Rethinking the chain: leaner, faster and better marketing
Not A company in the world exists where top executives don't worry about future demand, or don't waste substantial money on ideas that were intended to boost or sustain profitable demand, but didn't. More than 100 organisations, in all sectors and sizes, took us into their confidence and spoke candidly about how they struggle to drive demand while at the same time controlling costs. We have distilled the essence of how the best differed from the worst, and encapsulated it into a performance-improvement framework that can be used by any company in any market.
Most organisations have an overly complex and under-controlled process. We are developing a new process called the Ideas-To- Demand chain (I2D), with less complexity and better controls. This article provides a framework for diagnosing and rethinking your I2D, making the process faster, transparent, reliable, cost-efficient and results oriented.
WHAT IS THE IDEAS-TO-DEMAND CHAIN?
The I2D process can be pictured as shown in the diagram above; it is the mirror image of the supply chain and contains all the activities that result in demand being stimulated. Yet unlike the supply chain, which has successfully delivered economies of scale through process simplification and process control, marketing's demand chain is primitive and inefficient.
In many firms it is fragmented, obscured by departmental boundaries, invisible and unmanaged.
COMPLEX, WASTEFUL AND RISKY CHAINS
Few people fully understand the sheer size, complexity, wastefulness and riskiness of the processes by which ideas stimulate demand.
As a company grows in size its costs in managing ideas, production, distribution and demand explode. Management should assess these costs and work towards improving efficiency. The steps in the assessment are described in the box (facing page).
RETHINKING THE WHOLE PROCESS
Here are some suggestions.
Embrace new roles and beliefs. Arts and humanities graduates who conventionally seek marketing jobs widely believe ideas 'thrive on chaos'; they put up with mountains of waste, delays and cost overruns. They say, 'If we are more efficient, finance will take away our budget.' No they won't. They say, 'Marketing is too complicated to measure.' No it isn't. There is a willingness to suspend belief about numerical tests and experiments if an idea is attractive, and there is a tendency to bury dead ideas and mistakes.
Rethink the way money and resources are allocated. Money should be allocated to maximise profitable incremental demand. Yet from our discussions with dozens of organisations, it became clear that budgets were not being allocated in this way.
'What did we spend last year?' was the commonest criterion. Profit increases led to budget increases, not vice versa, and pet projects would be funded in the face of contradictory factual evidence.
The best solution is to use quantitative optimisation techniques to make a cold, objective assessment of the profit-maximising allocation.
Rethink Ideas. Manage ideas as a portfolio. Conventional organisations usually have a stage-gate process for managing individual ideas. Yet managing individual ideas effectively does not ensure that resources will be allocated effectively.
In the case of Unilever, creating new ideas is central to its strategy; but it is also systematically cutting its portfolio of brands, products and stock-keeping units. One of the key processes that keeps creation and cutting in balance is portfolio management. Not only do managers have to make predictions for each idea (in a similar way to Diageo), they also review the entire set of ideas as a portfolio. The portfolio is assessed by scoring ideas in terms of consumer attractiveness and technical difficulty.
Share ideas and encourage collaboration. Ideas that are being worked on by different departments, locations and business units are shared to disseminate them faster around the organisation and to reduce the reinvention of the wheel.
This has been done at Motorola, the $37 billion global company with a long history of creating innovative products and services. Its ideas were scattered across regions, countries and business units. And they were stored in emails, Word documents and spreadsheets, without any easy way of sharing and collaborating. Today, they have implemented a common 'ideas bank' so that managers share ideas and encourage collaboration.
AUDITING THE CHAIN
- Idea assessment Find out how many new products, new varieties, flavours, colours or packages are being produced: how many advertising campaigns, brochures, direct mail shots, press releases, sponsorship events and activities, telemarketing scripts and web pages, banners, and other internet activities, conference speeches, exhibition stands etc.
- Production assessment Map out the steps of your production projects. At the simplest, all that occurs is the brief, the supplier selection and a final sign-off. How many people can delay, obstruct or veto? Lawyers, sales people, procurement officers, senior executives, board directors and sometimes external regulators and civil servants. Discover how many external suppliers are involved in the production process: agencies, printers, internet firms, designers and photographers. Ask how many image and text files are created and saved, and how many more are licensed from image libraries.
- Distribution assessment Find out how many media spots you purchase annually, and check how carefully they are selected and whether all the spots are really on target. How many sales staff and managers are responsible for distribution of brochures, promotional materials, sales kits, exhibitions, events and conferences? – Investigate how much material is effective. If you work through a channel, how much of your material really gets distributed?
- Demand assessment Ask how many demand streams – products, markets, segments, regions and locations – have to be monitored and tracked. Combine them as a matrix and you may be looking at millions of little streams of demand, all needing to be monitored. Find out who owns the responsibility for stimulating these demand streams, and ask who can tell you how much growth has come from their ideas. Are they analysing demand rigorously?
Diageo, the £10 billion global drinks company, has introduced a firm-wide process, known as Activity Evaluation, to ensure that all ideas deliver a positive return. Managers must forecast the cost and out-turn of an idea before they implement it, and must include in the proposal a description of how the return will be measured. Successful ideas are then measured and actual results compared with predictions.
Outlaw wasteful production. The production process itself is very wasteful. Agencies rework roughs and rewrite copy over and over until it satisfies the critics in the marketing department, the sales team, general management and the corporate lawyers at each stage, losing some of its originality and meaning.
