+10%! those increasingly muddy waters between evaluation/measurement and return on investment

15
36
views

A few days ago, I accompanied a few colleagues to an important pitch for a global public relations program on behalf of a prominent market leader on which we had been feverishly working for the three preceding weeks..
We went through the whole proposal and, at the very end, the Ceo asked:
ok, this is all very fine and dandy, but how would you estimate the impact of all this on our bottom line?’.

Mind you, the question was not
how would you go about evaluating or measuring the efficiency or the effectiveness of what you propose we do?’, but simply
how would you estimate its impact on our bottom line?’.

Of course, the first temptation (typical of the seasoned public relations professionals) was to reply by reformulating his original question…. and then argue the astonishing rise of the public relations measurement and evaluation industry and the more or less sophisticated methods, processes and tools which have been recently developed.

But my interlocutor, very civilised yes!, but who had also followed years ago with me a course to help stressed leaders reply what they wish, rather than to the specific question raised….without the interlocutor realizing it… would have stopped me after the first minute and said:
but this is not what I had asked….’.

So I abruptly said +10%!
He looked at me in awe and went on to another question.

I am not sure if this response was partly responsible for us losing the pitch, but I imagine it somehow contributed.

But, what would you have responded?
Of course, before replying, you would need to know more (the client, the product, the competitive scenario, the program…).
But I am afraid you do not know more, while a prompt reply is expected..

Of course I also would have liked to ask him:
What is the overall value of your company? How do you arrive at that evaluation? How much of that value would you attribute to the reputation of the brand? How much of that value would you attribute to the quality of your stakeholder relationships? And, by the way, how do you evaluate the return of your current investments in human resources, finance, marketing, research and development, procurement, production…?’.
But this was not in the cards.

So?
What do you say?

Maybe this incident might help us clarify those increasingly muddy waters in the intersection between evaluation and measurement and return on investment…

15 COMMENTS

  1. Toni — I think part of your “mud” comes from confusion between the concepts of “impact on the bottom line” and “return on investment”. I would argue that the latter CAN be fairly easily estimated if what you mean is return on the investment made in the PR programme, which would be measured in terms of avoided costs or additional revenue as outlined in the objectives of the PR initiative itself. Angela Sinickas (http://www.sinicom.com/) is very good at explaining very practical ways to measure return on investment in communications programmes (and advises a lot of modesty in doing so). But these ROI calcuations are usually in terms of things like “efficiency increased by X%, which translates into $Y of extra salaries”, rather than “the company value increased by Z”.

    For me, in order to figure out what those PR objectives are, you actually need to conduct an upstream analysis regarding the organizational objectives and why a PR campaign would be the most appropriate “solution”. What this means is that you need to understand the overall business threat or opportunity before designing the response, which should be inherently linked to the bottom-line objective. The notion of impacting the bottom line favourably should be part of the raison d’être of the response, otherwise, why do it?

    But measuring the effectiveness of the solution in contributing to that overall desired direction is very different than claiming that it translates directly into a specific increase in the company bottom line. Shel Holtz recently wrote an excellent blog post (http://blog.holtz.com/index.php/weblog/the_roi_label_and_the_credibility_of_communications/) on the misuse of the ROI term when dealing with senior executives. He argues that communicators should stop using that term per se, while still measuring and evaluating their results rigorously.

    So I would have responded to your CEO by asking why they had decided they needed the PR campaign in the first place and then explaining how the pitched solution met the objectives outlined.

  2. Agree with the difference between roi and impact on the bottom line. Thank you.

    Yet, had I responded as you suggest he would have courteously said, as he always replies:
    public relations is our most precious tool to reinforce our brand identity and good will.

    So the issue is not so much to explain how the pitched solution met the objectives outlined (which was clearly spelled out during the whole presentation)but how the pitched solution impacted on the bottom line.

    I think this is a question which can be rationally answered for public relations as for any other management function of the organization.
    It boils down to defining and agreeing on the adopted indicators, as well as the actual material value attributed to each selected indicator.

    An example:
    if the overall value attributed to the organization is 100 and if,say, 20 is the overall value that financial analysts and the ceo agree is contributed by stakeholder relations… then
    -once you have agreed that this value is determined by, say, those very relationships- you can certainly determine the impact of the new program on the bottom line by attributing monetary value to each progress point you measure as the program develops.
    The monetary value begins at the level of 20% of the overall value and each percentage point which increases or diminishes that 20 becomes an actual impact on the bottom line.

    Or am I missing something? (many I fear…but help me shed some light…

  3. Except your 20% is attributed to the entire PR portfolio, not just one campaign. Plus, these variables don’t move independently of one another. PR will interact with the other channels (customer service, product quality, what the competition is doing, etc.) and all of the various PR activities will also have impacts on each other. So I don’t think it’s that simple. You can model the system, but I think it’s spurious to oversell the extent to which you can measure impact on bottom line as opposed to the effectiveness of your campaign within defined boundaries.

  4. The program we were pitching for involved the entire portfolio.
    When you attribute value to a building you take into consideration various variables (location, market dynamics, materials, competition etc…).
    Of course it’s not that simple… but it seems doable just as with any other component of organizational value.

  5. That’s why I think the key question to have asked him was your last one above: “How do you evaluate the return of your current investments in human resources, finance, marketing, research and development, procurement, production…?” I’m all for measurement, but I don’t think we can ask PR to be able to provide more precise answers than these other business critical functions.

    I think there’s an impulse to defend PR in unrealistic terms because of some sort of inferiority complex related to its intangible, “soft” nature. Measurement gets even trickier where PR relates to risk avoidance/reduction it’s difficult to measure what never happens (although you can provide counterexamples of the costs of not having been successsful.)

