Why It's So Hard for Companies to Change

In 2013, Scott Brinker, Hubspot's VP Platform Ecosystem, and the author of the widely-read Chief Marketing Technologist blog, published a post that introduced Martec's Law. In essence, Martec's Law states that technology changes at an exponential (very fast) rate, but organizations change at a logarithmic (much slower) rate. (See Scott's graph below.)

The rapid development of marketing technology is well documented. The 2014 edition of Scott's marketing technology landscape supergraphic contained 947 technology providers. The 2019 edition of the supergraphic contained more than 7,000 technology solutions.

Scott argued that the core problem encapsulated by Martec's Law is that "technology is changing faster than organizations can absorb change." And it's clear that this problem extends far beyond marketing.

Over the past few years, digital transformation - which can be defined as the use of digital technologies to create new, or reengineer existing, processes, culture, and customer experience - has become an important strategic objective objective for many companies. However, the evidence indicates that most digital transformation initiatives have not succeeded.

In recent research by McKinsey & Company, only 16% of survey respondents said their organizations' digital transformations have successfully improved performance and also equipped them to sustain changes over the long term.

So why is change so hard? Hundreds of books and articles have attempted to explain why change is difficult for most organizations, and what business leaders can do to create a greater willingness and capacity to change. While many of these books and articles have contained valuable advice, it seems clear that no one has really identified the "silver bullet" that will consistently boost the capacity for change.

Clayton Christensen has developed a framework that can help us understand why organizational change is difficult. Christensen described this framework in an article in the Harvard Business Review (co-authored with Michael Overdorf), and elaborated on it in The Innovator's Solution (co-authored with Michael Raynor). Christensen developed this framework to help business leaders succeed at disruptive innovation, but it is equally useful for identifying the factors that determine how effectively a company can make any significant, far-reaching change.

According to Christensen, the ability of an organization to succeed with any significant transformation depends on three types of capabilities - resources, processes, and values.

Resources - Resources include people and tangible business assets such as cash, facilities, equipment, and technology solutions. Resources can also include intangible assets like intellectual property and relationships with suppliers and customers.

Processes - Processes are the activities that organizations perform to transform resource inputs into finished products or services.

Values - Values include the ethical principles that an organization "lives by," but the term has a broader meaning in this framework. It also includes the criteria or standards that people in the organization use to set priorities and make decisions. Therefore, values include the myriad of (mostly unwritten) cultural rules and norms that influence how people in the organization think and act.

Resources, processes, and values largely dictate what an organization can and cannot accomplish. And they both enable and constrain an organization's capacity for change.

To understand why organizational change is difficult, it's critical to keep two points in mind about resources, processes, and values. First, any significant change or transformation will require changes in all three organizational capabilities. In other words, any successful transformation will likely require the organization to find or develop new resources (or redeploy existing resources), develop new processes (or reengineer existing processes), and modify its values.

The second important point is that the three organizational capabilities are not equally easy to change. Resources are usually the most flexible capability and are relatively easy to change. Processes are usually less flexible than resources and are therefore somewhat more difficult to change.

Clearly though, the most difficult capability to change is values. Values are difficult to change because they tend to develop slowly and over time, they become deeply ingrained in an organization's cultural DNA. When change initiatives don't succeed, it's most likely because company leaders have underestimated (a) the need to change core company values, or (b) how difficult those changes are to make.

Christensen's RPV framework doesn't make organizational change easier to accomplish, but it can help business leaders, including those in marketing, to identify where the greatest barriers to change are likely to exist.

Top image courtesy of R/DV/RS via Flickr CC.

The Power and Peril of Performance Metrics

Measuring performance has been a major feature of the business landscape ever since double entry accounting made its appearance in the 14th or 15th century. "You can't manage what you can't measure" is one of the most widely-repeated cliches in the business world, and it's been an article of faith for several generations of executives and managers.

It's easy to understand why business leaders view performance measurement as critical for effective management. Metrics give us a way to make sense of our environment and to describe our objectives and results in concrete terms that are easy to understand and communicate.

The fixation on performance measurement has affected virtually all business functions, including marketing. For the past several years, marketers have faced growing pressure to prove the financial impact of their activities and programs. As a result, they're placing greater emphasis on measuring the performance of marketing tactics and channels, and some marketing leaders are allocating budgets and basing marketing mix decisions on performance metrics.

