March 22, 2009

Return On Investment And Employee Accountability

My career has been defined by return on investment (ROI). For the most part, if I did not deliver a significant return on investment for my company, I lost my job. As a consultant, I don't get paid, and I don't get hired if I don't deliver ROI to my clients.

As a Statistical Modeler, if my models didn't generate a million dollars of incremental profit, per year, every year, my job was in jeopardy.

As a Circulation Director, if my team did not generate a couple million dollars of incremental profit, per year, every year, I'd lose my job.

As Vice President of Database Marketing at Nordstrom, if my team did not generate millions of dollars of incremental profit, per year, every year, I'd lose my job. In fact, I had the President of my division call me into his office, back in 2001, telling me that the reason the business was failing was because of my ineptitude, or the ineptitude of the chief merchandising officer. He told me that the merchant or I would lose our job if things didn't improve.

Six months later, he lost his job. Eleven months later, the chief merchant lost her job.

There are many jobs in a company that require consistent improvement in ROI, in order for the individual to keep his/her job.
  • A merchant's job is measured every single day. The merchant is required to pick the right merchandise, and if customers don't like it, the merchant loses his/her job. In many companies, garden-variety employees get to see how every merchant is performing.
  • The inventory staffer is measured every single day. Have a bad fulfillment rate across the items you are responsible for, and you lose your job. The CEO/President and CFO pay really close attention to how inventory staffers manage the business. Not surprisingly, inventory people get canned when there's too much merchandise and too few customers.
  • The online marketer is measured every single day. Run a terrible paid search program, have display ads that are unprofitable, hook up with affiliates that have a poor reputation, and you lose your job.
  • The e-mail marketer is measured every single day. Every person in the company can watch your performance fluctuate. Sink your productivity from $0.18 per e-mail to $0.14 per e-mail, and you lose your job. What's really sad is that when the e-mail marketer performs really well, the e-mail marketer doesn't get the credit that is deserved.
  • The catalog circulation director is measured every single day. Fail to acquire enough new customers, over-circulate catalogs, or make a circulation mistake (mailing the wrong people), and you lose your job. Up until a few years ago, there were few people more responsible for ROI than the catalog circulation director.
  • The finance staffer is often measured. These folks disperse funds to appropriate projects, and are often measured by Return On Invested Capital. When your finance department screws up, they are fired.
  • Store Managers are actively measured. If your comps are negative, you're finished --- even if the merchants and the marketers screwed everything up.
If you are one of these individuals, you go to work every single day with a cloud over your head. You are hyper-accountable.

And because you are hyper-accountable, you start to look at other employees in your company. There are many employees who are paid what you are paid, or are even paid more than you for a comparable skill level. These employees are important, needed individuals. But the metrics aren't always in place to determine return on investment. How would you measure the return on investment in these cases?
  • Catalog or Internet Photography: How do you know when you have a creative staffer who has "an eye" for the right way to present merchandise? At least photography can be tested. But you won't find a dashboard in your company that measures the sales generated by your creative people, will you?
  • Information Technology: Under what circumstances does the IT staffer hurt the business to the point where all employees are suffering? How would you measure it? Even worse, most employees are aware that IT employees are paid on a different wage scale (i.e. more) than are employees who are directly accountable for generating sales. You won't find a dashboard in your company that points to the IT staffers who generated the most sales. Sure, IT folks can miss deadlines and make mistakes ... but that happens with all employees. So what metrics do you look to in order to correlate sales generated by an IT staffer?
  • Social Media: A growing contingent of social media experts are suggesting that you don't measure ROI in a traditional manner in social media, just read the Social Media SmartBrief or some of the top 25 Social Media bloggers to review the arguments. If you're one of the marketers who are actively measured on a daily basis, you're not always thrilled with your co-workers who Twitter and blog all day long and then suggest they shouldn't be measured the same way that, say, an e-mail marketer is measured. But you need these people, you need pioneers who are taking a westbound path on the Oregon Trail, right? So what are the metrics used to evaluate the pioneer?
  • Offline Marketing: How do you measure the ROI of a newspaper ad, a billboard, radio, television, sponsorship? Not surprisingly, these are the programs that are the first to be cut in economic downturns ... but that isn't deserved either, just because it is hard to measure. Many of these programs can be tested, but aren't.
  • Human Resources: How do you measure the return on investment of an HR staffer who is able to arbitrate arguments between employees? You really can't "test" HR staffer effectiveness to identify what impact that has on company sales, can you?
  • Copywriter: In so many companies, copy evaluation is subjective. But it matters. At least copy can be tested, and in paid search, it is actively tested.
The Business Intelligence movement yielded three classes of employees.
  • Employees where the relationship to sales can be easily and directly measured.
  • Employees where the relationship to sales can be inferred via periphery metrics and testing.
  • Employees where the relationship to sales cannot be measured.
If you can possibly become an employee who is measured on a daily basis, become that person. Those who are measured tend to rise to leadership positions within companies --- you see merchants running companies, you see finance folks running companies. Whether for good or bad, you don't see as many folks who aren't directly accountable for sales in leadership positions.

