mind, before they even called us, they had already admitted to themselves they have a problem to address — so it's not a lack of awareness.  What's really going on is a failure to act, a failure to truly change.  Author Mary Jane Ryan comments, "We're all experts at talking about change and beginners at putting change into action."

So the problem remains a problem.

What does this mean?  It means the "do nothing" companies are willing to stay exactly as they are, unaware of — or, more likely, ignoring and rationalizing — the costs of overwork, rework, and inefficiencies.

Let's look at the true cost of doing nothing. While the investment required for doing nothing is zero, the return on doing nothing is not zero — the ROI is actually negative.  The reason?  There are costs — alternatively, negative results — to inaction.  Failure to address a known problem is inaction.  For example, a manager who fails to coach an employee with a consistent, well-known personal problem affecting her job performance allows gossip to flourish, poisoning the positive atmosphere the owner wants to build.

Failure to consistently search for possible business improvements is also inaction.  For example, a "do nothing" company not bringing sufficient value to its customers and owners might see them take their business and capital to competitors committed to consistent and conscious improvement.

Even if you invest in improving your business, it could still produce a negative ROI.  The reason?  The investment might not be sufficient to offset the insidious problem of system erosion — your processes and technologies will naturally erode unless investments are made and actions taken to counteract this.  (For more on this, please see: System Erosion — Part 1 and System Erosion — Part 2). I know one company that dropped operating system maintenance on its main computer system 10 years ago, just as networking and the Internet became an integral part of business — as a result, this system quickly became virtually useless, handicapping this company's agility.

This negative ROI for "do nothing" companies actually worsens in a slowing economy.  While most companies choose to trim spending through a downturn, smart companies have determined which processes and technologies bring the highest return, and will continue investing in these.  In fact, they may choose to increase such investments, taking advantage of their weaker "do nothing" competitors, who are likely to cut spending in all areas.

Which processes and technologies have the highest return?  The ones aligned with their competitive discipline — Operational Excellence, Product Leader, or Customer Intimate.  The choice of competitive discipline dictates the key processes supporting their mission — so the largest technology investments support mission-critical processes.  Such technologies are typically business applications enhancing business performance — including business intelligence, mobile computing, workflow automation, and knowledge management — which enhance business performance, as opposed to technologies maintaining infrastructure.

Doing nothing is a choice, and an easy choice at that — just realize your competitors may decide the ROI of inaction is simply too risky.

Sincerely,

Todd L. Herman