There’s an old saying in engineering “If you optimize one part of your system, you usually do so at the expense of the whole”. Unfortunately, this is a trap that many companies fall into when trying to optimize their brands.
Not least among the reasons for this is the practice of leaving brand equity management solely to one department. In contrast to this approach, Steve Jobs, the most dynamic brand-builder of recent memory, built the world's most loved brand precisely because he made building the brand everybody's business (especially the CEOs!).
Closely tied to this "brand = marketing" fallacy is a company's measurement systems. In a world where "what gets measured, gets rewarded", measuring the wrong things is a cardinal sin that's still too prevalent.
So why does this happen?
It starts with a fear of taking risks. Doing new things feels risky so companies set up a system of safeguards. New initiatives go through a "beauty pageant" system. Companies measure each new initiative carefully, and only those that pass the test see the light of day.
This approach makes intuitive sense and yet it can lead to a litany of bad unintended consequences. Why? Because the measurement systems put in place often require an immediate linear connection between an action and a bottom-line outcome.
The danger of this approach is not that it is wrong, but that it is not quite right enough. It is an approach that offers marginal improvements only, and which rewards more of the same. In almost every category, this approach leads to managers seeking to squeeze a few more percentage points of revenue out of business practices that they have already optimized, over and over again, in many cases going back decades. The real danger is that we continue to optimize that which will yield no more gains. Firms risk optimizing themselves into irrelevance.
Managers end up ignoring bigger opportunities because they don't fit neatly into the established paradigms implied by those measurement systems. Put simply, the needs of the measurement system start to outweigh the broader need of the business (to grow, to add value, to win).
If you are a running shoe company, it's much easier to test a new line of shoes to see if the blue ones do better than the white ones than it is to re-imagine how you help people achieve their fitness goals, as Nike has done so successfully with projects like Nike+.
We believe that there are three primary reasons why this approach to measurement is a recipe for missed opportunity:
- Approaches like this almost never allow enough time for the company to measure the full impact of an initiative as it gains traction. The more ambitious the initiative, the more time it needs to gain traction, the more likely it is to never see the light of day.
- This approach requires that the point of impact of the initiative be narrow and predictable. In this scenario, the projects that attract the most funding are usually the easiest to measure, not necessarily the most promising, from a sustained value creation standpoint.
- These measurement systems are often framed in terms of legacy departmental objectives, not the broader goals of the business. Marketing projects will have marketing-specific objectives that have implicit bias towards the old way of doing things, and so on. Worthy business objectives that can't be defined in terms of legacy activities get missed.
Not all companies fall into this trap. Some achieve growth and success that their peers can only dream of. We have identified three things that best-in-class brand innovators are doing to stay ahead of the competition.
1. Focus your organizational structure on goals, not legacy activities. P&G recently shifted away from having marketing managers and in favor of brand managers instead. This is particularly important at the higher levels of an organization, where resource allocation decisions are being made.
2. Give your innovation budgets a bigger impact by applying it as a tool to enhance the entire customer experience, not just in narrow silos. Business model innovation fuels growth at powerhouse companies like Nike, and yet many companies still don't take it seriously. That's a shame, because it’s the driving mantra behind many of the world’s most successful companies.
3. Make sure you are using innovation metrics for innovation projects and mature-state metrics for mature projects. Intuit excels at innovation because they measure early-stage innovation differently. Innovation project metrics look at a project's potential to one day become profitable at scale; that's not the same thing as forcing those projects to meet mature product ROI benchmarks before they are ready to do so.
Finally, as the current wave of disruptive technologies continues its inexorable sweep, the debate about whether the CMO, CIO or somebody else "owns" a given technology is increasingly not a helpful one. Many new technologies (social, internet-of-things, mobile) will have profound impacts across different areas of your business, all at the same time. To reap the rewards, companies must get better at cross-functional innovation to reap the tremendous rewards these technologies offer.