When we conducted the 2008 Tribalization of Business Study, we discovered that those companies that were most satisfied with their community efforts were those that measured the impact of their community programs on their business processes the same way they would measure the impact of any other program on those same business processes.

So if you measure the impact of a certain program by increased store sales, or by improved customer satisfaction – then measure the impact of social media programs on those business processes the same way. Even if you think the current measurements are wrong. If you do not like how customer service is being measured by the average time people spend on the phone – it does not matter. Don’t try to change it when you roll out a social media program. The fact that the current measurements are well understood and often hardwired within the company culture will ensure that people will understand and embrace your social media programs rather than marginalize them as exotic new hype-driven non-mainstream programs.

Taking this a step further – the faster you can get the various departments that benefit from your programs to co-fund them, the faster your programs will become mainstream.

All that being said – how do you measure the impact of your social media programs? What works? What doesn’t work? As we are gearing up for the next iteration of the Tribalization of Business Study, what would you like to find out?

PS – If you prefer discussing the topic instead of just commenting on it, join the Marketing 2.0 community where I started a discussion on the topic.

I was invited to blog the latest ANA marketing conference on marketing accountability in Dana Point earlier this week. Due to the lack of Wifi at the conference and the launch of the 2008 Tribalization of Business Study yesterday I have not been able to get to write up some of the great points that were made at the conference. I will do so here and over at the marketing 2.0 blog over the next few days.

Bob Loidice, the President and CEO of the ANA, opened the conference with a pretty strong message to attendees – It’s Time to Reinvent Marketing. With technology having put the customer in charge, you need to think about all aspects of marketing differently – think differently about the buyer, think differently about media, manage your brand differently and think differently about your measurement platform.

It’s a message that I had not heard at a variety of other advertising conferences which I attended in the last 18 months – where most attendees and speakers were still very much in denial of the tsunami that is currently hitting marketers all over the world. Although I think I did hear Bob say that there are new tools for consumers to “receive” messages, a glitch which I’ll attribute to a lifetime of working in the advertising industry, his message was very strong and well informed.

In his welcome address he listed companies who are doing it well – including:

• GE, which developed a complete new system for marketing management
• IBM, which completely transformed itself (although I believe that would not have been possible if they had not experienced a “near death” experience)
• Google, with its Adwords business model
• Apple, with the iPod
• Toyota, with their extreme Six Sigma focus
• Burger King, where they outsourced just about all marketing to consumers
• Philips Norelco, with their clever Men Grooming campaign
• Mastercard, with their Priceless campaign
• Unilever, with Dove redefining beauty
• Best Buy, with their organizational changes that eliminated the importance of “face time”
• P&G, with their content driven pampers campaign

He also reviewed some of the depressing stats that characterize the state of marketing accountability in companies today – including the fact that 40% of marketing departments have goals that are internally focused instead of goals that are in support of corporate objectives, and that 30% have no measurement system in place whatsoever. No wonder that the marketing budgets are the first ones to go when the economy hits the skids – apparently with 60% of marketing budgets being decreased in this latest downturn.

A few of my friends IM’d, emailed and called me yesterday to talk about the post I wrote on ROI not being a good indicator for how well marketing is doing. That prompted me to elaborate on the subject a bit in this post.

First, lets look at the statement that Marketing is not a set of simple linear processes that can easily be measured – but rather a complex multi-variable and non-linear process.

Assume you have a new product version, for which you develop a special upgrade price and an extra sales incentive. Lets further assume that you have done well and therefore enjoy some positive word of mouth in the marketplace. You now decide to launch this product upgrade with a massive email campaign and by participating in a industry trade show. What does the ROI on the email campaign tell you about the efficacy of email marketing in this case?

Answer: NOTHING!

The email campaign could bomb because you could have the wrong offer for that audience, or a sales incentive that competes with a better one which causes the channel to push an alternative product. You could have had a few of your products explode a few weeks before the whole campaign, resulting in negative word of mouth. Or you could get 30% of the good leads that both read the email and went to your show. How do you then determine ROI? And assuming that you can, what does it tell you?

