Tuesday, June 14, 2011

Can PR use ROI as a form of measurement? Its harder than you think

This week three academics have presented challenges to the PR academic community.

Professor Tom Watson at Bournemouth, Richard Bailey at Leeds Metropolitan University and my co author Philip Young at Sunderland have all made interesting contributions to PR thinking ahead of the the CIPR’s new Research and Development Unit (R&DU)  meeting next week.

Before entering into the debate on Grunigian theory presented by Richard and Philip, I wanted to respond to Tom's point.

Tom makes a point: "I still have doubts as to whether ROI, other than in a strictly financial format, can be re-purposed into a more general expression of value creation or contribution to organisational efficiency.  Business managers understand what ROI is, so why would they accept a mixed-concept PR ROI."

It is important. As AMEC boldly goes for some form of measurement of PR providing a return on investment. There seems to be a belief that ROI is a simple idea.

It would seem there is a belief that ROI is a financial measure. Of course it is not. ROI is a profoundly Public Relations measure.

Lets have a look at what ROI is. It is defined in accounting terms as:

(Gain from Investment minus Cost of Investment) divided by (Cost of Investment)

Can we pause for a moment and explore what 'Investment' means. Investment requires that an organisation has cash flow, capital reserves or some other asset that can be deployed as an investment.

Organisations comprise three principle assets: capital, proprietary process and/or service and  relationships. The acquisition of capital, and development of process or service; 'vision, mission and corporate objectives' (Kaplan 2001) are a function of relationships.

It follows that to invest in anything, an organisation needs relationships of a nature that can be invested.

So lets re-draw what ROI means:

(Gain from Relationships minus Cost of Relationships) divided by (Cost of Relationships).

ROI is profoundly about relationships. In an industry called 'Public Relations', this could be of interest. In a sector called 'marketing communications' it will be pivotal because Marcoms depends on 'public relation' to optimise relationships to create capital and cash flow to pay for this, a special area of relationship management, namely marketing. In principle the same applies to the trade of 'Corporate Affairs' and other trades associated with 'Public Relations' in practice.

Which takes us back to Richard and Philip and the Grunigian excellence model coming from systems theory. We can, if we desire stay with the systems theory view because already have a grounded reserach into the nature of relationships in the work of Bruno Amaral (2009).

This, Amaral, hypothesis is that relationships  are formed at the nexus of values and using latenet semantic analysis was able to show that where there is a nexus of semantic values there is very strong evidence that they are central to the formation of convergent relationships.This empirical research supports conclusions as to the impact of public relations as relationship management offered, by  Ledingham and Bruning (2002).

Convergent values relationships have some resonance with the Grunigian position of Publics forming round issues but in the Amaral study, it was less issues as values that were key which is a broader construct.

What we have done is to extend and develop the ideas of Grunig and Ledingham and Bruning to identify an empirically based idea of what public relations can be which accommodates both theoretical perspectives.

Can we now re-draw ROI yet again.

(Gain from Nexus of Values minus Cost of Nexus of Values) divided by (Cost of Nexus of Values).

Of course, I have only taken one view as to the nature of relationships namely the empirical research of Bruno Amaral. There will be others drawn from Psychology to the Evolutionary Sciences.

What I hope to have shown is that the theoretical concepts of Public Relations have moved on and that we can, should we wish, pursue ROI but that it will require more than an AMEC Commission to come to any meaningful conclusion unless there is a great deal more by way of, notably academic, research.

And the there is the problem of getting such ideas into the heads of the PR industry's clients. But that is another story.

RS Kaplan  Nonprofit management and Leadership, 2001 - Wiley Online Library

Excellence in Public Relations and Communication Management, 1992  IABC Research Foundation Edited by James E. Grunig

Relationship management in public relations: dimensions of an organization-public relationship (1992) John A. Ledingham and Stephen D. Bruning Public Relations Review Volume 24, Issue 1, 1998, Pages 55-65


  1. David, never a dull post :-)

    Whilst our respective #amec2011 tweets demonstrate considerable alignment, my main concern with your hypothesis that ROI can be reframed in the PR domain is that the leadership team / board of any organisation might not agree.

    Arguably, many members of the typical organisation board don't 'get' public relations in its full breadth and depth. It seems to me then that to make PR accountable to the board, indeed, to make it to the table in the first place, the Director with responsibility for PR needs to adopt the language of those he/she seeks to influence, rather than trying to urge them to adopt some redefinition of a central tenet of what it means to be in business; one that every other member of the board has had ingrained since graduating from Business 101.

    Indeed, such redefinitions may well be interpretted as a sleight of hand, perhaps interpretted as yet another reason why PR has yet to grow up and command a place in negotiating business strategy formulation and execution.

    ROI is a financial metric of business success. Period. If PR is to feed into metrics of business success, it will be best achieved by bringing new discipline to the mapping of business strategy onto PR strategy and execution, and the selection of a balance of performance metrics as unique as the execution itself, as unique as the strategy, the business objectives, the marketplace and the organisation's vision; rather than appear to be hijacking existing terminology. Or in other words, an Influence Scorecard.

