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?


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