Marketing metrics are simply part of the larger system of controls managers use to tell what’s goes on in their business. In his book Management, Peter Drucker wrote that managers job is to take control by implementing effective controls. It’s worthwhile to remind ourselves of what we mean by the words “control” and “controls” as well as the essential principles of why we have them in the first place.

To begin with “control” deals with expectations; that is, with the future. The main reason why we control anything is to bring about “what ought to be”, what we want the business to be in the market. Control must follow strategy. In contrast, “controls” assess past performance, they are analytical and primarily concerned with what did happen and what is going on in the business. Simply put, control is the aim and controls are the means.

Being in control and having controls is necessary to make an organization function. But by itself, reading a control (for example, a web analysis report that says “web sales profits are falling”) doesn’t tell us the likelihood that the response should be to “raise prices” and neither does it tell us by how much. There are three major characteristics of controls, the measurement and metrics, reports and evaluations that managers use.

1. Controls are neither objective nor neutral. No matter how scientific we are, the fact that this or that phenomena is being measured signals to everyone that it is considered to be important. In this way controls in any organization are both goal-setting and value-setting.
2. Controls need to focus on results. As Drucker noted, “results exist only on the outside of the organization”; that is, with the customer. There’s no point to having the most efficient marketing team if the ads they produce attract the wrong kind of customer (one that the organization’s capabilities, systems and operations can’t profitably satisfy). It’s the difference between efficiency – doing things right, and effectiveness – doing the right things.
3. Controls are needed for things that are measurable as well as for things that are non-measurable. Business like every other institution has important results that cannot be measured. Any experienced executive knows a company is headed for disaster if it can’t attract and keep able people. Quantifying this may be difficult, but it is anything but “intangible” (if you’ve ever worked for such a company, you know what I’m talking about). It’s just non-measurable.

Beyond these basic principles there are a few criteria that should be satisfied when implementing any controls. First, controls must be economical – the less effort needed to gain control, the better the design. Adding more controls doesn’t give better control all it does is create confusion. Second, controls must be meaningful – events being measured must be significant or related to one of the few core strategic activities and priorities of the business. Third, controls must be appropriate – they need formal validity. For example, an accurate total of new and existing customers purchases from a web ad. And they also need to reflect the real structure of events. In this case an easily understandable accounting of the mix of customer types who made a purchase so that we can discover why they buy.

Fourth, controls must be congruent. You have to know when an approximate figure is actually more accurate than a precise looking number carried to the tenth decimal place. There’s no point in showing how many times a customer visited your website if you can’t tell if it’s the same person or different people coming from the same IP address. Fifth, controls must be timely. Frequent measurement and very rapid reporting back do not necessarily give better control. In fact, they may frustrate control. The time dimension of controls has to correspond to the time span of the event measured. For example, measuring the effectiveness of this quarter’s ad campaigns as compared to last year’s makes no sense if we changed our product mix or entered a new market.

Sixth, controls must be simple. If the user has to know everything about how the control works before he can apply it, he has no control at all. If he has to sit down and figure out what a measurement means, he has no control either. And finally, controls must be operational. They must focus on action rather than information. This means that controls, whether reports, studies or figures, must always reach and be meaningful to the person who is capable of taking action or making a decision to do something. Whether they should reach someone else, especially the head of the division or a C-Suite executive is debatable. Their prime addressee is the manager who can take action by virtue of his or her position in the flow of work.

Values, Mission and Vision

There is more to business than making money. Profit maximization (enterprise value maximization, to be more precise) provides the foundation for strategy analysis, yet [profit] is not the goal that inspired Henry Ford to build a business that profoundly changed twentieth-century lifestyles; nor is it the one that causes Bill Gates to continue working at Microsoft rather than enjoy retiring to enjoy his billions of dollars of personal wealth; nor does making money for shareholders provide motivation or direction to the thousands of employees of both companies. Most successful companies are fired with a sense of purpose that extends well beyond the desire for wealth. Dennis Bakke, founder of the international power company AES, argues:

“Profits are to business as breathing is to life. Breathing is essential to life, but it is not the purpose for living. Similarly, profits are essential for the existence of the corporation, but they are not the reason for its existence.”

From “Contemporary Strategy Analysis” by Robert M. Grant, p. 57.

“Steve Austin, astronaut; a man barely alive. Gentlemen, we can rebuild him. We have the technology. We have the capability to build the world’s first bionic man. Steve Austin will be that man. We can make him better than he was before. Better, stronger, faster.”

