May 24, 2010

Standardized Marketing Metrics = Herding Cats

BY: Pat-LaPointe TAGS: building skills, marketing spend, Featured

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The level of press coverage is growing. Committees are forming left and right to discuss options. Financial reform? No, we’re talking about standardized marketing metrics – a movement that’s getting more press, but not much traction. The idea of standardizing metrics makes sense when viewed through the lens of the financial community: If we could rate all marketing organizations on some common set of metrics, we could compare their performance side-by-side and see which ones are doing a better job, right?

Wrong.
 

Putting aside for the moment the relatively low state of readiness with in the marketing world to enact any concerted effort at improving metrics (standardized or otherwise), there are two huge obstacles to standardized marketing metrics that will take many years to overcome.

First, even finance has only a few high-level metrics in common – and most of those can be calculated in enough ways to make your head spin. One company’s definition of “revenue” isn’t the same as another’s. And forget about “profit”. There’s EDIT, EBITA, EBITDA, “cash flow”, and “net cash flow from continuing operations”. They nearly defy comparison for all but the most financially literate insiders.

If you think the finance world is creative with their proliferation of “standardized metrics”, just wait until the marketing community gets into the act. The footnotes sections of annual reports will expand dramatically, updated with PURLs and real-time flashing links to the latest YouTube commercials.

Second, who really wants this to happen? The only constituents clamoring for standardized metrics are A) the marketing consultants who would like to position some aspect of their proprietary methodologies at the center of this standardization; B) the academics who always enjoy a good debate and the challenge of anything as-yet unsolved; and C) a few Wall Street analysts who cover marketing-intensive industries. CMOs don’t want it. They value flexibility so they can rely on their powers of rapport and persuasion with their CEO. CFOs don’t want it. While they’d appreciate the value from an internal management control perspective, the LAST thing they want is another series of reports they have to make public and be held accountable for.

In reality, we measure companies not just on their financial results per se, but on two factors: their actual results compared to their target results, and the boldness of their targets. Why should marketing be any different?

To that end, there is some benefit to standardization, but mostly in accelerating the adoption of metrics for INTERNAL use. The more companies use good metrics, the faster knowledge will improve and the more effective marketing will become as a weapon in the CEO’s arsenal.

If we are really most interested in accelerating the professionalism and economic value creation of the marketing discipline, we might have more impact more quickly by standardizing a set ofQUESTIONS every marketer should be able to answer credibly. These might include:

1. What are the specific goals for our marketing spending and how should we expect to connect that spending to incremental revenue and/or margins?
2. What would be the short- and long-term impacts on revenue and margins if we spent 20% more/less on marketing overall in the next 12 months?
3. Compared to relevant benchmarks (historical, competitive, and marketplace), how effective are we at transforming marketing investments into profit growth?
4. What are appropriate targets for improving our marketing leverage (dollars of profit per dollar of marketing spend) in the next 1/3/5-year horizons, and what key initiatives are we counting on to get us there?
5. What are the priority questions we need to answer with respect to informing our knowledge of the payback on marketing investments, and what are we doing to close those knowledge gaps?

These five questions have tremendous power in three ways.

First, a CEO or CFO can ask them tomorrow. No preparation required and no forms to fill out.

Second, they can be used to gauge the extent to which the company’s marketing is focused on the right outcomes. Is marketing strategically aligned with the rest of the organization and focused on measuring the shareholder value created by their efforts? Do we really know where to invest and where to harvest?

Third, this framework can be used as a performance improvement guide. Over time, more effective outcomes inevitably emerge as it’s virtually impossible for any marketing executive to adequately answer these questions without demonstrating the following “price-of-entry” capabilities:
 

• Clarifying links between the company’s strategic plan and the role marketing plays in realizing it;
• Connecting every tactical initiative back to one or more of the strategic thrusts in a way that makes every expenditure transparent in its intended outcome, thereby promoting accountability for results at even the most junior levels of management;
• Defining relevant metrics to gauge success, diagnose progress, and better forecast outcomes;
• Developing a more methodical (not “robotic”) learning process in which experiments, research, and analytics are used to triangulate on the very types of elusive insights that create competitive advantage; and
• Establishing a culture of continuous improvement that seeks to achieve quantifiably higher goals year after year.

If we could achieve just these things, we would succeed at dramatically elevating the professionalism and contribution of marketing, without trying to herd marketers into a box they don’t want to be in.

What I am reading about this afternoon and hoping like anything can translate into some meaningful way to address this age old problem!