I’ve been talking this week with Victor Cook as a prologue to next week’s launch of a book discussion on Competing for Customers and Capital, which you can learn about here.
In order to get the discussion rolling, I’d like to post some questions for readers to answer in the comments section. This dialog can’t happen without you, so if you want to see useful content, please jump in and help get us spark it.
Over the past few years, the defining challenge for marketers has been proving performance. It shows up in the buzzwords about ROI, the popularity of dashboards, and the day-to-day demand for accountability. Marketing’s dilemma is that so much of what we do is intangible, and the path to the bottom line is anything but clear. So what I’d like to ask of readers on this thread is to respond to one of the following questions, or both:
1. What programs, activities or events do you believe influence the intangible value–or the perceived value–of your company to investors. This applies whether you’re publicly traded or not.
2. How can you trace the cost or expense associated with those programs, activities or events back into your company’s financials? And do you currently do so?
I’ll kick off the comments by relating the work I used to do when I was a partner in a branding firm. We used to create corporate identity and branding programs across a wide spectrum of media, from traditional print to digital and web. It was clear how much impact a brand can have on the perception of value, both by customers and investors, and you could see it most clearly when we worked on transforming a challenged brand. The best metaphor to me was that of a job interview–if someone came in to an executive interview with torn jeans and bad breath, you’d have a much different perception of value than of someone who came in well-groomed in a nice suit. It’s all about impression.
While we could easily measure the cost of such a corporate identity project, it would never show up as a defined line item on a balance sheet, and very few companies would ever take the time to measure the actual impact of that program on the value of the company. It rarely led directly to generated leads, but was just understood as essential–or used to be understood as essential. Now, most companies are gun shy of any investment in corporate branding, since they can’t prove the value beyond the basic necessity to look credible.
Chris, this is an interesting discussion. I think most of us in marketing are highly focused on identifying how our marketing is impacting revenue and profits rather than shareholders and investors (though growth in revenue and profits is certainly something investors look for). Pat LaPointe has found through his work that a strong working relationship between marketing and finance is highly correlated to a culture of marketing accountability. Pat encourages marketers to bring the CFO and finance team into the process of determining what and how to measure. Based on my experience, the finance team can bring some new thinking to the table. You can read Pat’s comments at: http://unicashare.typepad.com/
Chris, interesting questions – as you know I have deep expertise in branding both from the agency side and client side. While it’s difficult to say what investors see as valuable, I am continually amazed by the power of strong design. I shouldn’t be surprised — according to one Canadian research team the average person can accurately assess the professionalism and business savvy of a company after viewing their web site for 1/20th of a second. Clearly, they are not reading the positioning statement. That’s the power of a strong presentation which is largely intangible. How many times have you heard someone make positive comments about a company’s potential for success based only on the logo? On the agency side we used to call this the “cool factor”. Business are always stretching for goals just beyond their reach — the gap between what we can really do as a business and what your stakeholders are willing to accept is often bridged by “cool”
Thanks Carol. I think you hit the nail on the head–that marketers need to expand their view and understanding of the economic system in which their programs function (both at the business and market level), and they need to spend more time engaged with other stakeholders in the organization, including finance. It’s no longer an ideal, but a necessity, if for no other reason than that marketers have lost so much influence over the purse strings, and need to redefine their working relationships to build more trust and understanding in the value and relevance of marketing activities.
The marketers I see moving in that direction are really making an effort to learn the fundamentals before they try to engage finance, for reasons that Jonathan Knowles has very succinctly–and entertainingly–described in his description of the language gap between marketing and finance. I’m trying to find a link to an article he wrote describing the different interpretations of the word “Value”–where marketers instinctively define value as what the company delivers to the customer, and financiers define it as what’s delivered to the bottom line. Unless the language and outlook gap is closed, marketing and finance can sit at the table endlessly and talk in circles that never intersect. For better or worse, finance isn’t under pressure today to close that gap, but marketing is, which is why I cringe every time I hear someone in marketing say that the CFO–or sales, or IT, for that matter–just “doesn’t get it”. I think most marketers need to take a big dose of humility, and learn until they understand viscerally how the rest of the organization views their fundamental business objectives, and take on an attitude of service before they can hope to get others to see the value marketing has to offer.
