In his book, The Effective Executive, Peter Drucker explained the difference between efficiency and effectiveness: “Efficiency is doing things right. Effectiveness is doing the right things.” He strongly advised focusing first on effectiveness before efficiency. Along with outcome-based and leading-indicators metrics, Marketers also need both efficiency and effectiveness metrics. Here’s an easy way to distinguish whether your metric is one or the other:
- If the metric is measuring how well you squeeze out waste or cost or measure maximum output for input, it’s most likely an efficiency metric. Marketing spend, ROI, and cost/per lead, lead/rep are examples of efficiency metrics.
- If the metric is measuring how well you are contributing to or producing a desired result, it is most likely an effectiveness metric. Share of preference, share of wallet, products/customers are examples of effectiveness metrics.
As we have learned from over a decade of research on marketing metrics, many marketers are doing a good job of establishing, monitoring, and managing efficiency metrics and not as good of a job with developing, measuring, and managing effectiveness metrics.
This propensity to focus on efficiency metrics ultimately creates a problem for marketing. You can be improving efficiency, which has nothing to do with whether or not what you are currently doing is the right thing to do, while not actually becoming less effective. Effectiveness is about achieving the right result, or being on the right path. When we are positively impacting and contributing to the right result, then we earn our right to participate in strategic conversations.
It may be easier to identify, track and manage efficiency metrics but that may not be the only reason we see more efficiency related metrics. Many people assume that they are on the right track so if and when there is a problem, they address it by trying to make the process more efficient without questioning whether they are going in the right direction. But if you are going in the wrong direction, becoming more efficient will actually make the problem worse. For example, let’s say your company wants to grow its revenue by some amount. As a marketer, you believe you can affect this by producing some additional business from existing customers. So, you are monitoring and improving the inquiries, deals, cost per new deal, etc. The company is growing but its market share is declining. Why, because the growth opportunity is really outside the existing customer segment. So while marketing is becoming more and more efficient at generating business from existing customers, the company’s market share is actually declining and the competitors are achieving greater market dominance.
What’s really important is effectiveness. In the end, it doesn’t matter if your business is spending the least amount possible or your demand-generation initiatives are streamlined. What matters is whether marketing is solving the right problems and moving the right business needles.
Before you start thinking about how to improve your efficiency, step back and think about how marketing is expected to move the needle and measure its effectiveness. Don’t misunderstand, efficiency is extremely important and you will need efficiency metrics. Improving efficiency can make a difference, but only if you’re on the right path. And the only way to know that is to have effectiveness metrics in place as well. Efficiency is important, but powerless without effectiveness. Effectiveness opens the door for efficiency.
In a recent conversation with one of our customers, a VP of Marketing at a well-known company, we discussed the challenges associated with her leadership’s request to submit the fiscal year’s budget before her team had finished the planning process. “Without a plan”, she asked, “how can the right investment be determined and requested?” Before it was even complete, her budget was under fire, and there was the concern that no matter what number was supplied, the budget could be cut back. Understandably, frustration ensued.
This very situation is an example of why it is so important to build a measurable marketing plan that is directly aligned with business outcomes. Once the outcomes are identified and it is understood which ones Marketing is expected to impact and how, the conversation shifts from talking about activities to talking about business value.
Here is the advice we offered, and perhaps you have some additional thoughts:
- Comply with the request. If you can, avoid allocating dollars by activities. Rather, try to allocate the dollars by marketing objective.
- Finish the plan, including the required investment. The plan must illustrate the connection between marketing activities and programs, and the marketing objectives and business outcomes.
- Use the plan as a scenario analysis tool.
- Take the allocated budget and apply it across all the programs, activities, and tasks, indicating where there are variances. This will provide insight into whether you have any funds that can be moved to cover shortages. If you can, and all the efforts are adequately funded, then you are set. If not, you will need to determine if the objective can be accomplished by eliminating certain programs, tasks and activities. This is where the fun part begins.
If you’ve created the plan so that the line-of-sight is clear, the implications to the outcomes will become evident as you allocate funds across the different scenarios. It will also become clear whether slight or major adjustments to activities, programs, or performance targets are required. If major adjustments are needed, or should it appear that the funds are too lean–there just isn’t enough wood behind the arrow to warrant even doing the tasks–you will need to engage in a prioritization conversation.
Which outcomes are more important?
Which objectives are more important?
It may even be necessary to change a strategy or eliminate a business initiative. Or, it may just turn out that the leadership team believes that everything must be addressed and give you the money. Then of course, the onus will be on marketing to deliver, but you will have the means to be successful.