  2. Philip, Of course in a sense you are right.

    I take issue with you that "ROI is a financial metric of business success" because I do not see much evidence of business doing retrospective analysis (unless the result was a stunning success). ROI in my experience is used by managers to extract bigger budgets - often no more than a management-speak device.

    On a much more important point, I think your argument is one that holds PR back more than any other.

    There is no reason on earth why the PR industry should not develop a raison d'ĂȘtre all of its own.

    After all, the accountants, lawyers and ad agencies have done it for years - only to discover that boom and bust still exists, clients use their advice and fail and so forth.

    We, on the other hand have a universal truth. Being bold enough to point out to a CEO that relationships are critical (an historical fact) is not rocket science but we can use science to support our view.

    If AMEC/CPRF come up with an ROI answer, it will be a fudge - yet another in a long trail of PR fudges.

    Of course a ton of people want to know the value of a tweet which leads one to believe, I guess, that a load of CEO's want to know the value of company phone calls (or some other silly measure). And no, I don't believe it either. Knowing the cost or the ROI won't make their business any the more successful. There are bigger issues to worry about.

    PR needs to break out and be bold and assertive.

    Of course the Influence Scorecard is a measure but it is a measure (among many) of relationships.

    For my money: No relationships = No business.

    What is a relationship?

    What, then, is Public Relations?

    I have no doubts having done a small bit of research (with Bruno - see above) examining discourse in over a million blog posts.

  3. Great post and debate, David and Philip. As we've been tackling this via the Council of PR Firms' new measurement committee, I can tell you that we've wrestled with this financial/non-financial dynamic quite a bit. Ultimately we come down on Philip's side of the argument, that ROI is a financial term and financial metric -- and that using/defining it differently for PR than every other business function only undermines our credibility.

    At the same time, we agree with the essence of David's argument that PR needs to "break out and be bold and assertive" -- and make the case for PR's "value" (including "relationships" as assets of the business) in a way that isn't limited to traditional ROI calculations. We don't believe it's necessary or wise to re-define ROI in order to do that. In short, changing how everyone else in business defines ROI is not a realistic outcome. Instead, we believe that PR should advocate for our "total value" as something that goes beyond ROI, while still using ROI to measure programs and secure budgets in financial terms (but only where ROI is calculable). At the core, this would mean:

    ROI = ROI
    ROI = Money In, Money Out
    Total Value of PR > ROI
    Total Value of PR = Tangible + Intangible
    Total Value of PR = Near-Term + Long-Term

    As identified in Lisbon at #2011, this is one of the key measurement agenda items for the public relations industry. We hope the distinction of "ROI" and "Total Value" can successfully and forcefully make the case for our function without running afoul of business and financial tradition. Much easier to change our industry's language and behavior than to change every other discipline in business.

  4. HiTim,

    I still have a problem with ROI even as it is used in business.
    It is not as robust as many believe. Mueller shows this http://bit.ly/mDxuGY, The Register reports it http://bit.ly/iWxsTU, Urs E Gattiker finds it a poor measure in social media applications http://bit.ly/mbNTo4 and there are some issues when dealing with intellectual capital http://bit.ly/kOqdY1.

    However, if there is a way of measuring ROI in financial terms I will be fascinated and reserve the right to be critical.... as I would :).

    But, there is a case for also, in our own right to "change every other discipline in business". After all, that is what the concept of ROI did in the first place.

    But are we brave enough?

  5. Oh yes, and Robert Eccles a professor of business administration at the Harvard Business School set out why ROI is not the b all and end all too.

    http://bit.ly/muqyi7 (PDF).

  6. David, I agree that ROI (the financial calculation) can be wooly. My first job as a graduate was to assess capex for ROI and risk in terms of NPV, EVA and ROI, and I rapidly learned the skill of tweaking things as benefited my line manager's needs!

    Ultimately, historical financial performance is best assessed for a strategic business unit, where overall performance in terms of the balance sheet, P&L and cashflow can be (and is) audited independently.

    And as you'll know, whilst 20th Century business was built around tangible assets (land, plant and machinery), the 21st Century business is more reliant on intangibles (intellectual property, brand, reputation, social dialogue). And for which traditional accounting analyses are poorly designed.

    So that's one reason why Kaplan and Norton developed the Balanced Scorecard approach, designed to augment the lagging (financial) indicators of business success, with non-financial leading perspectives designed to betray future financial performance.

    And that's why I've tried to link the efforts of marketing and PR (indeed all activities that seek to influence stakeholders and ensure reciprocal influence) with these leading perspectives.

    Intangible assets tend to only have strategic value when they're 'in the mix'. To break one out in isolation for an ROI calculation is next to impossible – just as Urs E Gattiker finds in the link you provide above.

    I believe that the AMEC/CPRF study will conclude much the same.