    The measurement discussion rather reminds me of issues management. Sometimes it’s better not to let the other party define the terms of the debate.

  6. Point well taken but there are an economic science (actuarism)and an enourmous industry (insurance) out there which measure the value of what is unlikely to happen.
    Some time ago I was immersed in the idea of applying actuarist tools and processes to public relations in its risk avoidance stance. Fascinating and highly attractive.
    Not one of the experts whom I had spoken with (in Italy, Switzerland, Uk and Usa) had any doubt whatsoever that this was doable.

  7. I am convinced there are sophisticated methods to do all sorts of things, but what are the costs and benefits of soing them? You need to achieve a balance and have measurement methods that are not just theoretically realisable but also politically and economically acceptable. And from my experience, the first part of the project budget questioned by clients relates to the resources for research, measurement and evaluation.

  8. Way to go, Toni! Pull a number out the air and lay it on him!
    I might have said, “Think of it as insurance for the profit goals you already have.” (You greedy bastard)

  9. Very interesting topic.
    All the measurement options would be less complicate if applied on a 2 or 3 years base.
    My 2 cent point is if the “% impact on biz” is a question to be answered in a PR pitch and how the whole analisys to get a REAL answer would impact on the pitch costs… I understand this is not the starting point.. but somebody has to do this dirty job 🙂

    Probably a simple “safe” answer would be to go for a couple of case studies. Client XYZ turnover increased 15% with our PR program…

  10. Thank you for a very lively debate. It seems that we all believe that “PR works;” the questions are, “how well does it work,” “how do we measure it,” and “how will contribute to my business.” These are relatively common questions and they are difficult for most PR people to answer without the further complicating question posed by the CEO.

    In my experience, ROI is a relatively simple concept driven by how much money is derived for a given investment. The difficulty comes when an organization is doing and experiencing many things — within and outside of marketing and communication — which can affect the business performance of the organization. However, sophisticated statistical models are being used more and more commonly to derive the ROI of PR on brand and corporate performance. And when these methods are applied, PR performs very well, consistently delivering the best ROI of any marketing or communication channel. Even when competing internal and external activities happen concurrently, the models can uncover the absolute and the relative contribution.

    The models require a lot of performance data to create proper context…the difficulty posed by the CEO’s request is in forecasting a number in advance with no context. However, having participated in 40 or 50 similar studies, PR’s ROI ranges from $4.00 to $43.00 on the dollar which is by far the best on average (mass market advertising returns $1.20 on the dollar; price promotions actually LOSE $.25 on the dollar and trade marketing generates about $2.00 on the dollar). These numbers hold true across many industries and it should be of some comfort the CEO.

    The cost for modeling is in the low six-figure range but when one considers that a company in an “avoidable crisis” can easily lose half its market capitalization (look at Ford and Fireston, for example), the level of investment is very small when compared to the many billioins of dollars and millions of people who may be affected.

    Providing an answer to the CEO’s question would be difficult for anyone without direct experience in this area but I’ll bet even the CEO couldn’t answer the same question were it applied to the returns from legal, HR, advertising or other areas where the level of expenditure is many times greater than the one being considered for PR.

  11. Thanks Bill and Paolo and Mark.

    Let me try another approach keeping in mind your (and of course Kristen’s) considerations:

    °analysts, the board and financial markets today value your company somewhere between, say, 80 and 120…;
    °we estimate today your pr activities contribute to that value some 20%…;
    °all other things being equal, we believe it realistic to say that the program we presented today will be superior by 10%. Which means that if you decide for our program and the final result will be 10% more than 20% (i.e. 22%) we will all be happy.
    If it is more than that, you give us a bonus equal to 20% of the above 10% increase, and if it is less than that then you may withdraw proportionally from our fees.

    In saying this, you will of course remark, I have invented the attributed company value, the value of pr, the hunch that it is possible to measure ups and downs in a one year (rather than a 2 or 3 years as Paolo had suggested) frame.
    But is this really so?

    If you think about this carefully the whole argument is in the context of a conventionalist approach (I am sure there is more scientific term, but can’t find it now).

    There is, after all, no logical reason why
    *2+2=4;
    *ten inches is that long…;
    *that p&g develops 1000 grp’s
    are more material statements than 10 stakeholders saying that, from 1 to 10, their trust in you is an average of 6 and that each one of those 6 points, integrated with other relationship indicators, is equal to x% of corporate value….

    The only pbstacle is that while most actors in the world would agree that 2+2 is 4 and that 10 inches are that long or that grp’s are so calculated, the same cannot be said on the latter.

    So, once more, it boils down to making sure that the actors involved (in this case, the Ceo, the internal PR structure, the Consultancy team, the auditors) all convene to agree on the overall and specific objectives, resources and time committed and, most importantly, on the indicators adopted to evaluate results.

    Are we getting any closer, or have I lost my mind?

  12. I wonder whether the CEO, Toni, really expected an answer. Or did he/she just expect “the usual song and dance” about the Art of Public Relations.

    Your questions are great ones, indeed. The CEO is very willing to accept the presence of a whopping Goodwill entry on the balance sheet and knows intuitively what that figure represents. Well, can we articulate what proportion of that figure can be attributed to reputational PR matters? As the guardians of that equity, we no doubt could articulate how the Goodwill entry relates to overall value, right? It’s frequently a multiplier of actual tangible equity, no?

    If there is no Goodwill entry, could we ask, as you say, what dollar figure the CEO would apply to that entry if it existed?

    Or am I now befuddled and rambling…?

LEAVE A REPLY

Please enter your comment!
Please enter your name here