If you’re like us, you probably have one of those piles on your desk that keeps being moved from one corner to another. You know that pile you need to get to but avoid because it will take some real effort to tackle. For many marketing professionals, marketing accountability, analytics and ROI are in this pile. Not too long ago at a marketing conference where Laura was speaking, the organizers had set up round tables with specific topics for discussion over breakfast. Laura was sitting at the measuring marketing ROI (return on investment) table (of course, where else would I be sitting?) which was strategically located right next to the buffet line. While she was sitting there waiting for people to join her, she kept hearing people say, “Oh measuring marketing,that’s just too hard.” There were hundreds of marketers attending this conference, and about 2 dozen tables of 10 were set to accommodate the early risers. Yet only four other brave souls joined her.
We must stop avoiding this topic and tackle the pile. As Sylvia Reynolds the CMO of Wells Fargo says, “Marketing must be a driver of tangible business results…we must start with the goal in mind and a clear way to measure that goal.” ROI is important for accountability–besides being able to justify spending and enable us to run the marketing organization more effectively and efficiently, knowing what is and isn’t working helps marketing achieve greater influence and serve in a more strategic role. Various surveys suggest that over a third and as much as 42% of marketing budgets are not adequate enough to achieve the outcomes and impact expected.
Perhaps your organization like many others is in the thick of budget planning. A key part of budget planning is to establish and validate the money you plan to spend. The more aligned marketing is with the outcomes of the organization and the more the plan includes performance targets and metrics, the more likely you will be allocated the budget you need to achieve the expected results.
So what does it take to tackle this Marketing Accountability pile? Here are six affordable steps any marketing organization can take to start whittling away at the marketing accountability and measurement pile.
1. Focus. Nothing of importance miraculously gets done on its own. To effectively tackle the marketing measurement pile will take all of Covey’s seven habits: from taking a proactive approach and beginning with the end in mind, that is the outcomes you are expected to impact, to keeping the effort a priority when other things present themselves as urgencies to making marketing measurement a win/win for you, your team, and the rest of the organization. More than likely, you are going to need a cross-functional team to tackle this pile – people from finance, sales, IT, operations, etc. working collaboratively together to define the metrics and hunt down and organize the data.
2. Plan an attack. You know that age old question, “How do you eat an elephant?” The answer being, “One bite at a time.” This is true for the marketing accountability and ROI question. If this is a new effort for you, you need to break it into manageable pieces. Quantify your objectives, decide how you will measure them, collect the data that you need to meet the objectives, establish a baseline, gain commitment to the measurement plan, and finally, measure.
3. Get data: “Data is the new creative,” declares Stephan Chase of Marriott Rewards. Establishing metrics, determining effectiveness, understanding efficiencies, all take data. Without data you cannot monitor and measure results. And don’t assume that you have the data that you need to measure your objectives. For example, if you want to measure how many new customers you interest in a new product, you may find that you need first to determine what a “new” customer is. This may require different views of your existing customer records or new strategies for evaluating.
4. Analyze: Once you have the data, the challenge is to generate insights that facilitate fact based decision making. One of the most valuable applications of data and analytics is in leveraging your metrics. The metrics are what enable continuous improvement as you strive to achieve and set new performance standards. Just looking at numbers doesn’t tell you as much as evaluating trends or creating statistical models that help you identify an optimized approach to your marketing efforts. Consider looking at your measurements for what isn’t immediately obvious such as what might have happened if that campaign had gone to the three bottom deciles of customers?
5. Use a systematized process: You may need to set up systems and processes that enable you to capture and track results on an ongoing basis. Many organizations put a substantial amount of energy into initiating these programs and then let them fizzle as other priorities surface. It takes both process and discipline to sustain a measurement effort. Systems help you automate a process so that the process can become a manageable part of your day-to-day operations. Today every marketing organization is moving at a breathless pace. Implementing test and control environment can keep you from having a fatal, head on collision
6. Train. Many marketers are unaccustomed to living in a metrics-based environment. You may need to invest in measurement, analytics, as well as data training and skills development. Start by taking a skills inventory. Find out who in the organization has data management, analytics and measurement skills. Decide what skills they need to perform at your expected levels. Develop training that fills the skill gaps. Doing this in-house allows you to tailor to your needs, but consider courses from universities, associations and external consultants to fill out your requirements.
Moving marketing performance metrics from the “too hard to” pile to the “we can do it” pile can reap rewards for the entire organization.
For more information on Marketing Alignment and Accountability, download our Free White Paper: Charting a Course for Marketing Effectiveness: Alignment & Accountability