Score cards and metrics – are they an unnecessary distraction?

For some time, business has been the subject of Best Practice, Dashboards, Balanced Scored Cards and other initiatives, all designed to improve business efficiency. In the business getting activities known as marketing, similar ideas have taken hold in the form of Total Quality Management (TQM), Return on Investment (ROI) and Marketing Metrics. All these processes are potentially important to business. However, the question is do any of these initiatives actually work? If so to what extent and do they ultimately improve the business.

The popularity of marketing and management books such as “In search of Excellence”, and the writings of Tom Peters and others suggest a desire to find a winning formula that will make for a successful business. However the large sales of successive books with differing answers might suggest that readers are hoping to find the “holy grail” of the instant magic solution to success..

Marketing also has a large number of academic books on the subject with complex and sometimes conflicting views on what makes success. Most books would agree that measuring marketing performance is essential if marketing management is to be efficient and effective, but few seem to agree on how and what should be measured, and to what purpose.

The marketing manager’s job is to maximize profitable sales revenue while minimizing costs and investment. Measuring performance by quantified results allows performance to be judged against a target or score card, enabling management performance to be assessed.

Marketing performance indicators, balanced scorecards and dash-boards should be useful indicators of performance that prompt awkward questions to elicit necessary facts for informed decisions and actions. Measurement for the sake of it, can hide problems rather than highlight them. Balanced score cards may be useful one day, but give false impressions when times and conditions change, while the Return on Investment (ROI) may look satisfactory, but its true significance may only be judged in relation to the market conditions at the time.

Businesses may have established their own internal standards for measuring marketing performance such as sales per employee, return on assets, and operating profits, but they must be checked regularly to ensure their continued relevance in changing markets and conditions.

Many Government and private organizations, use checklists and scorecards as a way to prove efficiency and effective management. Check lists enable processes requiring repetitive and complex actions not have to be committed to memory, reducing the danger that some elements might be missed. For the marketer the danger is that checklists can produce an over concentration on processes rather than outcomes. Going through due process may be important, but ultimately it is results that count, which means maximizing profitable revenue and continually reaching the financial targets of the marketing plan.

In many businesses, exceeding the revenue target results in bonus payments. However, exceeding the revenue target can seriously damage the balance of the overall marketing budget and plan, by incurring variable production and other costs, and reducing profitability. If the marketing plan is adhered to, then the revenue, profits, and costs should all be in balance as planned, but veering from the objectives set especially in sales and revenue, can seriously damages success.

Measuring marketing performance is vital for effective management. Most numbers and measurements are relatively meaningless except when shown in relation to other factors and marketing management metrics and ratios are no exception. Achieving targets is important but are the targets, objectives and processes relevant? Marketing and business principles remain the same, but the application of those principles may need to change as circumstances develop in order to sustain continued success. If a company exceeds its sales target and achieves a sales growth of 8%, but the market has grown by say 15% over the same time, then market share will have been lost, because market growth was not taken fully into account during marketing planning.

While ensuring the continuity of profit it the key to business success, continuous past success is no guarantee of the future. Metrics and score cards show what performance has been achieved, but cannot predict the future results. Recently, those companies involved in online betting had seen considerable and continuous growth in their businesses, with their major market in the USA. However, they seemed to be caught totally unawares by new legislation that not only outlawed their previously legitimate business, but caused the arrest of their senior executives when visiting American soil. The result has been a considerable drop in their revenues and profits, and a serious drop in their share prices. That result could not have been predicted by score cards and metrics, but marketers should have been aware of the threat to their business.

When the Chief Executive Officer asks,- How well are we doing? Are we doing well enough? How do we know? the marketer must provide the answers. Check lists for procedures and performance measurements are aids to successful management, but slavish adherence to them without thought to the relevance of the outcome can also be a serious distraction from the ultimate objective of generating sustainable profitable sales revenue.

Marketing measurements are a necessary management tool to assist effective decision making. Like all business statistics, they should therefore be used selectively according to their relevance to effective management at any time. Whatever, scorecard, process or measurement is used, always the marketer must ask, “Is this relevant to effective management of the marketing function, or is it an unnecessary distraction?” Results must be sustainable. Too close adherence to checklists and score cards can lead to short term thinking and a failure to sustain long term results.

© N.C.Watkis, Contract Marketing Service 30 Oct 06
Contract Marketing Service, (Specialists in Measuring Marketing Performance and Return on Marketing Investment.) CMC- InsightExec 21November 06

November 21, 2006   Posted in: marketing management

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