Overall, this has been a positive development. It's hard to argue that business leaders, including marketers, shouldn't measure the performance of their activities and use metrics to guide important decisions. But, it's also important to remember that performance metrics must be used carefully because they can produce unintended consequences. These unintended consequences can result from several factors, but two are particularly important.

The Power of Performance Metrics

The first important thing to remember about performance metrics is that they have the power to shape human behavior. Almost a decade ago, Dan Ariely, the noted behavioral economist and author of Predictably Irrational, described the power of performance measures in a column for the Harvard Business Review. He wrote:

"Human beings adjust behavior based on the metrics they're held against. Anything you measure will impel a person to optimize his score on that metric. What you measure is what you'll get. Period. This phenomenon plays out time and again in research studies."

So the power of performance measurements to cause us to change our behaviors is reason enough to use them with care.

The Surrogation Problem

Another factor that makes performance metrics potentially dangerous is a psychological phenomenon known as surrogation. Surrogation is the human tendency to lose sight of the real objective or strategy and instead focus only (or almost entirely) on the metrics that are meant to represent the objective or strategy. In other words, we have a strong tendency to decide (often subconsciously) that scoring well on the metric is the desired objective or strategy.

The process of surrogation is easy to illustrate. Suppose that one of your company's important objectives is to provide outstanding customer experiences, and you decide to measure progress on that objective using a customer survey. The surveys are conducted periodically, and the results are shared with customer-facing employees and frequently discussed at management and staff meetings.

Under these circumstances, some employees may begin to think that the objective is to maximize scores on the customer survey, rather than to deliver outstanding customer experiences. This can become a serious problem if those managers or employees begin to entice customers to give only high scores on the survey even if they weren't completely happy with their experience.

Surrogation is likely to occur when three conditions exist:

1. The actual objective or strategy is complex and relatively abstract.
2. The metric is concrete and easy to understand.
3. The person involved does not consciously reject the substitution of the metric for the actual objective or strategy.

In an article appearing in the current issue of the Harvard Business Review, Michael Harris and Bill Tayler describe three ways to reduce the odds of surrogation occurring:

1. Make sure the actual objective or strategy is thoroughly understood by all relevant managers and employees. Involve as many of these people as possible in the formulation of the objective or strategy.
2. Avoid linking compensation to metrics. Research has shown that tying compensation to metrics increases the likelihood that surrogation will occur.
3. Use multiple metrics. Surrogation is less likely to occur if multiple metrics are used to measure the success of a strategy or the attainment of an objective.

As noted earlier, measuring the performance of marketing quantitatively has now become a common practice, and overall, this is a positive development. But marketing leaders must recognize that like any business tool, performance metrics need to be used carefully and wisely.

Image courtesy of James Whatley via Flickr CC.

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B2B Highlights From the August CMO Survey

The findings of the August edition of The CMO Survey by Duke University's Fuqua School of Business, the American Marketing Association, and Deloitte were published a few days ago. The latest results are based on responses from 341 marketing leaders at U.S. B2B and B2C companies. Sixty-four percent of the respondents were affiliated with B2B companies, and 95% were VP-level or above.

The CMO Survey is conducted semi-annually, and it's a valuable resource for capturing the views of U.S. marketing leaders about the overall economic and competitive environment, and about major trends in marketing. In addition to overall results, survey findings are reported by four economic sectors - B2B product companies, B2B services companies, B2C product companies, and B2C services companies.

In this post, I'll review a few of the major findings in the August 2019 edition of the survey. Unless otherwise indicated, the results discussed in this post are based exclusively on the responses of B2B marketers.

Marketing Spending

On average, marketing expenses amount to 9.8% of total company revenues across all survey respondents, up from 7.3% in the August 2018 survey. The percentages were slightly lower for B2B companies - 8.6% for B2B product companies, and 8.7% for B2B services companies.

Survey respondents were optimistic about the growth of marketing budgets in the near-term future. On average, respondents from B2B product companies expect their marketing budgets to increase by 7.1% in the next 12 months. For B2B services companies, the average expected increase is 10.1%.