These opening lines from the 70s TV show “The Six Million Dollar Man” are what came to mind this morning when I received this email from Aeroplan.

Now, I need to make it clear up front that I am not a big Aeroplan user. Most of the purchases I make are for small ticket items.

And, not only have I not heard from Aeroplan in over a year, but today’s email immediately left me with unanswered questions:

• How many Airmiles do I have? I know I could go to the website and find out, but why not put it in the email? Saves me time, and helps me decide what to do about it.
• What can I buy with my Airmiles? And, most importantly where can I go to redeem them? Again, I could go to the website. But why not make some suggestions? Aeroplan stores detailed purchase history, so it shouldn’t be that difficult to tell me this information.

All of this begs the question: What is the focus? Is it to get Customers or to keep them? [Disclosure: I follow companies like Aeroplan because I'm in the business of helping organizations keep their Customers longer.] In the case of Aeroplan, I know it’s to get them because of the previous emails I’ve received from them and have tracked their Customer acquisition and retention efforts for over 5 years.

What I don’t know is what most of the people do with the email they get from the good folks at Aeroplan. I’m writing this blog post, but how many are going to delete it? In other words, how many are actually going to redeem their points before they expire? And more to the point, is this email increasing the number of people who do so? Does Aeroplan know the value of a Customer whose airmiles/points are close to expiring?

As with many loyalty programs, there is a greater focus on getting Customers to sign up for the card than to use it. Why? There are several reasons:

1. Acquisition (the processes used to get Customers) is easier to measure than retention (the processes used to keep them). Counting the number of Customers you get is a lot easier to do than counting the number of Customers you have kept through retention programs. People criticize retention efforts by saying Customers would have bought anyway. And that it’s a waste of money and resources treating them nicely.
2. Acquisition is easier to do than retention. With acquisition, mass marketing and other impersonal methods are used to bombard prospects with generic offers. It’s not all that important that we know very much about a prospect’s preferences. If one method doesn’t work (low return on marketing investment), we keep trying other methods until we get one that works. Keeping Customers – retention – is more difficult, but only in the short-term. If we want to retain existing Customers (about whom we know something), means recognizing them as individuals and show them that we remember and understand their needs. In retention, we demonstrate that understanding by providing products and services that meet and even anticipate their needs.
3. Acquisition is ‘product’ focused. Most companies are organized along product lines. To get Customers all you need is to put someone in charge of selling a new software package, magazine subscriptions, executive education or adventure travel and make compensation and incentives geared to product sales. The process is easy to implement, measure and everybody understands it. Retention or Customer focus means organizing so that managers become responsible for Customer segments. Compensation and incentives must be realigned to new measures based on how well managers do at reducing attrition or churn and building greater loyalty and sales to Customers in their segments.
4. Retention means using a database strategically. There are very few companies today that don’t have a database. From sole proprietors to large multi-nationals, most databases are used to achieve tactical objectives such as cost reductions and operational efficiencies. Very few use Customer data strategically to determine long-term Customer value, group Customers based on that value and provide appropriate recognition and rewards to higher value Customers.
5. Measuring retention means testing Customer groups or segments. Everybody tests messages. Very few people test Customer segments. To find out if the Customer would have bought anyway involves creating Customer segments. Customers with higher value will remain Customers longer than those with low values.

The irony in all of this is that companies like Aeroplan have invested millions in people, processes and technology. Even in small firms with several hundred Customers, the technology is being used to what amounts to an automated version of the old hawker’s cry “Don’t just stand there. Buy something!”

The real potential of the technology – to improve the organization’s understanding of the Customer’s needs, is nowhere close to being used to full advantage. Is it any wonder that there is no Customer loyalty when companies repeatedly compete on price or the latest whizbang gadget? The Customer has no alternative – they behave that way because they’re being made to do so.

How much would it cost Aeroplan to make these changes? Probably not a lot in real dollars. They’ve got the technology. The real ‘cost’ is in the travel distance needed to change mindsets from simply getting people to sign up for the card to getting people to use the card. For some firms, that’s a lot points.

I had another DSL outage today that lasted about 8 hours. My network automatically switched over to dial-up, so I called my provider and got through to a pleasant lady who I will call Linda.

I tell her that I’m calling from Eastern Ontario (a very beautiful place, check it out sometime). “Sorry sir, we don’t go by geography you’ll have to tell me your ‘b1′ number.” Now, all that mattered to me was to know if there was an outage and how long before it would be fixed. That’s all I needed to know. It might be a 20 second call, 30 tops. [Note to ISP: there's this new thingy called the World Wide Web; you could put network status, outage information and expected resolution time up on your website, have a text-only version available that I can access from a low-speed connection or my mobile phone. This would answer my question and keep me happy.]