NOTHING! You can not predict the behavior of the whole system by understanding the individual parts…there are too many variables in the whole system…the system will exhibit some emergent behavior, which cannot easily be measured with standard ROI metrics.

All of this leads to the next statement I made yesterday. Lets assume that you can find a solution to measure ROI which takes into account all the inter-dependencies and variables that rule your market at this particular point in time. What does it tell you about the future performance of marketing programs, incentives and promotional pricing schemes?

NOTHING!

Because ROI is a trailing indicator, not a leading indicator…

So are there leading indicators that marketers could use? The best one I found so far is ROI, but not as in Return on Investment – but as in Return on Information, as defined by John Hagel. You measure ROI both from your company’s point of view as well as from the customer’s point of view. As John says: “From an organizer (company) perspective, the question becomes: How much effort and cost did I invest in acquiring information about individual participant and how much value have I been able to generate in return, both for the participant and for me? From a participant (customer) perspective, the key question is: How much information about myself and my needs have I provided, how much effort did it require and, relative to both of these, how much value have I received in return from the information provided?” You could extend this concept to also measure the amount of information you need to provide a prospective buyer for him/her to make a buying decision.

Looking at it this way is definitely a more holistic systems approach to measuring success. And unlike the traditional ROI, it could help you predict future behavior. If the Return on Information from a customer’s point of view is positive, chances are that all your messages will be amplified by positive word of mouth…

So how could measuring marketing ROI be harmful to your marketing department? As I said yesterday, by insisting on measurability, companies will force marketing execs to break marketing into a collection of simple linear processes, which is not how marketing really works. By doing so you will miss all the opportunities at the intersections, and kill programs that should be leveraged in certain circumstances at at certain times. And for as long as you will have an ROI-driven marketing department, the credibility of your marketing department will continue to diminish, and the frustration of the executive team with the CMO will continue to increase.

According to the CMO Council’s latest annual Marketing Outlook survey (via Marketing Charts), CMOs are upbeat about spend levels, which are supposed to stay steady or trend higher, and frustrated and stymied by organizational culture, senior management mindsets, and insufficient budgets.

According to the survey, more dollars are going towards the analytics side of the business and the use of more tangible and targeted forms of personal interaction, contextual communication and online demand generation.

When asked how they measured success of their marketing spend (well they were asked for return on marketing spend – more on that later), 20% of respondents said they were not measuring marketing ROIs, and 32% said they were planning to introduce a formal ROI tracking system.

The leading area of marketing dollar allocation – strategy & branding! Following that are events and trade shows, operations, direct marketing, sales support, online marketing, advertising, and market research.

The main reasons why marketers switch agencies – which was very frequently, with 41% who switched ad agencies – are:

• Lack of innovation
• No value-added thinking
• Poor creative
• Quality of work
• Results and deliverables

Duh – maybe all the interrupt-based stuff that they use is just not working anymore

Unfortunately, the increased focus on ROI will likely not be the expected savior that will return credibility to the marketing department. First off, ROI-driven companies are often focusing their measurements on transaction-based buying activities. In the long run, however, it is not the efficacy with which you can get one person to buy something once that counts, but rather the customer lifecycle value and the ongoing amplification in the form of word of mouth that goes along with a long term customer relation. ROI is also a trailing indicator, and as all financial services companies will tell you – past performance is not an indicator of future results. Lastly, and by measuring ROI on discreet processes (i.e., a specific lead generation campaign), which most companies who measure ROI do, companies are reducing marketing to a collection of simple linear processes, when in reality it is a complex multi-variable and non-linear system. So by oversimplifying marketing to make it measurable, many companies will actually break marketing more so than it already is.

Nowhere in the survey was there any mention of consumer generated content – somewhat of a surprise considering that fewer and fewer buyers make their buying decisions based on information coming from the vendors.