And if your area of responsibility can be measured via periphery metrics, by all means, identify every single periphery metric you can, and prove that you're moving the needle on something.

Finally, if you are one of the employees who love working in areas that are not directly accountable for sales, that's not your fault --- you need to do what love, right? So how does an organization evaluate your performance in a fair comparison to folks who are directly accountable for sales generation?

What are your ideas?

8 comments:

  1. Great post Kevin! The number of times you wrote "lose you job" is scary, but it's the harsh reality...

    I like when you say "A growing contingent of social media experts are suggesting that you don't measure ROI in a traditional manner in social media"...

    I remember the days when some marketers kept saying the Web was a different beast that couldn't be measured in the same way...

    BTW, being from an IT background, I can tell you IT can and should be accountable and measured. The metrics might be different, but the importance of measuring applies throughout the enterprise. I'm thinking of on time/on budget/on scope/on quality delivery, system up time & response time, bugs resolution efficiency, etc.

    Cheers,
    St├ęphane

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  2. Yup, I recall the growth of the online channel, and all the debate that happened. One day, an appropriate set of metrics will be available for social media. In the meantime, the social media community can easily defend itself by using periphery metrics that show how that channel is benefiting the business, realizing that many of the metrics (today) don't correlate with sales.

    IT is a challenging one, of course. I've worked with IT folks who evade any accountability --- I've worked with IT folks who deflect all of the credit they deserve to others, and I've worked with IT folks who can truly demonstrate their ROI. Overall, this makes IT employees just like every other employee, I suppose. So your ideas do make sense, and those same type of metrics work for other departments.

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  3. I don't think IT is that hard to account for or measure. As a developer my job is to get the project that I am working on done on time, with streamlined code and as bug free as possible. Fix any bugs that come in through QA in a timely manner and if any of these are not done to the standard of the company, it could cost the company a lot of money that they had budgeted, thus a negative ROI. But If I get everything done the way it is suppose to then it is the marketers job to bring the people there and use the software and develop the right campaigns and the right copy that gets them to use the product.

    If it is something more then the marketers, not setting up the right campaigns, landing pages, call to actions, then that might be more of a User Experience problem, which then those people would be responsible.

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  4. Good points, Dan, thank you!

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  5. And Dan, if I were in your shoes, I'd have a scoreboard posted somewhere in my department where every "fix", if you will, is tabulated, and the estimated sales that you saved are tallied as well. And sales translate to profit ... for many companies, a third of sales translate to profit.

    So I'd have this scorecard --- every time a fix comes in one day or one week ahead of schedule, it generates "x" dollars of sales, yielding "y" dollars of profit.

    So yes, IT can be accountable and measurable.

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  6. Oh, I like that idea! I might just have to create one

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  7. A very well written post Kevin, I like your writing style. I think its only a matter of time before social media becomes more measurable and provides valuable ROI.

    I don't see it YET, but it provides you with some things that can't be / are difficult to measure accurately like brand impact. It really depends on the target customers of the biz, and in some cases social media strategy is a must.

    But its tough to know how you are doing, and what to change in your strategy until more measurable results can be worked out.

    I think having the Web Analytics Association drive social media analytics would be beneficial to the community, and raise the profile of the organization as well, what do you think Stephane?

    Regards,
    Omar

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  8. Good comments, Omar, thank you!

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