And the more waste generated, the more agencies are paid, so they seldom draw clients' attention to the issue. The answer is to monitor, rework and scrap, analyse the root causes and outlaw working practices that are generating high waste levels. (See Chris Baker/Martin Handyside, page 42).
Reduce and simplify production checks and controls. Multiple production checks and controls are useful only when the risks are high. Yet conventional production processes for advertising, direct marketing and other activities are replete with checking and control steps.
Dozens of people spend time and energy critiquing work in progress, from juniors to the CEO. These multiple checks consume time and labour, and even the cost of checking and rework may exceed the cost of the collateral being produced.
The answer is to map out the processes, find out who the signatories and reviewers are, check the legal implications of checkpoints and then robustly cut any checks and controls that are not absolutely essential.
Reallocate work to where it's done most effectively. Production work is often parcelled up around only a few powerful groups (WPP, Publicis, Omnicom) who monopolise the entire chain for key activities, such as advertising or design.
But they seldom provide consistent support across all parts of the chain, for all brands and products. Consequently many clients are renegotiating agency contracts to split away any activities where agencies are providing weak support – media, production or ideas – and they are finding alternative new suppliers who can do a better job than the dominant agency.
Conversely, there are examples of the opposite problem (ie large companies that have hundreds of advertising and other marketing services agencies, which are unmanaged and inefficient). This can lead to consolidation into fewer larger agencies.
Production specialists can offer cost-effective solutions because of their investment in the latest technologies for workflow management.
Specifically this includes project management and digital asset management; offshored arrangements to cut costs; translation specialists in 40 languages; special terms and technology integration with local production houses; multilingual local supervisory teams; sophisticated project reporting for clients; and transparent job costing and billing practices.
Compared with these specialists, most general agencies are dinosaurs.
Monitor and control media selection and buying. Another common practice is for media selection and buying to have lax supervision. Prices and value for media are in constant flux. The solution is to demand much greater transparency from the media buyers and owners: clear media briefs, rolling media plans, reviewing final media buys against planned buys, media invoices and proof.
Already it is becoming common practice for media auditors to carry out annual reviews, but companies are also starting to recognise that bringing the monitoring and control in-house is a more satisfactory solution.
Outlaw wasteful distribution. The distribution process generates yet more mountains of waste. Promotional kits, brochures, leaflets, gifts, all enter the distribution chain.
They are distributed to sales people, intermediaries, stores, bars and other points of distribution with the message, 'Please see that this is used effectively.' And from then onwards, they are neglected.
Attribute demand patterns scientifically. Attribution of demand patterns to their underlying causes may be difficult, but it's possible with scientific tools and analyses. Demand patterns rise and fall, oscillate, vacillate and jitter in ways that are baffling to the casual observer.
They are nudged and bumped and pushed and pulled by many forces and factors, many of which are not reported in detail to management.
Enhance demand forecasting. Demand forecasting in many organisations is remarkably crude. Drivers of demand, ideas that enter the I2D, are often neglected in demand forecasting. And supply chain managers often complain about the inaccurate demand forecasts they receive from sales and marketing. The solution to this is to enhance forecasting by giving early warnings of all the demand-driving activities.
MAKING THE CHANGES STICK
Between 1997 and 2008, we studied and observed more than 100 organisations. Some were studied continuously over five or more years, allowing us to observe how their working practices developed and evolved with the passage of time. All talked candidly about what worked effectively and what didn't.
Most revealing were their comments about failed attempts to transform I2D. The mistakes are all there waiting to be made, and it's important to be vigilant and avoid them. Common ones are:
- junior people in charge of reforms
- people issues overplayed or underplayed, and
- sloppy implementation.
Junior managers, such as market researchers or procurement managers, were often given the job of transforming marketing efficiency. However, they lacked the authority and experience needed to push through widespread reforms – and were successfully resisted by the majority.
Sloppy implementation was another problem. We heard slogans about efficiency and return on investment, and we saw mission and vision statements – but without project plans for implementing the reforms, little progress was made.
Change was optional, sloppy processes were tolerated, measurements were inaccurate or late, complexity was allowed to persist and benefits were not seized.
Yet a minority successfully implemented widespread efficiency improvements and made the changes stick. Key themes were:
- hands-on top executives
- people must change
- new or improved systems.
CMOs or their deputies spent part of their week ensuring the reforms were pushed through; they rolled up their sleeves, and poked in their noses.
While junior staff organised the mechanics of the change programmes, streetwise CMOs got involved, making sure the changes were made and were stuck to.
People knew that change wasn't optional. In one case, the company decided its senior team lacked sufficient commercial skill and hired a new team. Systems were introduced or improved in three areas: workflow management, financial reporting and digital asset management. Although some efficiency gains could be made without new systems, the biggest wins seemed to come with them.
Regardless of potential pitfalls, we are encouraged by the successes of companies that rethought their I2Ds. Those that approach the demand chain with thoughtfulness, commitment and strong executive leadership will reap substantial benefits.
L'Oréal is one of the world's largest cosmetics companies, employing more than 52,000 workers in Europe and the Americas. Before 2005, the company's US luxury products division's forecasts suffered from all the problems mentioned. That year, it overhauled forecasting and set up an early warning system, gathering information about ideas in the pipeline – from the sales teams, marketing planners, pricing teams and sales promotions planners. This has enabled radical improvements in the accuracy of demand forecasts.
ABOUT THE AUTHOR
Robert Shaw is the founder and CEO of Demand Chain Partners and the Value Based Marketing Forum.
Philip Kotler is a professor at the Kellogg School of Management, Northwestern University.