Raj Khera hardly ever said no. Almost anybody who wanted a Web site developed could call Khera Communications Inc. in Rockville, Maryland, and be pretty sure Khera would take the job. "I didn't like turning down business," explains the president and co-founder of the 3-year-old company.
But no more. Last November, Khera began saying no to clients who wanted personal Web sites. In fact, anyone not likely to buy $5,000 per year in services gets the nix. "Our larger clients are repeat customers, and we can make more money from them," Khera says, reasoning that marketing costs are identical for corporate and individual clients.
Khera's actions have resulted in a 25 percent sales gain in the first six months since he began rejecting opportunities that didn't fit his new strategy. His success illustrates the power of a new business benchmark called return on management, or ROM.
According to Robert Simons, the Harvard Business School professor who first recognized and studied the concept, ROM aims to give businesses the maximum benefit from one of their scarcest resources: management time. A primary goal is to keep entrepreneurs from being distracted from their core business by substandard opportunities.
ROM is similar to financial measures such as return on equity, but it deals with communication and focus, in addition to sales and profits. Simons explains the concept like this: ROM equals the amount of productive energy released, divided by the management time and attention invested.
High-ROM enterprises include Microsoft, Intel and Automatic Data Processing (ADP), according to a recent Harvard Business Review article by Simons and graduate student Antonio Dávila. At ADP, Simons says, a short checklist of tests for sales potential, market share and competitive positioning guides every new opportunity pursued. ADP's high ROM has helped the database processing company post earnings gains for 35 years straight, Simons notes.
Mark Henricks is an Austin, Texas, writer specializing in business topics.