Paid Media Spending Allocation

The survey asked participants to indicate how their spending on paid media is allocated across seven specific channels and a "Paid Other" category. The following table shows the mean allocation for respondents from B2B product companies and B2B services companies:

What stands out to me in these findings is the size of the "Paid Other" category. B2B product companies are devoting nearly 40% of their total paid media spending to the "other" category, while B2B services companies are devoting nearly half of their spending to that category. According to the survey report, when participants were asked to clarify which "Paid Other" media they meant, the respondents most frequently identified trade shows, sponsorships, and direct mail.

Social Media Marketing

One of the more fascinating topics addressed by The CMO Survey is social media marketing. For the past several years, survey respondents have been consistently predicting that their spending on social media marketing will increase substantially. In the latest survey, respondents from B2B product companies predicted that their social media spending will more than double in five years. Respondents from B2B services companies predicted a spending increase of about 83% in five years.

Survey respondents have also consistently said that the use of social media is not making a significant contribution to company performance. The survey has been asking participants to rate the contribution of social media marketing on a seven-point scale, where 1=not at all, and 7=very highly.

In the latest survey, the mean overall score was only 3.3, and that score has remained almost unchanged since 2016. Among respondents from B2B product companies, the mean score was just 3.05, and for respondents from B2B services companies, the mean score was 3.48.

On the face of it, these results don't seem to be logical. Why would marketing leaders substantially increase spending on an activity that is not making a significant contribution to company performance?

One possibility is that actual spending on social media marketing has not increased as rapidly as survey respondents were forecasting. An analysis in an earlier edition of the survey indicates that this has been true in the recent past, and I think it's likely still true today. Therefore, I would argue that spending on social media marketing will not increase as rapidly or by as much as respondents in the August survey have predicted.

Top image source:  The CMO Survey (www.cmosurvey.org).

How to Address the Marketing Measurement Paradox

One of the marketing thought leaders I pay close attention to is Mark Schaefer. Mark is the author of several highly-regarded books and the principal author of the widely-read {grow} blog.

Last month, Mark published a blog post arguing that today's marketers are working in a world dominated by malignant complexity. Mark wrote that malignant complexity means "that the insane complications and unintended consequences of rapid technological change makes it difficult to understand our world, let alone predict what's next."

In the future, Mark wrote, the most successful marketers will have to relax their expectations for "predictable outcomes and reliable measures." He summed up his view this way:

"In an age of malignant complexity and unrelenting change, some aspects of marketing measurement will become a leap of faith. In some cases, the speed of business will outstrip our ability to forecast and measure. Perhaps non-measured, speed-driven marketing management will become the norm, a best practice."

Mark's post is sure to raise the eyebrows of many marketing leaders because the conventional wisdom in the marketing community is that measuring the performance of marketing is now more achievable than ever. But then, Mark has always been willing to tell us when he believes "the emperor has no clothes." If you need proof of that, go back and read his 2014 blog post about "content shock."

Expressions of the conventional wisdom are easy to find. For example, I took the following quotation from the website of a major provider of marketing technologies:

"Building analytics into your marketing strategy empowers your marketing and sales teams by giving you the ability to measure the impact of each marketing investment. Data enables marketers to confidently identify which parts of the marketing efforts deliver the optimal return on investment (ROI), including the performance of channels, specific calls-to-action (CTAs), and individual pieces of content, such as blog posts or gated resource guides."

A more skeptical view is captured in the following quotation from a recent article published at the Harvard Business Review website:

"Marketing's environment is typically much 'noisier' that the factory floor in terms of unknown, unpredictable, and uncontrollable factors confounding precise measurement. Marketing activities can also be subject to systems effects where the portfolio of marketing tactics work together to create an outcome . . . Marketing actions may also work over multiple time frames . . . Finally, it is often difficult to attribute financial outcomes solely to marketing, because businesses frequently take actions across functions that can drive results."

Which of these views is correct? The answer is, both are accurate, at least in part. Some aspects of marketing performance are more measurable now than ever, largely because of the explosion of available data about customers and the expanding capabilities of marketing and analytics technologies. At the same time, however, measuring the impact of marketing on business financial outcomes is just as difficult and challenging today as ever.

So how should marketing leaders deal with the measurement challenge? The first step is to accept the measurement paradox part of the reality of marketing. F. Scott Fitzgerald once said, "The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function."

