The holy grail?

Paul Argenti on how the need for measurement is often sidelined to the detriment of corporate success

 

 

In recent years, the global business environment has witnessed transition across multiple levels, and senior management has been affected accordingly.

Widespread economic instability in all sectors has made the business backdrop a tumultuous one; likewise, corporate fraud and dishonest financial management in several corporations has prompted decreased trust and increased scrutiny by various constituents, including consumers, investors or, in many cases, employees. For example, the 2006 Edelman Trust Barometer revealed that a mere 42 percent of European respondents trust businesses (52 percent in the United Kingdom, 33 percent in Germany and 28 percent in France), while 49 percent of American respondents admitted faith in corporate institutions. Thus, the unscrupulous actions of Enron and Arthur Andersen executives may have kick-started a trend of widely analysed corporate malfeasance, but their actions surrounding the dissolution of each organisation actually revealed the longstanding problems underlying many global corporations.

The European business backdrop is punctuated by examples of management – and, in many cases, communications – gone wrong: Vivendi Universal lied about earnings as the CEO ordered insider trading and negotiated himself a 20 million-euro pay package; Parmalat executives misled investors while diverting cash into the founder’s holdings; Hollinger International directed an unauthorised sum of $85 million into the personal bank accounts of chief executive officer Lord Conrad Black and colleagues; and more recently, BP has had major crises in the US with it’s operations in Alaska and Texas that seem to fly in the face of their environmentally friendly advertising and PR campaigns.

These are just a handful of instances in which communications misled constituents and instigated debilitating crises; furthermore, they underscore the need for increased transparency and effective communications activities, both for the function itself and for the C-suite (e.g. CEO and other senior level executives) it serves. And just as the communications function finds itself threatened by trends of misconduct and subsequent reputational risk, it stands to benefit from steps that quantify its inherent value and link that value to business results. Thus, the need for measurement in corporate communication becomes apparent.

Making the case for measurement

While the measurement conversation has existed for over a decade, the aforementioned business hazards, coupled with the ongoing challenge of justifying communication’s worth in comparison with its marketing and advertising cousins, has strengthened the dialogue’s urgency in recent years. Just as communications professionals have started to take deliberate and aggressive steps to confront their enduring disadvantages “at the table,” C-suite executives have a growing interest in seeing the function’s contribution to the bottom line. In other words, senior executives have questions that have long gone unanswered:

•           How much value does communication add to the organisation’s results?

•           How can you allocate your communications assets?

•           How can you conduct communications risk management?

Ironically, these are questions that, in many ways, senior executives have already answered themselves: numerous studies have shown the C-suite’s acknowledgement of measurement’s importance to management. For example, executives spend 24 per cent of their time on “plan measurement and monitoring,” second only to “strategic thinking/planning.” Board directors and CEOs are more likely than other professionals to say that “measurement is an integral part of PR.” Plus, nearly 60 per cent of companies with formal measurement tools in place created them at the request of senior management. 

These statistics are suggestive of the pressures felt by communications professionals to evaluate their science’s value in relation to the bottom line and to establish benchmarks for the function. On this note, it’s not a new or recently discovered evaluation process, as measurement’s linear history is only indicative of the underlying needs that have guided its development over time.

The evolution of measurement

Measurement as a function of communications exists to meet demands from CEOs and other senior managers; to justify communication budgets; and most importantly, to develop more effective communications strategies that can be applied across all C-level functions to prompt better business outcomes. To this effect, measurement has evolved along a continuum (see exhibit 1 below), where each stage of development improved as practitioners built upon the previously established capabilities.

Originally, communications executives used raw data to measure the output of their activities in the form of column inches or media impressions. While this “counting” incarnation of measurement was a good first step, it did not offer any clues to the effectiveness of each impression or column inch – in other words, it didn’t offer an understanding of how activities have influenced audience attitudes or consumer behaviours. The subsequent “analysis” stage of measurement made strides in achieving this evasive goal, and it is currently where most communicators’ capabilities lie.

Missing tools

However, it is the future of communications measurement that holds the key to linking communications activities to business outcomes such as revenue, earnings and market share. The industry’s only failure in terms of measurement is its inability to use existing data that most companies already have in their arsenals of research to establish this link. What’s more, the industry has acknowledged the need for this next step: a 2003 study conducted by the International Association of Business Communicators demonstrated linkages between the market valuation of a company and the ability to leverage internal and external communications capabilities in support of business objectives. The only thing missing, then, is the appropriate measurement tool that uses empirical, rather than anecdotal, data to demonstrate the value communications creates.

