Sunday, November 15, 2009

ROI = Rely On Instincts

Several years ago some marketing consultants got smart and realized that CFO's and other finance centric professionals live in a world that is focused on ROI (Return on Investment) and want to run spreadsheets that show the outcomes of dollars spent before committing to the expenditures. Since the money people make many decisions, these consultants and other "gurus" created programs that spoke the language of the finance department and created "ROI" algorithms to sell their services to these decision makers.

By speaking their language they were able to appear more intelligent (key word: appear) and win the business. Left-brainers everywhere rejoiced, as now these disciplines were under their control.

For too long marketing, business development, networking, direct mail, advertising, branding, PR (and more recently social media) were viewed by the left brain professionals as "the Black Arts". They admitted that these were necessary, but since they were more creative and not always predictable, that they were some how less important to the success of a company than the more predictable departments on the org chart.

However, while this trend toward analyzing "return on investment" on everything makes people feel good -- it has paralyzed many companies.

During a job interview years ago I told a CFO that sometimes to find success in marketing you have to try a variety of tactics. I used the old saying "throw some spaghetti against the wall and see what sticks!" The CFO responded that if a marketing campaign could not prove out results in advance, then his company would not do it. "No spaghetti could hit the floor!" The company hired a "ROI" oriented marketing manager (they did not hire me) and the company had minimal success in growing its image. The person they hired lasted 14 months on the job before the company changed direction, yet again.

While you do not want to waste dollars in promoting the image of your company, if you think there is a magic formula that will guarantee success, you will spend your life over thinking every opportunity and you will miss out on the allusive successes you seek. There is a difference between throwing money around and having an instinctive feeling on how to have an impact on your company's positioning in the marketplace.

Instead of spending hours looking at the return on every investment on a spreadsheet, you should redefine the definition of ROI in regards to marketing.

ROI = Rely On Instincts.

Raising the visibility and brand of your company is not as easy as building a new website, joining Twitter, or sponsoring an industry conference. You need to fine tune your instincts or hire someone who knows the landscape of how all the "black arts" actually work together.

Take social media for an example: The term is getting a lot of attention in business circles, but it is not magic. Just like advertising, PR, networking, marketing, or branding alone will not make you rich.... social media is just another tool (although a trendy tool as this is being written). There are many "experts" advising companies on ROI in this medium, but I have seen few who can deliver the goods they present in a brochure. The real success here comes from hands on involvement of the company's executives. You can't outsource authenticity.

In a vacuum none of these marketing related disciplines will rocket your success toward the sky. But when strategically used together, they will have the long lasting power to help bring in new business.

If your instincts are rusty on these right-brain activities, then you need to do a little work and experimentation. You can learn to understand how to help promote the image of your firm by paying attention to the world around you. A good lawyer does not stop studying new laws and statutes that come into play and just rely on what they learned in school. They keep fine tuning their practice. (Note that it is called a "practice", which means they never master it... but keep working on the whole process!). Likewise an accountant will not rely on tax law from 1989 to prepare their client's return this year (at least you would hope not!).

Embrace the marketing world for the power it has to help your company, rather than try to cram it into a pre-structured spreadsheet. If the world worked that way then you would not be frustrated by lack of marketing success... and your competitors could buy the same structured program as you, and thus make you both a commodity, anyway!!! (Feeling like your product or service is becoming a commodity? Hmmmm, maybe there is a connection to the lack of creativity in your efforts!!!)

I expect this post will not be well accepted by those who want the world to be viewed in black and white... and by those who use fancy words and spreadsheets to win the business from left brain decision makers. But I am not attacking, as much as I am asking people to love the gray area for the possibilities for growth that are living there.

What do you think?

Have A Great Day

thom

3 comments:

AustinDailyMuse said...

Thom,

Well said, this reminded me of the challenges faced by another non-financial discipline - information technology. The same analogies hold true for the IT investments. Not all technology investments can be represented in direct ROI. The indirect benefits must be communicated along with the hard numbers.

Expressing the soft benefits of IT investments in terms of relieving inefficiencies or releasing capacity are often ignored or discounted by finance managers. Neither of these benefits result in direct savings since you can't reduce salaries by 20% just because the IT investment reduced process time by 20%. The 'ROI magic' is what you do with that extra 20% capacity.

As with marketing investments, the compound effect of multiple IT investments also has to be considered. If a person's job activities are reduced by 80% through several process improvements you still need them to do the 20%! Redeploying that 80% capacity towards the customer experience can be a powerful, downstream benefit of an IT investment. Who knew that IT investments can improve or enhance one's marketing efforts!

At one local company where I was the CIO we followed this path of investing in the customer experience by making IT investments that would indirectly increase the quality of interaction with our customers and suppliers by eliminating the internal and external pain points that hindered that quality.

Few of these investments had direct ROI but the executive team understood that such investments ultimately lead to repeat business, larger transactions, more frequent purchases and an expanding customer base.

Jack Garvin

Anonymous said...

You got the attention of my boss with this article. She has made a lot of money feeding the "ROI language" to left-brainers. She HATED your article. I think you make some good points.

Andrea said...

Thom,
Our organization is in the midst of a change of leadership and one of the interesting shifts has been moving from a spreadsheet metrics mentality to a more outcome based discussion.
Our incoming CEO shared an article from the Harvard Business Review: The Five Traps of Performance Measurement, by Andrew Likierman, Oct 2009.
The article overview states:
"Most senior executives find performance difficult if not threatening, and they're reluctant to engage with it in a meaningful way. As a result, companies routinely fall into five traps.
Specifically, they use themselves rather than competitors as benchmarks, focus on past indicators of success, overvalue numbers at the expense of qualitative measures, set easy-to-game metrics, and cling to systems that have outlived their usefulness."
I'm thinking we are going to be boiling lots of pots of spaghetti around here! Thanks for your thoughts.