In part 1 of this blog, I went over how to identify your various stakeholder segments and begin to determine the impact and visibility of each segment. Now, it’s time to measure the return on your efforts to manage and influence your stakeholders – for measuring the ROI of your stakeholder management strategy.
This blog is excerpted from Marketing & Sales ROI: What is it Good For, 2nd Edition.
Here’s an example of how you’d measure the ROI of a Stakeholder Management program: Take a telecommunications company that needs to manage its relationship with a city that is a key stakeholder. A survey indicates that every time the city awards the company a permit to install an antenna, its perception as a transparent company influences 8% of the decision-making process. If that antenna generates a revenue stream of $100,000 per year with a 30% operating margin, you could confidently say that the campaign communicating transparency has a return of $2,400 for this income-generating act. Then, add up all the returns generated by all antennas, as well as other income-generating acts impacted by the campaign. Subtract the actual cost of the transparency-communicating campaign, and you can calculate the actual return on investment (ROI) of the transparency campaign.
Of course, making those calculations isn’t simple. I’ll walk you through the framework.
How Organizations Influence Stakeholders
First, it’s important to understand that an organization really has just two ways of influencing stakeholders:
- Positioning: Determine the way the stakeholder, and other stakeholders, think about your company and its activities.
- Education: Transmit the knowledge needed for the stakeholder, and other stakeholders, to generate value to your organization.
Determine Your Stakeholder Management Objectives
With those two modes of influence in mind, you need to develop stakeholder management objectives that are clear and measurable. Broadly, any stakeholder management program aims to:
- Change positioning and/or education, via interactions through events and communications, in a way that increases your organization’s revenues and its opportunity to spread its messages, while generating value for each stakeholder group.
- Impact your costs of managing each given stakeholder, as well as costs influenced by your relationship with the stakeholder.
- Improve your chances of increasing revenues.
My guide to creating effective marketing plan objectives can also be applied to stakeholder management plan objectives.
Does Your Stakeholder Management Program Have Positive ROI?
Plan for profitability, and also plan to measure whether you achieve it. A stakeholder management program should have a positive impact on revenues and profits, which means you need a way to measure that impact. Key to this is being able to link your organization’s relationship with a particular stakeholder to a revenue stream, through an attribution model that is specific to your organization. (Read more about creating custom attribution models.)
Form an attribution model and use it to plan your stakeholder management program for a projected positive return on investment. Naturally, you’ll also need to monitor the results in real economic terms, on top of intangibles and relative performance. Planning for evaluation is part of planning for the program. Not having an evaluation plan is like heading to a destination without the ability to know when you arrive at it.
Stakeholder management performance evaluation is based on two types of indicators:
• Soft indicators, which originate in and impact each stakeholder group and relate to the perception of a stakeholder regarding a given organization. That perception is based on the stakeholder’s evaluation of corporate social responsibility versus corporate social responsiveness. This perception can be measured using key performance indicators (KPIs) that monitor intangibles, or soft indicators.
• Hard indicators, which originate in and impact the business, are about the business bottom line. To calculate ROI on hard indicators, you must first isolate which acts by stakeholders generated income and were impacted by the management program (such as purchases). You must then determine how much your program influenced each of those income-generating acts.
Dig Into Soft Indicators (AKA Intangibles)
Here are a few soft indicators – intangibles – and their relative performance indicators (KPIs):
- Intangible: Performance Indicator
- Trust: Trustworthiness rating
- Transparency: Transparency rating
- Ease of communication: Access to communication with the organization (yes/no)
- Control of environmental impact: Awareness and compliance consideration (yes/no)
- Commitment to a social cause: Awareness and commitment consideration (yes/no)
- Fair trader: Awareness and consideration (yes/no)
- Job creator: Awareness and consideration (yes/no)
- Reputation: Reputation rating
- Provides qualitative & enough information: Awareness and consideration (yes/no)
All these KPIs can only be gauged through relevant research. By relevant research, I mean, at a minimum, a survey completed by a representative sample of the population, which produces a minimum of 5% margin of error (to guarantee robustness of responses) and at least 90% confidence level (to guarantee the relevance of the sample). This means that you must have a data collection plan on top of, or as part of, your execution plan.
