ROI for the 21st Century


Put aside traditional financial tools and thinking. A new mindset and toolbox are needed to support today’s changed investment priorities. DAN MARCUS, TDC CONSULTING, INC., AMHERST, WISCONSIN


B


usiness students are today learning the same finance and accounting concepts


and tools I studied when working toward an accounting degree back in the 1970s. Likewise, the analytical framework and tools that underpinned my college education were little differ- ent from those imparted to my parents’ and grandparents’ generations of accounting and finance students. What else in business has remained


essentially unchanged for the past 100 years? Not much, and even less at companies best positioned for success in the 21st century. Tese industry leaders have


embraced Teory of Constraints and other contemporary manufactur- ing management systems. Tey’ve implemented market pricing and the rest of profit-oriented marketing, and they are transforming their approach to human resources management. Yet virtually all retain a 19th century financial mindset and its outdated set of analytical tools, including ROI (return on investment). I entered the world of work fully steeped in that mindset and continued to “believe” for a long time, a fact still on display in a feature article about ROI penned for Modern Casting in


34 | MODERN CASTING October 2014


May 1999. But that mindset could not stand up to the realities of manag- ing and profit-making I only fully internalized in the years since then. Looking ahead, metalcasters need to think beyond the traditional menu of equipment- and capacity-centered investment choices, as industry matu- rity has turned it toxic. Likewise, we need alternatives to the usual metrics and method of calculating return, as ROI has become an obstacle to serious profit improvement and to support- ing our industry’s most pressing early 21st century investment imperative— human resources.


ROI and Growth


Developed as a tool for evaluat- ing and justifying capital investments, ROI anticipates the profit increase such expenditures could generate if a multitude of assumptions come to pass and historical relationships between revenues and expenses hold true. If these major league uncertainties aren’t enough to give one pause, this should: ROI has a strong internal bias for growth, and the 19th century finance orthodoxy which gave rise to that bias continues to tempt metalcasters to invest in capacity expan- sion—in an industry devoid of market growth for nearly 35 years.


ROI has become an obstacle to serious profit improvement and


to supporting our industry’s most pressing early-21st century


investment imperative —human resources.


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