An interesting section on ROI (Return on Investments) and how it is difficult to use as measurement tool was discussed in the book "The Click Moment: Seizing Opportunity in an Unpredictable World" by Frans Johansson.
I will reproduce section from the book:
All this really tells us is that calculating a reliable future return is a tricky thing to do. And it is becoming increasingly difficult in our hyperadaptive world.
Yet, over the past couple of decades, return on investment has become a divining rod for individuals and organizations. Many decision makers ask for an ROI analysis as a prerequisite for almost any action. It indicates that you’ve done the basic legwork to establish what an idea might be worth. And logically the metric does make quite a bit of sense. If you are going to spend a certain amount of money, you want to be sure that it is put to good use. If we still lived in a world of rules that change slowly and with well-entrenched main players, that principle of predictable returns would make sense. But it does not hold up in a world where the nature of the game changes randomly, unpredictably, and very quickly. In this world, ROI loses all value as a tool for prediction.
The bold / underlined part is directly connected to Indian company Reliance Industries Ltd.
In the last 2 months Reliance Industries have raised capital to reduce debt by issuing partial stake in Reliance Jio.
6 deals in 6 weeks: Mukesh Ambani gets Rs 87,655 cr in Reliance Jio stake sale.
Main revenue segment for Reliance Industries as per 2016 report:
Refining : 66%
Petrochemical : 23%
In other words 89% of revenue as on 2016 was from industry which was well-entrenched, where world of rules changed slowly and principle of predictable returns can be imagined, Running Reliance Industries was easy as it was a business with one time investment and managing the company with professional managers.
What Mukesh Ambani wants?
“Our consumer businesses will contribute nearly as much to the overall earnings of the company as our energy and petrochemical businesses," he added.
The move by Asia’s richest man is the latest sign of the oil-to-petrochemicals group’s pivot toward data and digital services for future growth, as it builds an online platform to take on the likes of Amazon.com Inc. and Walmart Inc’s Flipkart Online Services Pvt. in India. Ambani, 62, told shareholders in August that the new businesses, including retail, are likely to contribute half of Reliance’s earnings in a few years, versus about 32% now.
My concern as an observer of this great company started by Mr. Dhirubhai Ambani is, Reliance is entering into a territory / business segment where the nature of the game changes randomly, unpredictably, and very quickly.
Also, in this territory of e-commerce / technology driven segments are run by Owner Technocrats. Reliance will find it extremely difficult to run these segments in future.
What Mukesh Ambani has done to Reliance Industries till now is phenomenal but it appears this half decade will be the maximum height Reliance will reach. Post this heights, Reliance Industries will find it very difficult to reach that height / glory in coming decades.
