Are You Maximizing Your Company’s Return on Potential (ROPo)?

Is your company maximizing its Return on Potential (ROPo)?

Yes, I did make that term up, but I like it! I like it not only because I think it brings into focus the work needed to turn potential into reality, but also because it brings attention to a factor that is just as critical in building a successful company as ROA, ROI, ROIC, or other financially-focused metrics are, but often undiscussed.

While ROA/ROI/ROIC primarily measure the use of financial resources, ROPo measures a broader array of factors that contribute to what a company can achieve, including product, people, purpose, and others. It provides a valuable way of introducing discussions about the more qualitative issues on a team’s mind. While financial metrics are very cut and dried, discussions about ROPo can surface significantly differing viewpoints across a team. That is a big part of why I think it is such a valuable metric to discuss, even if the measurement may be more qualitative.

Especially at early stage companies, potential is a term we throw around so much in business that it can sound like potential is the only thing, overshadowing the day-to-day grind of making progress. In these situations, potential is a daily topic of conversation.

“This idea has a lot of potential.”

“There is a lot of potential in this market segment.”

“We have a team full of HiPOs (high potential employees)”

But when it comes time to plan out next steps to achieve that potential, the conversation can fall off, especially when a company is moving between stages or there is misalignment across team members. That might be why it is such a topic of reflection when a company has underperformed, “We had so much potential, I don’t know what happened.” Although we generally do know what happened — often poor execution — it can seem like the potential was so great that we’re shocked the company did not work out.

Achieving a high ROPo is not a passive process. It demands concerted efforts everyday — from clearly communicating a vision to setting and prioritizing goals to focused planning and execution. In addition, creating an environment where team members can fully contribute and bring their best to their roles is crucial. Too many organizations, unfortunately, experience a low ROPo, often more negatively impacted by internal frictions and misalignments than anything market-related. These frictions can manifest as poor communication channels, misaligned goals, lack of necessary resources and support, or other factors. Recognizing and addressing these frictions is critical for businesses to move past these barriers and fully leverage their inherent potential. It’s rarely a black-and-white scenario of everything working or everything failing. Instead, there are often a few key issues which, addressed promptly and effectively, can unlock significant progress.

I believe that ROPo should be a topic of conversation at every executive team meeting or, at the very least, each quarterly review. I’d encourage every leader to put this on the agenda at their next executive meeting, asking the question of their team:

“Are we maximizing our return on potential here? And if not, why not?”

Then listen. The answers you get could be very illuminating. However, if everyone says that you are achieving your full ROPo, then maybe the first issue you need to address is whether your team feels they are in an environment with sufficient trust for them to be able to open up and speak their mind.

Originally published at https://www.multidextrous.com on Feb 9, 2024