“You don’t fatten a pig by weighing it”
I saw this quote recently in a letter to a newspaper regarding the over-importance placed on school league tables, and thought that it can equally be applied to business.
This has definitely not always been the case – it was over 100 years ago that US department store manager, and marketing pioneer, John Wanamaker (1838 – 1922) is reputed to have said “Half the money I spend on advertising is wasted; the trouble is I don’t know which half”. This neatly characterises the rightful fear in many executives that, especially in marketing, it was so easy to spend a lot of money on all sorts of activities without being able to determine a direct cause-and-effect relationship to revenue or profit.
As a result, in the middle of the 20th century, there sprung up a veritable industry in marketing metrics that often cost just as much as the marketing campaigns themselves to measure, but which, in all reality, were only measures of activity rather than outcome. The list was endless – reach, frequency, impressions, Gross Rating Points, Target Rating Points, Cost per Point, …etc, etc.
This is not only the case in marketing. In the world of procurement, for example you get total cost savings, cost avoidance, implemented cost reduction savings, procurement cycle time, managed spend %, procurement ROI …etc, etc.
The dogma of “If you can’t measure it you can’t manage it”, often wrongly attributed to management and marketing guru Peter Drucker, gained sway. He actually maintained that you couldn’t measure the most important stuff. “Your first role . . . is the personal one,” Drucker told Bob Buford, a consulting client then running a cable TV business, in 1990. “It is the relationship with people, the development of mutual confidence, the identification of people, the creation of a community. This is something only you can do.” Drucker went on: “It cannot be measured or easily defined. But it is not only a key function. It is one only you can perform.” (If you would like another view on the lack of value in the measuring dogma take a look at this great blog post from Liz Ryan in Forbes “If you can’t measure it you can’t manage it :Not True”).
Having said that, Drucker was not against measurement as such, writing in “Management: Tasks, Responsibilities, Practices” he says “Work implies not only that somebody is supposed to do the job, but also accountability, a deadline and, finally, the measurement of results —that is, feedback from results on the work and on the planning process itself.” The problem, in marketing especially, was – what do you measure and how do you measure it?
The digital revolution
So along comes what, initially, appears to be the answer to a Marketers prayers, or at least the ones who want to befriend their CFO’s – Digital Marketing.
The internet has spawned a multitude of digital mechanisms to reach, engage with, and influence target markets and buyers. And, because these are digital mechanisms, it has been easy to include ways to measure that interaction. Oh, how easy it has become! Whether it is activity on your website, via social media or email campaigns, through your sales funnel or visitor interactions at events there are a huge number of metrics, analytic tools and dashboards to keep you occupied. And that is the problem – the measurement becomes a job and an end in itself.
I remember spending ages in a sales and marketing team crafting a multi-page dashboard for reporting at our monthly management exec meeting. Each month subsequently at least one day was taken up putting the data together. When it came to the meeting itself, we never got through the whole dashboard and spent all the time debating a few numbers in detail, not what they meant or what we should do about them. They served little purpose apart from providing a reason to prolong pointless meetings.
Sorting the metric wheat from the chaff
Rather than measuring everything you can, just because you can, take a good hard look at what metrics you think you need to monitor and why. Here are 4 key characteristics to consider:
1. What is today’s real objective?
What is the real simple outcome you are looking for at this point in time? At the corporate level is it, for example, shareholder value, revenue, profit or market share? Any metrics you use as a management tool must be of that objective. There may be other metrics that you are required by law to report on, but here we are considering what you use as a marker for the work you are doing. This level of objective has to be the most important decision taken – as the metrics measured by individual executives and teams within the company must also show how they contribute towards that overall goal.
The other key point to note here is that the overall objective can change over time, and therefore the metrics you use will change – don’t just measure stuff because you always have measured it, make sure it is a measure of today’s desired outcome.
2. Measure what you can change.
I mentioned that individual executive and team metrics must contribute toward the overall goal. So the metric that the management executive team uses to measure itself may not be the exact same one that can be used within, say, the marketing team. If the overall corporate objective is increased profit, then strategies in marketing to achieve that could be to increase number of sales or increase sales margin. Strategies in the procurement department could include cost reductions, but also positive returns such as rebates. The priority strategy chosen will dictate the key metric to use.
