by Leo Jakobson | September 01, 2012

Does ROI Matter?

When the economic downturn hit, there was a sense in the incentive industry that companies would get far more serious about measuring the return on their incentive dollars, which hitherto had been more talked about than done. 

Incentive: Is showing return on investment (ROI) still as important now that the economy seems to be improving?

Beauchine: More and more of the clients we talk to know they have to start to measure ROI if they haven't done so already. One of the better studies was a [2012] Site Index survey where three quarters of the respondents [said they] believe that measurements of their incentive programs will be a requirement in the next six months to three years time. It will be an absolute requirement. So it's coming. It was accelerated because of the recession and because many of the companies who wanted to continue their program had to demonstrate where it got them.  Some of them did not — for some companies it is such a part of the culture that it is intuitive and they know the returns are there. But others had to demonstrate. 

We also see more people asking us for studies and for research, not necessarily just on ROI, but on communication elements of the program. Is the communication effective, is it motivating people enough, is it getting them to enroll correctly? Do they think the incentive programs in the company are fair? They're starting to care about those upfront dollars to promote the program because that's part of the ROI now.

For many years everyone thought ROI was, did you meet your budget and did you like the program — and if you did, you're going to be a more motivated person. But it's much more complicated than that now. Several aspects of the program being researched and I’m particularly pleased about the fact that the communications aspect of being researched, because in the big global organizations in particular it is very complicated to communicate effectively because of cultural differences and so on.

McArthur: There has always been a conversation around the issue of ROI on incentive programs. We have similar challenges in that effort, as anybody selling marketing at all has. The issue is, how do you narrow the number of controllable variables to get to a solid place? We try to approach this from the perspective of what kind of analytics can we bring to the customer to show the impact that the program overall, or specific elements of the program, are having on the results they're trying to achieve. It is something that we work with clients on all the time, both looking back and looking forward to help them get a sense of what impact specific tactics or elements inside a program might have on their results.  

Incentive: How serious are clients about demonstrating ROI?

Stotz: The Incentive Research Foundation did three studies on incentive travel. In each case, there was a variation in terms of how the organizations measured return on investment.

The general takeaway from those three studies was that the management — the CEO, the chief marketing officer, and the chief sales officer — all saw the use of incentives as core to their culture and/or marketing strategy, and quite frankly were comfortable that not only did they see an impact on sales, which they took as a critical aspect of the ROI. But more often than not, they spent time talking about the relationships — building relationships with their employees if it was an employee incentive plan, or with their distribution channel, if it was a broker or distributor or dealer program. They used [the incentive programs] to build a relationship to reinforce performance, to get know and to get to hear from their employees, or to deal with brokers and distributors.

So to the question of the necessity of ROI … in the 2008 to 2009 downturn, the hue and cry was, we need more proof of the return on investment of these programs. That seems to have subsided. There is still a desire for it, but it more often than not falls on the program manager and the management of the sponsoring organization to justify it in their own mind, as opposed to doing a real analytical deep dive ROI calculation.

So what we’re seeing is less emphasis on that very strict financial justification. They see the value in some of the softer terms in terms of recognizing the top performers and building relationships.

Delta: I kind of approach this from two sides. On one side, I see some of the incentive houses that I'm working with are really interested, and are making more of an effort to work with their customer to provide better measurables. I think it's kind of fuzzy still, but it’s there and it is gaining momentum. 

The troubling aspect for me is, I hear from the corporate customer that we want more measurables, but I'm kind of skeptical. I know the corporate message is we value the employee, we want to do what we can to show our employee that we value him or her, but the reality is that they don't. So in some senses, incentive programs have the ability to become a palliative, and I'm not really sure how exactly you show a return on investment in that environment.  

Peer: I don't know that I have as harsh an assessment as that, but I think that what we're seeing is a growing recognition, as the economy improves, that there has been neglect of employees. Although one of the trends I'm seeing isn't so much around management recognizing staff, it’s more around employees recognizing each other.  

With regard to ROI, I think that it's something that people are very, very interested in.  They ask about it a lot, but the challenge to demonstrate it with a solid metric is so high — “We can prove that you can improve your staff's morale by such-and-such percent” is virtually impossible to do — that I think, over time, it’s kind of diminishing as a selling point.