After sighing deeply I gave Linda my “b1″ number. Now I’ve been a customer (actually “captive” is more like it) of this ISP company for almost eight (8!) years and the question I get asked is: “Is the cord between your modem and computer less than six feet long?”

I guess my pronounced laugh startled Linda because there was dead silence on the other end. I proceeded to explain that I laughed because I found it funny that in eight years they hadn’t bothered to record this information anywhere in their files. I understand they want to ensure no changes on my setup, but couldn’t they ask that instead?

Anyhow, my question was whether or not there were any network problems. “I will need to get some security information from you sir before I can talk to you.” It’s like I was entering customs at the airport or going to visit someone in prison (not that I’ve ever been).

It took a few minutes to give her the information she needed, then I was told “Ok, Greg I have to talk with my supervisor so she can get the answer to your question.” Huh? Why don’t CSRs have a display that tells them how the network is doing? Remember to breathe Greg.

After almost three minutes on hold (yes I timed it), Linda comes back on the line and tells me that yes there is a problem – “do you live anywhere near Innisfil?” (No I don’t, I live almost 300 Km east of it!) Again, are you kidding me? I went through two minutes of security questions giving you my life story and you still can’t correlate my location with the location of the outage?

All of this is frustrating but the next bit is what really got me. Linda tells me that the company has technicians working to resolve the problem and that “Mark” will call me back to let me know when it has been resolved. I get a reference number to seal the deal. Now this kind of makes me feel warm and fuzzy.

My call with Linda took place around noon and the outage lasted until just after 2pm Eastern. But guess what? Mark did not call back!

Then it hits me: this is the inbound call centre version of the form letter you get from Nancy at the bank when you’re late with a payment. There is no Nancy. And there is no Mark. He will not call you back.

I don’t what kind of training the company’s CSRs are getting, but it seemed to me that if you’re going to make a promise to a Customer you should keep it. Even if Mark can’t call me back because he’s been re-routed to another issue, Linda could. If this is indeed what they’re doing it’s more manipulation than true Customer service. I know Linda must have sensed my frustration. So is it any wonder that there is such high turnover at call centres?

It must be costing the ISP a bundle to go through the same procedure every time a customer calls. I should let it go but I see it too often and have to wonder: what were they thinking?

Why is it, when you look at most industries, that companies treat Customers so badly? Is it because they don’t care, or they just can’t help themselves? Or don’t they know what they are doing?

*According to Dilbert, if more companies could remember that Customers are always Right, it would be a marked improvement for most companies.

Watch this space in the coming weeks where I will add to this post describing “Stars and Dogs”; companies that are either exceptional at creating long-term, satisfied Customers and those that aren’t.

It’s surprising how many business leaders today still consider maximization of profits as their only goal. Many, in fact, see it as their legal obligation part of their fiduciary duty. I have had several very difficult conversations with experienced, successful people who contend that it is wrong for Boards and CEOs to do anything that threatens a company’s profitability, “It’s their money.”

And yet there is an ethical question that arises “How anyone can justify economic advancement (and personal wealth creation) at the expense of the larger economy, environment and society?” This question is being asked today because we have seen actions taken by few powerful corporations resulting in an almost total collapse of the financial system. The foundation of ethical leadership is ensuring the right balance between doing well for those whose capital has been invested and doing good for society.

A New Paradigm

A new paradigm is emerging among informed people everywhere with the opinion that sees the sustainability of economy, environment and society as something that must be given consideration in the purpose of all organizations – government, not-for-profit and commercial businesses. For at least the last hundred years, people have assumed that profits and sustainability are mutually exclusive. This deeply ingrained assumption is that considerations about the functioning of the larger economy, health of the environment and society will somehow have a negative impact on any organization’s goal to maximize shareholder value.

This assumption is built on two major flaws in our thinking. The first is that profit is the ultimate objective and overrides all other considerations. If something doesn’t generate the profit being sought, it won’t get attention. The second is that values – the principles that govern how we act – and profit are not compatible. This is why many organizations see values as a cost, taking away profits. Is it any wonder why so few show the courage and conviction to make values the primary mechanism by which they steer their firms?

Is sustainability really going to cost you?

There are many business leaders are seeking ways to make values, or a higher purpose part of their company’s ethos – their way of being and doing business. In fact, people are doing some amazing things to prove that achieving sustainability in your operations does not mean less profits, it means more! These people and companies provide the evidence that shows there are strong reasons to believe that business may be more profitable when it pursues a mission that seeks to do no harm.