A lot of marketers get annoyed with me for that opinion :), but I think at the core, you’re absolutely right Carol: Marketers need to expand their view and engage other stakeholders.
I think you have nailed it, Chris, by your reference to the overall economic system. The goal of both Marketing and Finance is to enhance the overall success of the business. Both have a vital role to play and – however much each might like to demean the contribution of the other – neither can operate effectively without the other.
Marketing provides insight into customer value – Finance provides insight into how that value can be delivered at an economic cost that is below the price that customers are willing to pay. You were kind enough to reference my 2003 article (it was entitled “Learning to Like Each Other” and can be downloaded from http://www.structuredintuition.com/articles.html) in which I noted that Marketing’s defintion of value could be expressed as “customer benefit divided by price” and that Finance’s definition of value could be expressed as “revenue divided by economic cost”. If, for the sake of simplicity, we ignore retail margins and taxes and assume that price paid by the customer is the same as revenue to the provider, this allows the two definitions of value to be combined into a single equation for business value – “customer benefit divided by economic cost”
That is why it is so vital that Marketing and Finance learn to do more than co-exist, they must learn to collaborate. Without their active collaboration, businesses are always likely to stray too far in the direction of creating value for customers without capturing an adequate return for their shareholders, or too far in the direction of extracting financial value for shareholders but undermining their franchise with customers.
The new language of marketing (that I fully support) is all about identifying and harvesting sources of cash flow. This is a very welcome acknowledgement of, as you put it, “the fundamental business objectives” of marketing and should provide a fruitful platform for collaboration with finance.
Once marketing is recognized to be on the same page as the rest of the business, the true value of marketing’s insight into potential sources of customer value can be realized.
hi chris.
i highly appreciate your continuous struggle with a profession that obviously is your passion too.
as you know i look at this discussion from a different point of view: firstly from europe – and then – more importantly i guess – as a design manager.
my position is the following:
if marketing is looking for somebody to team up with it always has to be the client.
to my concern your first question “What programs, activities or events do you believe…” points at the root of the evil here. – because the prize winning answer to this question is: NONE. – no program, no event, no activity… none.
looking at a company from the clients’ perspective shows you that the whole thing matters. nobody wants to be bothered with parts, loose ends or – hurray! – activities..
seriously.
right now we are experiencing very interesting organizational changes everywhere: it is the first phase of management and design melting together. in this process we discover that management is something fundamentally different than design. we see that the nature of management lies in the parts, whereas the nature of design lies in the whole. management is about approaching one goal through a number of prioritised sub-tasks. design essentially is the complete opposite: it is about making ends meet, making frictions disappear, creating personality.
the future corporation – the ueber-hyped “innovative corporation” – that everybody is so eagerly trying to shape these days will combine both the aspects of strategy and management on the one side and leadership and design on the other. it aims to combine the principles of both ‘control’ and ‘creativity’.
so, where do i see the place for marketing?
honestly?
marketing can either start to look at the whole picture through the clients’ eyes – and to possibly team up with design and the ceo.
or – yes – why not teaming up with the cfo – loosing all the rest of its old-days clamour and becoming fodder for the sales department. not a bad job either. – after all: never underestimate the power of distribution.
in other words:
in the 1950s marketing was invented as a strategy manual on how to win hearts and influence girls.
but – hey – looks like the opposite has learned to chose on its own now.
some roses, a smart opening line and polished shoes don’t quite cut it anymore.
see for yourself.
btw.
and on a slightly different note:
CIOs today find themselves reporting to the CFO as IT is becomming a commodity.
Jens–
Funny how that works. Remember the Rise of the CIO? The Decade of the CIO? I hope marketing doesn’t get too caught up in the pageantry around the rise of the CMO, without really digging into a solid rethinking of marketing’s role in the corporation.