Results of your data collection plan must show whether or not the goal of being perceived in a given way was achieved. They must also show the influence of the desired perception, such as transparency or trustworthiness, on either an income-generating act such as a purchase decision, or on the stakeholder’s willingness to spread a message to other stakeholders. The degree of influence of such a soft variable on an income-generating act is the foundation of the decision-making pie on which to build your particular attribution model to convert soft variable inputs into monetary outputs.
For instance, imagine you are able to determine that the perception of your organization as trustworthy has a 10% influence on a supplier’s decision-making process to give your organization a discount. Then, you can confidently say that 10% of the monetary value of that discount can be attributed to your positioning efforts to be seen as a trusted company. Similarly, imagine if research shows that your commitment to controlling environmental impact has a 5% influence on a group of customers’ decisions to purchase from you. You will then be able to attribute 5% of the profit generated by those customers to your education campaign about your organization’s environmental efforts, assuming your campaign reached that group of customers.
Conducting research entails two types of complementary actions. First, quantitative research through a survey will provide statistically representative data with a known margin of error and confidence level. This approach guarantees the robustness of the attribution model and its credibility. Quantitative research is reliable for at least a couple of years, if most relevant conditions in the market remain the same. During this period, you will be able to use the same attribution model and not bother stakeholders with tedious questionnaires. After that period, you can validate quantitative data through qualitative analysis using in-depth interviews. This second stage will help you to verify, in one-to-one encounters, whether the conclusions extracted during the quantitative research are still valid, at a much lower cost than the original quantitative research. It is recommended that you conduct quantitative analysis every three or four years.
Through thorough, planned, relevant, and rigorous research, organizations will build the robustness needed to embed credibility in their conclusions and attribution model related to soft indicators.
Connect Actions to Revenue Through Hard Indicators
You also need to isolate the income-generating acts, such as purchases, that were impacted by stakeholder relationship management efforts, as well as translate relationship inputs – such as reputation, transparency, and trust – into the business outputs of costs and revenues. This is where a robust attribution model, supported by rigorous and relevant research, combined with consensus-based monetary conversion criteria, will feed the necessary data-generating business intelligence.
You’ll need to make some difficult determinations now, creating a Monetary Conversion Plan to translate otherwise non-financial data into real financial figures. How much is trust worth? What is the opportunity cost of not communicating your transparency? If you did your research, you already have a decision-making pie for stakeholders’ income-generating acts. The rest of the necessary information will come from your own company records.
One key piece of information is your organization’s operating margin. “Operating margin,” in this case, is sales revenues minus cost of goods sold (COGS). All other forms of margin will already include the money invested in stakeholder management (thus discounting the same cost twice when calculating ROI) and the efficiencies and inefficiencies of the rest of the organization, which are not related to stakeholder management.
Pablo Turletti, an internationally-recognized expert on marketing and sales efficiency and accountability, as well as a marketing keynote speaker, is the founder and CEO of ROI Marketing Institute (ROIMI), which has offices in Miami, Lucerne, and Madrid. ROI Marketing Institute helps companies around the world improve the efficiency of their marketing investments through precise measurement of the economic return on marketing activities. By directly connecting marketing projects and campaigns to a company’s bottom line, he helps turn them into true business investments. ROIMI provides a broad array of services, including auditing, competency-building, implementation support, consulting and research. Turletti is the author of the books ROI Marketing: The New Performance Standard and Marketing & Sales ROI: What Is It Good For? Learn more about the ROI Marketing Institute at roimarketinginstitute.com, and follow Pablo Turletti at twitter.com/pabloturletti or linkedin.com/in/pabloturletti/.