It is vitally important that we begin changing these assumptions in all our leaders, including business. This change is in their interest (makes their organizations more effective, productive) and in the interest of their stakeholders. And most importantly, our collective interest.

Profit, from values

A strong competitive market position lies ahead for organizations that can successfully align their strategy so that the sustainability of economy, environment and society – the whole. When this is achieved and in the process, realizes sustainability for the organization. A leading example of this is Interface Global, a carpet company that has been adapting itself to do business in a more sustainable way since 1994. The strategy has resulted in several new large markets, and -take note – very large profits!

In this video, Interface Global’s CEO and founder Ray Anderson talks about how his firm has increased sales and doubled profits while turning the traditional “take / make / waste” industrial system on its head. In a gentle, understated way, he shares a powerful vision for sustainable commerce.

For some years now, business leaders and advisors have all been calling for change. The main message is we can’t continue to ‘do business’ the same old way, that we’re failing ourselves and our descendants, not just our shareholders if we don’t start to question the key assumptions we use to guide our decisions. One of the worlds first industrialists, Henry Ford said “[Profit] like happiness, is never attained when sought after directly. It comes as a by-product of providing a useful service.” If we as leaders are really serious about positive change, then the choice is clear: decide to focus our strategy on creating value in a way that is responsible to all then profits will follow.

There are still too many businesses with strategies that focus on unsustainable profits. They spend millions in an effort to persuade markets about low-value offerings and end up eroding the value of their business, the economy, environment and society. They use the two assumptions to generate policies that descend into unsafe practices that do little to deliver real lasting value. The strategies that result are simply not sustainable in today’s rapidly changing and complex world. Their architects, by virtue of the strategies pursued, prevent themselves from playing a constructive part in the real markets and society of tomorrow. Companies that aren’t constructive, risk becoming irrelevant. And perhaps this is as it should be. Just like all the markets and societies of the past, those in the future will be created by ones that identify and deliver real value. Any business that creates this kind of value doesn’t need nearly as much money and effort to sell, as it is often very evident to Customers when they see it.

Profit maximization by itself is simply no vision at all. It is empty of any real strategy and leaves the organization susceptible to the whims of changing leaders and worst of all, inspires no one at the operating level. A great majority of business leaders today accept that to “lead” an organization, requires a cohesive vision that drives the strategy and direction of their organization. This vision must capture the imagination and passion of all stakeholders: investors, staff, suppliers and customers. While there are few leaders today that disagree with these requirements, in practice they are very difficult to achieve. Ray Anderson of Interface and his vision of “zero impact” is a great example and inspiration that it can be done. This is their ‘higher purpose.’

The key to competitive advantage for successful companies in the future is to base strategy on value creation for all stakeholders. Future generations will view today’s way of doing business as misguided just as we view feudalism and the divine right of kings as incompatible today. The creation of real value that is in touch with universal values is the height of achievement and performance excellence.

There is no doubt we are in the midst of a serious economic downturn. Its impact is being felt by every kind of organization, large and small, high tech and low tech, government and not-for-profit. We can expect this year and most of 2010 to be a severe and painful time for people who’ve lost their jobs. Likewise, it is not easy for managers who have to make the decision to cut. No matter how you look at it people’s lives have changed.

We’ve had recessions before and will have them again. In his book, “Managing in Turbulent Times,” Peter Drucker wrote that after every boom there’s a bust, and in the bust period are new opportunities for growth.

“During the 1950s and 1960s, it was believed that everything has to grow and that there are no limits to growth. In the 1970s, it became popular to believe that growth is over forever. Both beliefs are fallacious.
Nothing can grow forever, let alone at an exponential rate. Yet every fifty years or so, since the early eighteenth century, the developed countries of the world economy have experienced a “go-go decade,” during which growth was everything and everything was supposed to be growing forever.
Every one of these “go-go” periods was followed by a massive hangover, during which everybody believed that growth had stopped for good. It never did and there is no reason to believe it has stopped now.
But in every such period, growth shifts to new foundations. It then becomes important for a business to think through where the growth areas are for its specific strengths, and to shift its resources out of areas of in which results can no longer be achieved into those areas where the new opportunities can be found.”

The main (and, in many cases, perhaps the only) source of information managers use to make decisions about the future is from accounting; a five hundred year old system that doesn’t tell us anything about the growth opportunities that exist for the organization. This system presents costs only, and in a recession reducing total cost of labour becomes an irresistible temptation.

