Placing a value on what we do

Editor's note: James Wycherley is CEO of the Insight Management Academy.

An insight team should aim to help its organization become more commercial by contributing quantified understanding about the financial implications of how and why consumers in its market become customers of that organization. The first steps are to develop a commercial foundation for all its work and to become adept at simple valuation techniques. These can help us to see customer issues through a financial lens and use the language of finance to make business recommendations.

These measures in themselves can make a significant difference for the organization and simultaneously enhance the insight team’s reputation for commercial thinking and optimize its impact. However, to really make an ongoing difference, an insight team also has to demonstrate a commercial mind-set in its everyday activities, applying the understanding it has developed to the way it operates each week.

Three key ways

There are three key ways in which our insight teams can apply their commercial thinking: what we do – use value to prioritize our activity; how we do it – use each piece of work to identify value opportunities; and what we have done – record the value opportunities we have identified and those that have been actioned.

What we do

Most insight teams in the U.K., North America and Europe currently prioritize their activity using one of following methods:

• We do what we normally do.
• We respond to requests from those who shout loudest.
• We rank projects according to the seniority of the person who asked.
• We operate on a first-come, first-served basis.

These are all suboptimal for a progressive insight team. If our underlying purpose is to identify value and drive change, then we need to focus on business issues where we have the potential to add the most value. Therefore, one of the most tangible ways of optimizing impact is to reengineer our process for prioritizing the work that our teams do. 

Valuation techniques should play a key part in the prioritization process, with a disproportionate focus given to projects that we estimate to have the biggest commercial upside. The good news is that once our teams have become accustomed to valuing projects, we can develop some simple rules of thumb that make the process even easier. 

A good example of this comes from international brewers Molson Coors, which had one of the first insight teams to develop a matrix explaining to their business how the insight team would adopt a “full research – light research – no research” approach to requests based on the value of the brand in question and the nature of the business decision to be taken. Based on empirical data, the matrix helped everyone to understand that some decisions (for example, a major TV advertising campaign for one of its biggest beer brands like U.K. market-leader Carling) would justify a full research project, while a quick repackaging exercise for one of its smallest brands might not justify any new primary research at all.

How we do it

In previous work here at the Insight Management Academy (IMA), we have identified a seven-step process for nailing and investigating business issues. At each stage of that journey, corporate insight professionals can build on their commercial foundations and demonstrate a commercial mind-set.

Reflect: Before starting a new project we should always reflect on what we know and include within that our core stats and business blueprint.

Engage: Before responding to requests we need to speak to decision-makers, probing to understand the commercial context behind their request.

Diagnose: Using the SCQAB model (developed by Barbara Minto) to nail the issue and structure our thinking, we include core stats in the situation and complication sections and link our key question to the underlying sources of value.

Hypothesis: Our initial attempts to scope potential solutions should reference commercial realities and operational constraints.

Explore: Our focus will probably turn almost entirely to discovering relevant customer and market data at this point, but…

Interpret: …we must then interpret our customer and market evidence using the context of core stats and the business blueprint to see if our findings are commercially significant.

Opinions: Our recommendations for what the organization should do now must be based on commercial understanding, with the SCQAB benefits expressed in financial language.

What we have done

Too often there is a tendency to move on to the next project and lose sight of what our colleagues in other departments did with our insights. This is a real handicap to insight teams who want to optimize their impact. The best solution is to create a value log that records the projects undertaken and the potential opportunities identified, then arrange follow-up meetings with decision-makers to check what business activity happened as a result and how that affected revenue and costs. This data becomes invaluable for assessing future requests and the value log also becomes critical to one other aspect of insight effectiveness.

Requires an ongoing focus

Experience has taught us that adopting a commercial mind-set and applying it to day-to-day insight activity requires an ongoing focus and will only succeed if the insight leader role-models commercial behaviors and a champion is identified to reinforce those behaviors.

Everything to do with commerciality will probably feel a bit strange for lots of insight managers, researchers and analysts to start with and it is common for an initial bout of enthusiasm to be followed by a slide back into old habits. Value logs become neglected, prioritization of work reverts to how it was done before and the insight team misses out on a golden opportunity to optimize its impact. But a determined, visible leader, assisted by an enthusiastic team champion, can make all the difference.

The work is surely worth the effort. After all, putting a value to insight has been seen as a kind of Holy Grail for the market research and insight industry for a long time. However, the predominant view has usually been that it can’t really be done because insight is simply part of a value chain – our work being one small part of a larger picture.