Marketing leaders must also effectively communicate the realities of marketing to other senior business leaders. This means the senior marketing leader needs to have evidence-based conversations with other senior executives about what aspects of marketing can be measured precisely, and what aspects will always require the use of assumptions, correlations, and probabilities.

These discussions will help establish reasonable expectations for marketing measurement and simultaneously enhance the credibility of the marketing leader in the C-suite.

Illustration courtesy of Zeev Barkan via Flickr CC.

Think Beyond Surveys for More Effective Research

In my last post, I discussed some of the major findings from the State of Original Research for Marketing 2019 survey by Mantis Research and BuzzSumo. This research found that a substantial number of companies have made original research an integral part of their marketing efforts.

Sixty-one percent of the survey respondents who had conducted research reported that it had met or exceeded their expectations, and 88% said they plan to conduct additional research in the next 12 months.

I also argued in my post that for most large and mid-size B2B companies, and for many smaller B2B firms, original research has now become essential for effective marketing. The shorthand version of my argument is this:

• Effective B2B marketing requires the development and use of real thought leadership content.
• Real thought leadership content must be both novel and authoritative.
• The only way to consistently develop novel and authoritative content is by conducting original research.

Original Research is More Than Surveys

When most marketers think about original research, surveys are usually the first thing that comes to mind. In the Mantis Research/BuzzSumo study, surveys were the type of research most frequently used by respondents for marketing purposes.

Surveys are popular because they can provide compelling data and because they have become easier and less expensive to use. Several firms now offer free or inexpensive tools for conducting surveys. (Note:  If you need advice on selecting a survey tool, check out this excellent blog post by Clare McDermott with Mantis Research.)

It's important to recognize, however, that original research encompasses more than quantitative surveys, and that other methods of original research can also be highly effective in the right circumstances. The following diagram shows the major categories of original research and the research methods that fall in each category:

As the diagram shows, there are two major categories of original research - secondary and primary. Secondary research involves the review and analysis of data or research that has been published by others. This includes data published by governmental entities,  and data and/or research published within academia and by other private organizations (consulting firms, research firms, other business organizations, etc.).

Primary research, on the other hand, is research that you conduct yourself (or hire someone to conduct for you). It involves going directly to a source to gather or compile information. The diagram shows several of the most common methods or types of primary research. In addition to surveys, three of these methods can be particularly powerful when used in the right circumstances.

Interviews
Interviews can be used on a stand-alone basis or in conjunction with other primary research methods. The major advantage of interviews is that they enable the use of open-ended questions and therefore can produce more in-depth and nuanced answers.

When used on a stand-alone basis, the interviewees essentially take the place of the survey panel. In my experience, however, one of the best ways to use interviews is as a preliminary step in a research project that will ultimately include a survey. In this case, the interviews are used to identify what topics may be important to potential survey participants, and to help determine how to formulate survey questions.

Analysis of Proprietary Data
This method involves the analysis of data that is proprietary to your company. For example, if your company provides some type of SaaS software application, this research method could be used to compile and analyze data regarding how your customers are using the application. A good example of research featuring this method is the 2019 State of B2B Content Consumption and Demand Report for Marketers produced by NetLine Corporation.

Experiments or Tests
This research method is widely used in social sciences such as psychology and behavioral economics. When you conduct an experiment, you expose participants to alternative versions of a hypothetical situation, and then ask them a set of questions regarding their experience. The objective is usually to measure differences in certain aspects of the alternatives. A field test is similar to an experiment except that the alternatives are presented in a real-world setting. An "A/B test" is a good example of a type of field test used frequently in marketing.

Corporate Visions is a company that uses experiments and tests fairly extensively. For example, the firm has used this research method to test the effectiveness of various levels of personalization and to evaluate what types of sales/marketing messaging is most effective at persuading business executives to move forward with a purchase.

Expand Your Research Palette

Don't misunderstand my point here. Surveys will always be an important and valuable method for conducting primary research. But diversifying the research methods you use can have several benefits. Each research method has strengths and weaknesses, and each excels at eliciting certain kinds of information. By using a variety of research methods, you can consistently produce thought leadership content that is novel, authoritative, and compelling. And that, in turn, will make your marketing more effective.

Top image courtesy of versionz via Flickr CC.