Introducing Return on Outcome (ROO)

Dr Chris Baumann and Iggy Pintado

  • Dr Chris Baumann, associate professor, Macquarie University; Iggy Pintado, executive leader and former marketer
Dr Chris Baumann is an associate professor at Macquarie University in Sydney, researching competitiveness, education, East Asia and customer loyalty. He has authored more than 50 refereed journal articles and conference papers with more than 350 citations. He has been awarded for his research and teaching, including from the Australian government for enthusiastic approach to education. Dr Baumann is also visiting professor at Seoul National University (SNU) in Korea and at Aarhus University, Denmark.

Iggy Pintado is an accomplished business leader with sales, marketing, channels and online expertise. Iggy has managed all aspects of business plans, strategies, operations and engagement in diversified organisations. Over the last 30 years, Iggy has held professional, management and executive positions at IBM, Telstra, Australian Institute of Company Directors, SAS and IDC. His book, Connection Generation, is a fascinating study of how connectedness affects our place in society and business and the challenges and opportunities this compelling development presents.

Imagine if the Bee Gees, the Beatles or Sir Elton John had KPIs and were told they needed to work toward a Return on Investment (ROI). Would that have created the same epic outcome with epochal music, legacies built and massive wealth?  

Well, they were working towards an outcome, not a return on investment. Yet in business, say marketing and management, staff and projects are often ‘managed’ with ROI targets. Naturally, everyday business operations are not directly comparable to the work of those British music icons. But is there a lesson to be learned on how humans peak perform?  

When Robert Stigwood contacted the Bee Gees and requested songs for the soundtrack of Saturday Night Fever, he requested an outcome (that is, a number of songs), not a return on an investment (for example, 10 per cent). In fact, this iconic soundtrack was created within a week at Château d'Hérouville in France. Not one person could have predicted it would become one of the best-selling albums and second biggest-selling soundtracks with longevity and off the scale profitability. Any discussion around ROI at the time would have been naïve at best. 

Pictured: Bee Gees
Managing and inspiring performance, let alone measuring it, is not as easy task. A search for scholarly work on ‘work performance measurement’ reveals roughly 650 items, indicating ‘complexity’. During performance review meetings and setting of key performance indicators (KPI), there is an implied notion targets and objectives to be achieved are related to ROI. But are they really?  

In reality, we argue KPIs are about a desired outcome. For example, a mid-level manager is tasked to design a marketing plan for a new product, or a plan to rebrand a dusty label, or conduct marketing research on electric cars. Yet they are seldomly ‘attached’ to a specific ROI. No, the overall theme is Return on Outcome (ROO) – there is an expectation to deliver a certain outcome, so that marketing plan, for example. So why not name it as such, ROO?  

Explaining outcomes  

Imagine the follow scenario when approaching a Chief Financial Officer (CFO) to get their perspective on Return on Investment, or ROI. The conversation can go something like this:  

Iggy Pintado: I’ve got an idea for a program that will help us develop our people and need some expense funds. What criteria are you looking for to approve the budget for this program?  

CFO: There’s the standard requirement of a favourable ROI.  

Iggy: Can you explain your definition of ROI? 

CFO: It’s pretty standard. As an example, I give you $5000 for your program and you convince me it will give me back three, five or even 10 times return of the expense investment. Everything has an ROI.   

Iggy: So what happens if I can’t show you a return on investment, instead clearly articulating an outcome that would be beneficial to staff development and subsequently, morale? 

CFO: I need to see a positive ROI.   

After a long career in marketing, Iggy was used to the rejection of requested expense budgets unless he could clearly articulate a ‘quantifiable’ monetary return.   

However, let us challenge the specific words: Everything has an ROI. Here’s why:  

No doubt businesses can use ROI criteria to justify an expense investment. However, should this be the only criteria for determining if a program that assists the business is approved or not? Are there other more qualifiable criteria that deliver business returns that cannot be quantified, but justifiably benefit a business generally or specifically?   

Why not introduce a return on outcome. Simply put, a return on outcome (ROO) is a qualifiable, subjective measure of an investment based on the outcome realised.   

Just look at donations. One would probably not use ROI in determining whether to donate one’s hard-earned salary to a cause or not. There is no quantifiable return to the donor for a charitable donation. Instinctively, the outcome achieved is in feeling good about making a contribution to a worthy cause and making the world a better place. The return is in the outcome realised, not in an objective return on funds invested.   

In business, we can’t easily quantify the return on investment of hosting a client at their favourite football game. But we can see qualifiable returns in an improved relationship between a satisfied client and the sales teams that could lead to them purchasing the company’s products, services and experiences. We could not quantify sending a staff member to an expensive operational improvement course. But once they shared their learnings with colleagues, we realise improved productivity and morale boost benefiting the development of staff members.  

So, does everything have an ROI? In theory probably yes, but in practice, is it really a good ‘tool’ for performance measurement and management? Let us go back to our practical example with the aforementioned CFO scenario. This time let us assume the task is to get their approval to hire a replacement headcount for a recent resignation. The conversation would be something like this:  

Iggy Pintado: Can I get a personnel requisition approval from you to hire a replacement for Mary who just resigned? 

CFO: Is it within your budget and headcount plan? 

Iggy: Yes - the annual salary for the position is around $70,000. 

CFO: If it was in your budget and you’re not exceeding your expense plan, it’s approved.  

Iggy: Thank you.  

There would be no further discussion about ROI on this matter. The CFO didn’t ask about the ROI on the invested $70,000. They approved the request based on a planned job role that required a person to perform the role. In this case, it was assumed the so-called return to the business was investing in a person to perform the job that was planned, indirectly benefiting the company. The return was on the outcome (ROO), not the investment.   

Returning back to our example with the British music icons. Had they worked towards an ROI of 10 per cent for a one-week stint of composing in a French castle, none of the phenomenal soundtrack would have been created. We’d argue mediocracy would have resulted – haven’t we seen such in everyday business operations? 

Instead, these musicians worked towards fulfilling a dream, following a mission, and creating a creative output. And so they did. The return is on the output, not the investment.  

So next time you talk to your boss about your own KPIs, perhaps consider whether you are really discussing ROI or ROO?

Tags: marketing metrics, marketing leadership, marketing measurement

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