Doing this is commonly viewed as a necessary step to restoring profitability – an understandable but dangerous illusion built on the assumption that all our products, services and programs will uniformly continue to produce the same (or better) results – only now will less staff.

While they can be forgiven for making cuts this way in the short term, the long-term effects will do more harm than good if managers continue to avoid the unpleasant task of selectively sloughing off products, services and programs that no longer produce results. Every enterprise whether for profit business, government and social has products and services and programs that no longer contribute.

And so, where to cut staff, is the wrong question. The question managers must ask is “What do we need to do differently today to achieve our purpose tomorrow?”

A policy of systematic abandonment – putting every product and service, every service, process and activity on trial by asking “Would we get into this product/service/program/activity, based on what we now know about it?” And if the answer is no, then “How do we get out of it?” Or, at least, stop putting more resources into it.

It is the concentration of resources on opportunities that creates growth. The best time to do this is during the boom years. A recession reveals the things are slowing us down, the activities that only consume resources but fail to produce results that achieve our organization’s mission.

Recessions are a fact of developed societies; they are the economic equivalent of a hurricane. We can’t control them any more than we can control the weather. And, as any good sailor knows, there’s no escape from the weather. As Peter Drucker tells us, the best we can do is keep our organizations “lean and muscular, capable of taking strain but capable also of moving fast and availing itself of opportunity.”

This week, I met with a senior management development executive of a large international telecom manufacturer to talk about their plans for the future. During the meeting, she made some refreshingly candid comments admitting the company’s mistake with a recent acquisition. I follow this company closely and was very encouraged by her frankness – admitting the mistake is going to energize the entire company. Along with this they’re completely overhauling of the entire business which began last fall when “we blew up our business model.”

With all the carnage created by the downturn in the last few months, you’d think more companies would be keen to look at what they’re doing like this one is doing. In spite of overwhelming evidence that things have changed, very few firms are really doing anything fundamental to improve their economic performance. A lot of good organizations are missing out on tremendous opportunities created by the downturn. Not only is it an opportunity to prepare our businesses by making rapid and extensive structural changes to our business model – even better, it’s an opportunity to get closer to our Customers who, for a long time now, have expected it and are now beginning to demand it.

I’ve always been interested in why some companies can make this transition more easily than others. Large or small, an organization’s reluctance/resistance to change is in large part due to the management attitudes and thinking people use to run their business. Some managers are overly concerned about keeping the status quo. They operate with the implicit “we don’t want to make too many changes too quickly.” Workers get the message and simply make do with what they’re given.

Even if managers face up to the reality of the situation, we can’t do it by ourselves. We need help, everyone inside the business, must embrace change by questioning how and why things are done. In a world where nothing is stable, this is simply the best way to do business.

Every time I talk with managers about change, I get the sense of a serious disconnect about the reason for any change. There’s still a prevailing attitude in most organizations that there’s no need for any changes. Yet many managers complain bitterly about how things aren’t going well and how their people aren’t producing results.

In his new book, “Built to Change,” Ed Lawler, business professor at the University of Southern California shows how organizations can be built to change so they can last and succeed in today’s economy. In the video link below, Karl Moore of McGill University, talks with Professor Lawler about the need for business to change whenever there’s a significant change in the marketplace.

Talking Management, Karl Moore with Ed Lawler, Globe & Mail, 27 January 2009
Note: I have no connection to the company at the start of this video.

One of the chief responsibilities of management is to recognize the need for change. The most obvious indicator of the need for change is uneven or poor economic performance. The only investment made by not acting on these signs is in managerial ego. Sadly, the message most managers send is “don’t rock the boat.” A recession is like a bad storm at sea. With every industry on the planet experiencing significant change, our job as managers is to make sure both our crew and our craft are ready for it.

People in organizations in every sector expect its leadership to begin the change process with managers acknowledging that things are different. An important first step is to define the new reality faced by our business by doing a thorough analysis of what is different. And along with that, an honest assessment of the things the organization does better than anyone else can do. From that, managers must ask of the organization, “What must we do to adapt?” The true work of management, (and, I would argue, what we’re really paid to do) is to get our organizations to respond positively and creatively to external changes – in the environment in which we all compete for the Customer’s business – the marketplace.

As challenging as the economy may be right now, the onset of the recession is a rare opportunity for managers to do two things: re-design key areas of our business to deliver better economic performance; and, equally important, on a systematic and continuous basis make the whole organization more accepting, less fearful of change.