Drucker observed that feedback from strategies or the results of work done is important. But the key word here is ‘feedback’. ‘Feedback’ implies a mechanism that looks at results of work and tunes the work to better achieve desired outcomes. In other words, a measurement is only worth it if you can change something as a result of it.
Equally, a measure must be seen to contribute directly toward the overall objective. A metric that cannot be viewed as ‘important’ or be influenced by the work of the individuals being judged by it is not only pointless but is also damaging, demotivating whole teams of people.
3. Measure outcomes rather than activities.
Looking at desired outcomes also points to the next characteristic of metrics to measure. The main problem in the digital world is that there are so many ways you can measure activity – emails sent, tweets, blog posts and many more. At the end of the day this doesn’t help you decide wether you are doing the right thing to achieve your ultimate objective and will potentially just result in an increasing volume of work for a diminishing return.
Choose the outcomes you want from your work and focus on those as key metrics. If a desire to increase profitability is the objective at the corporate level and the strategy to deliver that is through increasing the number of customers, then the outcome of marketing activity must be some measure of the number of quality leads accepted into the sales funnel. If the strategy in procurement is to increase financial returns to improve profitability then a measure of discounts or rebates as a target could be useful – utilising a global commerce platform such as INNOVO with it’s e-bate technology would provide such a tool.
4. Measure what is measurable.
This may seem obvious, but it is surprising how much time is spent discussing metrics that it would be too time consuming or costly to measure. The best thing to do is identify what would be ideal and if that is not readily available then find the measures that are the strongest indicators of that ideal and which can be measured or calculated.
In the marketing world the metric Return on Marketing Investment (ROMI) is often seen as a ‘holy grail’. This is usually equated to the incremental profit achieved as a result of marketing spend and means identifying what business can be directly attributed to the marketing activity. CFO’s love the idea of ROMI. In a complex B2B environment this is, however, a pointless exercise. The effort needed in directly linking a particular sale to marketing activity, as opposed to sales effort, Board contacts, service desk interactions or general run-rate business is so great and inconclusive to make a focus on this metric meaningless. In fact, it can be positively dangerous – just leading to arguments about who did what and ‘unnatural acts’ to distort results. Far better would be to pick or create a metric that is credibly measurable and a good ‘leading indicator’ of marketing contribution to business results.
Metrics for the “how”
The measures I have been considering so far are primarily those by which we, and others, can judge the value of the work we do. This should not be confused with using some other metrics, on a day to day basis to inform how we do our work. In marketing this includes volume and conversion metrics we use to judge between 2 or more campaign tactics , A-B testing between email headlines, visitor metrics to rate SEO tactics and many others.
The temptation here is to report against those metrics, but that is the way confusion and needless debate is generated. We do not need to share these measures with the whole world – they help us do our job and are not an indicator of how we are contributing to the overall objective.
Even these ‘operational metrics’, however, should be subjected to the same critical examination – they must be measurable, have an objective in mind, be something that can be changed by our actions and a measure of outcome rather than activity.
One of the best ways to ensure that target metrics are met is to reduce the number of them! That is not as cynical as it may sound. Another of the attributes of good metrics is the power to get people behind their improvement. A single goal that all involved can understand and recognise their contribution toward is a powerful motivator. It also makes very clear what action plans should focus on achieving – so reducing confusion about what is important.
In my historical personal example we tried to measure so many things that we got waylaid by disputing the numbers themselves rather than understanding what we needed to improve and setting strategies to achieve that. So we changed from the multipage dashboard to, for the marketing team, two metrics. In order to overcome the normal sales and marketing disputes around what makes a ‘lead’ we created the concept of an ‘Expression of Interest’ (EOI) which was an agreed, quantified, definition of a prospect and level of qualification from all their various interactions with us that meant it was strong enough to enter the sales funnel. The number of EOIs created was one metric and the proportion of EOIs converting to formal proposal was the complimentary measure of EOI ‘quality’. Although not perfect these metrics certainly made our discussions and planning clearer and more valuable – our job was to create new leads that had a high chance of turning into revenue, no matter how many Twitter followers or website visitors we had.
So, there is the challenge – could you reduce your measurement dashboard down to 2 or 3 metrics, and at the same time improve your results? Go on – have a go!
(This post was originally published on INNOVO Blog)