Wednesday, February 25, 2009

Better Ways To Do More With Less

Crawling around inside a few dozen large marketing and finance organizations these past months I’ve seen some evidence of five patterns of “do more with less” which seem to work best.

First, the “best” clearly define what “doing more with less” really means. The most common metric appears to be “marketing contribution efficiency” – an increase in the ratio of net marketing contribution per marketing dollar spent. That’s seems appropriate when budgets are falling (recognizing the need to monitor it over time as it can be manipulated in the near term).

Second, when they cut, they do it strategically. Face it, most of us didn’t take Budget Cutting 101 in B-school. After eliminating travel and consultants and other easy stuff, bad decisions creep in under mounting political pressure. More about this in last week’s post.

Third, they watch the risk factors. CFOs want to cut marketing spend to increase the likelihood of (aka decrease risks against) making short-term profit goals. Yet when marketers try to do more with less, risk exposure rises in ways never imagined – especially if it wasn’t clear which elements of the marketing mix were working before the cuts. It’s the “risk paradox”. If you want to make sure your “less” really has a chance of doing “more”, manage the new risks that have silently crept into the plans.

Fourth, they avoid the ostrich effect. Just because there’s enormous pressure on today, the best don’t ignore the fact that tomorrow is right around the corner in the form of 2010 plan. And when looking ahead, the only thing certain is that historical norms are no longer a reasonable guide. So the best are anticipating the key questions for 2010 plan, and working on getting some answers now. They’re committed to leading the process, not getting dragged behind it.

Finally, the best push their marketing business case competency further, faster. The marketing skeptics and cynics have more political clout now. Un-tested assumptions, like ostriches, will not fly. Better business case discipline is the new currency of credibility.

We all have basically the same tools at our disposal to do more with less. The “best” seem to be able to apply their imagination most effectively in the use of those tools. I’m the world’s biggest proponent of the importance of creative inspiration and instinct, but the lesson here I think is to start the conversation these days with “what do we mean by ‘effective’?”

Thursday, February 12, 2009

Think ahead while cutting back

Setting aside for the moment that no company can succeed by cutting expenses alone, let’s dwell on the practical necessity of today’s world: cut, cut, and cut some more.

Yes, we all should have been smart enough to build sufficiently robust measurement capabilities BEFORE the dramatic assault on our budgets began. Yes, we should have put some water in that bucket BEFORE the fire consumed so much of the house that marketing built.

But we didn’t. So what do we do now that we’re caught in the downward cutting spiral? Where do we turn once all the “fat” has long since been excised and all that’s left is muscle and bone?

First, get your head out of the emotional sand. You’ve lost the battle over the power of marketing to drive the business in the near term. But don’t let your fog of disappointment cost you the war. Suck it up and look ahead. And don’t take it so personally.

Second, define the objectives for making smart cuts.

1. Achieve the target reductions the CEO is asking for (most people stop right here).

2. Clarify the mid- to long-term strategy for competing successfully.

3. Conduct a thorough and unbiased analysis of the options.

4. Provide a comprehensive assessment of the near- and long-term implications of the cutting alternatives.

5. Preserve your credibility. Live to fight again another day.

If you’re not thinking about all 5, you’re likely suffering a very slow death by 1000 cuts yourself.

Third, frame your cutting analysis on the basis of strategic dimensions of competitiveness, NOT on the basis of what’s easiest to cut (e.g. travel and outside contractors), and for heaven’s sake do NOT cut proportionately across the board (which strengthens the hidden weaknesses in your plan while weakening the strengths). Think about the relative value/importance of customer segments; product groups; channels; or even geographic regions. Consider the marginal returns of a dollar spent in each one. Cut ruthlessly from the bottom of the importance rankings.

Fourth, engage people in finance, sales, or SBUs in your thought process. You have nothing to gain by being an island now.

Fifth, get comfortable with making educated guesses on expected impacts. You’re beyond the point where data-driven analysis is likely to help. Think about using monte carlo simulation and other probabilistic assessment methods to make intelligent guesses now (and loop back to “fourth” above).

Finally, present your findings with passion, but not bias. The time for “I believe…” is past. The mantra of the moment is “having run many options by the good people in finance and sales, we all feel that the smartest course of action is…”

And by the way, NOW is exactly the time to begin building that measurement capability you really wish you had over the past few months.If you need more help, start here.

Friday, February 06, 2009

This Economy Brought to You by the Wrong Metrics

How did we get in the global economic shape we’re in?

You and I bought stocks and mutual funds (and you might have bought hedge funds). We expected above-average returns from those investment managers.

The investment managers make money by selling more shares in their funds. To do that, they needed to show higher-than-average returns. They had only a secondary interest in the long-term health of the companies they were buying (despite statements to the contrary in their prospectus). The really just needed to show strong returns NOW to compete with other funds. That made their focus short-term even if they wouldn’t admit it.

Since CEOs need demand for their company stock to keep the price high (and keep the board happy), they obliged these fund investors by pushing to meet short-term earnings growth to increase the rationale for a higher P/E multiple. As a result, their decision process became somewhat perverted towards hitting every quarterly target they promised to Wall St. and the fund managers.

This perversion drove managers working for the CEOs onto a slippery slope of buying and selling things that had substantially higher risk profiles than they were used to, and many hidden risks that have only recently come to light. Altruistically in most cases, but not all.

The CEO was OK with this as A) it was driving earnings growth; and B) they were “trusting” their expert managers and consultants (who were also paid handsomely for making recommendations to participate in such behaviors).

The fund managers were OK keeping a blind eye to this, as long as the returns for their fund were above average.

You and I were happy as long as our investment portfolios were rising in value.

In short, we all got too focused on the WRONG metric of short-term growth in stock prices. It’s the same thing that happened in the dot-bomb era, only with a different rationale. Only this time, we managed to ensnare millions of homeowners in the process, destabilizing their confidence in spending. This, in turn, destabilized the climate for corporate investments, and increased layoffs. Thus the viscous cycle we’re in now.

I raise this as an example of how seriously wrong things can go if we’re not focused on the right metrics.

The answer isn’t higher levels of government oversight and regulation. It’s higher levels of transparency in companies reporting what they’re doing to hit earnings targets, combined with a closer monitoring of their productivity in generating organic growth. And it’s paying more attention to the leading indicator metrics of consumer behavior – security, liquidity, and confidence.

Just like many of our businesses, it often takes a knock upside the head for us to realize that we slowly lost focus on the right metrics.