Jens–
Much of what you say I agree with, but not all. I agree that the gap between management and design as you put it–maybe epitomized best by the metaphor of the Silo Effect–is a major challenge, as is the challenge of businesses connecting with customers in meaningful ways. But I see too issues that make these very real, and even inherent, challenges that can’t be easily waved away by saying that Marketing Activities, Programs, and Events don’t matter, because they don’t matter to the customer.
First, a business in order to survive and continue to be a business, must make a profit. In order to make a profit, the company must fill a need at a cost lower than what they can charge for the solution. That means not only an intimate understanding of the customer, but an intimate understanding of the company’s resources and capabilities in the context of a changing competitive landscape. If all you do is focus on making the customer happy, you may soon find yourself mourned as the great company everyone loved, but that went bankrupt. I know that from personal–very personal–experience, having watched my marketing agency go from 40 employees to 3 partners holding on to a shoestring because the market changed and we didn’t adapt quickly enough. We provided a phenomenal client service, which in the end simply meant our clients missed us.
Second, any business larger than, say, a dozen employees, becomes a complex system. Employees are individuals, with individual experiences, outlooks and agendas. Organizing them to meet a common goal is, by definition, an endeavour to organize lots of parts and groupings of parts. No manager, no matter how magnetic or despotic can create a cohesive whole that eliminates the challenges and vicissitudes of a system comprised of independent minds. Someone in the organization must attend to the issues of making many independent parts function as a whole, and as long as we require groups of individuals to create products and solutions–whether all gathered under one corporate banner, or under a loose confederation of partners–there will always be challenges, contradictions, and frustrations to point at that make the system somewhat less than ideally efficient in serving customers and generating profits.
So I don’t disagree with you that, on the whole, businesses could be managed better, and could serve customers more wisely. But I think some form of those challenges will always be with us. Personally, my focus is on trying to be smarter about those challenges and opportunities from the standpoint of marketing’s role in the system.
great chris.
thanks for the prompt and detailed response.
i am completely on your side. and i have to admit that i was speaking kind of high-level when describing the nature of management vs. design.
on the same note i am not saying that tools (advertising, events etc etc) are the evil or a waste of money. by no means. – but there is a brutal tendency in marketing – in management and strategy – to think in tools – and not in the whole picture.
this ‘fragmented nature’ in away is inherent in the history of management, strategy and marketing – it is their nature, it is their culture.
we are in a situation now where markets increasingly demand positions and personalities, not some singular event here and a funny other thing there.
and we see that management has a ridiculous problem with that.
for an mba in private life it is easy to chose the color of his shirt – but for a management organisation it is almost impossible to decide on the color of a logo – not to mention justifying their decision.
the whole concept of scientific management falls short at some of the simplest and -ironically today – most important tasks.
so here we see the limitation of the system.
and as soon as one realizes this one can build an organization that takes the strength of management, strategy and marketing and add something else – which in this case is design – as a different way and concept of approaching problems and of working.
but these two worlds are so different that a lot of organizational emphasis is put on bringing them together by still leaving each part their role and individual strengths.
the new corporation is not “the design corporation”.
but the new corporation will never again only be the management corporation.
lots of the classical intangible contributions of marketing are being organized in different ways, under different name, with a different mindset already.
marketing sits exactly on the divide between control and creativity. unfortunately it does not have the tools nor the culture to really work there.
(just one more and then i’ll shut up)
and as i think about it again…
the new organization can be very well described with exactly the famous silo metaphor.
lets take the two silos as fact. management in the one creativity/innovation in the other.
what is wrong about the picture?
nothing. because the different silos have their different climates for a reason.
what is missing in the picture? the one titan that pulls it all together? nope. (i do not believe in that person either.) what is missing are some clearly defined holes in the silo walls and a sharp process for the two different systems to interact as one.
speaking from my perspective: one problem with marketing now could be, that it has been sitting in the management silo for too long too be a key player in a two silo-world. the freedom and fun of the early days of marketing are now found somewhere else.
….the money and the women too (joking..!!!)
thanks chris for truly inspirational post and conversation.