A new solution

As discussed above, to gain credibility with senior managers, earn recognition as a strategic asset and show that corporate communication adds as much, if not more, value than advertising, communications professionals must demonstrate that their efforts contribute to business outcomes. The previously unbridged gap between these communications activities and business outcomes is now commutable because of advances in technology that enable the use of sophisticated statistical analyses, which involve collecting, evaluating and drawing conclusions from data.   

This solution uses existing measurement data that most companies own, and it already has a variety of uses in the business world:

• Measuring quality – as GE does through its statistics-based Six Sigma programme, which has saved the company billions of dollars

• Mitigating risks – as investment managers do when they use statistical analysis to diversify clients’ investment portfolios

• Predicting customer behaviour – as the pharmaceutical industry does when it uses statistical analysis to demonstrate the effect of spending on direct-to-consumer advertising on sales.

 

The communications measurement solution we have developed applies a statistical model to the company-owned data and identifies the causal relationships between communications activities and business value – in other words, it allows communications professionals to speak in the language best understood by the C-suite: numbers. The key to making this possible is the ability to measure intangible assets, or non-accounting, non-financial drivers that authors Jonathan Low and Pam Cohen Kalafut call companies’ “invisible advantage.” Examples of these “invisible advantages” include people, ideas, relationships, systems, research and development investments, brand management and, of course, a strong communications team.

The value of intangible assets to companies’ bottom-lines has long been established by industry leaders. According to one study, the percentage of the S&P 500 companies’ value attributable to intangibles grew from 40 per cent to 84 per cent between 1982 and 1999; in their book Unseen Wealth, Margaret M. Blair and Steve M. Wallman state that 80 per cent of corporate value is created by intangibles, rather than tangible assets such as property and equipment. Thus, while the exact number is debatable, it is safe to say that a significant portion of corporate value is created by these invisible advantages, and companies must leverage them in the face of globalisation, deregulation and advancing information technology if they want to succeed in this increasingly competitive business environment.

Over the past two years, I have been working on a research effort with Peter Verrengia of Fleishman-Hillard and Pam Cohen and Jonathon Low, the founders of Predictiv, in a new consulting venture that we call Communications Consulting Worldwide (CCW) to develop a solution that can isolate the effect of communications activities on business outcomes. We can now apply to communications a statistical methodology that has been used for over a decade in more than fifteen industries to value intangible assets. 

Pilot studies and more recent consulting engagements conducted for Fleishman-Hillard clients as well as other major corporations have demonstrated that this model will provide greater insight into how communication activities contribute to business outcomes that matter to senior management; will eliminate the obstacles to measurement that include concerns about expense, fear of results, and isolation of individual activities’ effects; and will provide strategic direction concerning the allocation of communication assets as well as messages. We see this solution as a revolutionary move toward a new way of looking at corporate communication. When other corporate functions view corporate communication as a creator of value, communications professionals will have an entirely new role within their organisations and that coveted seat at the table.   

Conclusion

Communications professionals are on the precipice of an incredible opportunity: the use of statistical analysis – a proven tool universally accepted by the most demanding business executives – in a field that has historically been barren of any definitive methodology for demonstrating value and predicting causality. Such a tool has long been considered the holy grail of the communications industry. And, if applied industry-wide, this tool will indeed transform the perceived value, the actual value and, ultimately, the profitability of the industry and the businesses it serves.

After all, the excuse that senior management isn’t ready or willing to listen to new solutions would no longer be valid. In the words of Bill Margaritis, senior vice president of worldwide communications and investor relations at FedEx: “You can’t manage what you can’t measure. Everyone’s looking for a seat at the table, and they ought to be looking at measurement for getting to the table and staying there.”

Paul A. Argenti

Professor Paul A. Argenti has taught management and corporate communication at the Harvard, Columbia and Dartmouth Tuck Schools of Business. Over the past 25 years Professor Argenti has provided management, leadership, and corporate communication consulting/training for corporations and NGOs worldwide. His clients include Goldman Sachs, Sony, Nokia, and General Electric. He also deals with issues of corporate reputation and social responsibility. The Wall Street Journal and US News & World Report have rated Tuck’s focus on communication number one US-wide.