But is this really true? Let’s consider a simplified business process to see if the argument holds water: initial idea >> research and development >> produce product >> market the product >> sell it and make money.

In new product development, for instance, a value can be placed on the overall process and the money it makes. But many people would argue that to place a value on any single element is not really possible, because anyone in the chain could claim that if they hadn’t done their bit then the business would have made no money. We need the initial idea and the production and the selling to make any money at all.

This argument makes sense for all the elements that are really essential but it doesn’t apply to elements that are discretionary. Steve Wills, who co-founded the IMA along with Sally Webb, uses car manufacture as an example. You cannot have a car at all without wheels, seats and a steering wheel, so you can’t put an individual value on those elements. But there is lots of spend on cars that is discretionary – the material used on the seats and steering wheel, the cup holders, entertainment systems, sunroofs, etc. – and because these elements are not essential to the car’s mechanical performance, they are discretionary and so the automotive industry can give us a choice about which we have and don’t have and charge us extra for them.

‘Insight-free’ decisions

It might seem very odd for an article in a marketing research publication to argue that what insights teams do is actually discretionary. But when you stop and think about it, there are plenty of companies out there making decisions every day in a way that could be described as “insight-free.” Either there is no customer and market research involved at all, or it is introduced too late to make much of a difference, or the quality of the research or analysis is suboptimal. The company that you work for probably has an insight team but consider all the decisions that it currently makes about new products, marketing, store closures, pricing, customer propositions and corporate strategy: Do you consider all these decisions to be completely and consistently insight-driven?

The reality is that our organizations will make hundreds of decisions every year that are not insight-driven. They may not be very good decisions but they are made anyway. This is what compels me to think that insight teams need to be more effective and that we should all learn from those that are. But it also demonstrates that the use of insights is discretionary and, like any part of a value chain that is discretionary, that means we can estimate the incremental value of including it.

Have most of the components 

The good news is that if our insight teams are already completing the value logs they will already have most of the components they need to calculate the value of insight: the scale of the overall issue; the size of the prize associated with the specific business decision; the value opportunities identified by the insight team; and the actual benefits realized by the organization.

All we need to complete our calculation is the percentage of the benefits realized that can be assigned to the input from the insight team and then a comparison with how much that insight involvement really cost (research spend, data purchase, staff time – even database and infrastructure costs if you want to be truly comprehensive).

The sticking point for many insight teams is that they think they can’t value their own input. But there are two bits of good news here.

First, aim for accuracy not precision. This applies to all our commercial valuation work, including the value we put on our own contribution. If you work through a few examples of the initiatives you have worked on, you will quickly discover that a successful business outcome is likely to be worth so much more to your business than the cost of most research, that the precise percentage assigned to insight’s contribution is immaterial. 

For example, if one of the IMA’s members like Nestlé or Kraft-Heinz brings out a new product that adds $25 million to revenue and the insight team spent $125,000 on research and analysis, valuing the insight contribution at 5% of the $25 million would give you $1.25 million (hence a tenfold return on the $125,000 spent on insight). If you valued insight’s contribution at 10% of the $25 million, that would give you a twentyfold return ($2.5 million divided by $125,000). These ROI figures are so high that even if you always took the lower of two estimates, the benefit of including insight is plain. What matters is not whether we contribute 5% or 10%, it’s that we work on very large, successful business initiatives.

The second bit of good news is that we don’t need to estimate the contribution percentage ourselves. eBay was one of the first IMA members to routinely ask colleagues in other departments to estimate their perception of insight’s contribution. What surprised the insight team was that their colleagues in marketing and sales consistently valued the insight contribution more highly than the insight team themselves did. It wasn’t unusual for the other departments to say that 25% or 30% of the value uplift was down to insight, whereas the insight team themselves were cautious about claiming more than 20%. Barclays insight team has seen the same phenomenon: its head of U.K. insight has a policy of not claiming more than 20% of the benefit of any initiative even if feedback from the business suggests that it was probably higher.

Calculate the uplift 

The key takeaway here is that the return on an organization’s investment in insight is likely to be very high but only if the team focuses its efforts on the biggest business issues. And that return will only be evident to anyone if the insight team itself starts to record the numbers and calculate the uplift. Of course we need input from colleagues in other departments but even if we only valued a proportion of our projects, it is likely that we would be seen to have paid back our organization many times its investment in insight. And that’s always going to be a useful thing to know if we find ourselves defending our resources or arguing for an expansion in insight activity!