But certainly, there's an interest in it and especially as you get into the financial parts of the buying process, the procurement people, the CFOs and so on are very, very eager. But I’d say that that kind of measurement is morphing, and that people's attention is transitioning into other, more current issues in our industry, such as digital media and social media.

McArthur: We don't see our customers saying they don't really care about whether their people are engaged or whether their people are actively successful in selling efforts. 

Mitchell: The ROI question always comes up but for me there's another question: Have we made any progress in convincing or changing the mindset of our corporate buyers to move their brains from a cost to an investment? 

If we're going to measure ROI, we first have to have the corporate customer lined up with the notion [their incentive programs are] not a cost, [they are] an investment. Because if it's only a cost, then they don't care what the ROI is. It's just a line item in the budget that they either spend or they don't. That to me is a question that has to be aligned with the whole notion of how do we motivate. 

Hoddeson: I find people in corporations with different perspectives on this depending on their role within the corporation.  I think many of the marketing people see the programs as an investment rather than a cost, whereas many of the procurement people see the money as a cost rather than the investment. More education is needed, and it is happening, but perhaps not quickly enough.

And I think that there are measurables, [such as] increased sales or retention. Many of the programs [in Monaco] that I work on with clients, whether they are corporations or incentive houses, are not for direct employees of the company, but rather for [channel] brokers and dealers, who could be selling other products. To keep them faithful to the company, or get them selling more of their product, these trips are key. 

McLain: With all that we know today and all the technological tools we have available to us, I'm quite frankly surprised at how many planners aren’t asking [these question] or don't have those answers and these ROI tools.

I'm surprised — and I'm talking about the majority of the industry — at how slow we have been to adapt simple, very inexpensive, technological tools to measure the ROI. It’s as simple as a small extension to the incentive, asking 25 questions of the attendees prior to and maybe after [the trip]. And that conversation could be year round on that same platform. It doesn't have to stop at the end of the incentive, or a month after the incentive. It can continue. We need to start thinking, in this industry, that the incentive program is a part of a year-long conversation using the technological tools that are available now. It’s not expensive anymore. Cost can’t be the issue. It’s got to be, are you seeking out the tools, and do you have a way to even begin the process and start it?

Incentive: How about broad employee recognition programs? How important is ROI in that type of program?

Fenhaus: The more firmly as you can tie a program to a return, you have a much greater likelihood of success in obtaining the dollars and the time to invest in the program from the C-suite. 

If you walk in and think you're going to put a world-wide employee recognition program in place and you have not helped your client think through the metrics — What are you trying to measure? How are you going to quantify success? What type of budget do you think you need to ask for to implement the program? What type of behavior are you looking to reward? — and your client goes up to look for funding or the launch of the program throughout the corporation, and you don't have it tied to their goals and objectives and you don't have an ROI, good luck with that. 

Hart: In terms of employee recognition programs, I think that the C-suite intuitively knows that this is something that they should be doing, but sometimes have difficulty grasping what the actual economics are.  One of the things more and more organizations are looking for is to make sure that their recognition programs are truly aligned with their vision, mission values, and business objectives.  If they’re not, they end up as what we call recognition road kill.  You really need to make sure that the programs are aligned.

From my perspective, though, money is being freed up for these programs, which indicates that the C-suite definitely understands that they’re important, and a must-have.

Stotz: The one area that sort of falls into recognition, but also has some financial connection is the growth and the use of awards and recognition in wellness programs. There has been a greater ability to capture the impact of the wellness programs, and therefore to help justify, and actually there’s been a study that the IRF did on the wellness, that indicated that in general it’s a three to one return in terms of the incentives rewards recognition had provided, as opposed to not doing it.

So there is a challenge with recognition, and to the degree that it’s led over into wellness.  So I think they’re starting to show some ROIs.

Fenhaus: ROI is a huge metric in health and wellness. It's paramount, because health care costs are growing exponentially. Our clients are experiencing between $4 and $8 ROI on every dollar spent — that’s very quantifiable. 

McArthur: There are metrics that can be used to measure engagement in a recognition program. For example, the number of recognition events that are occurring, or the engagement of employees through social media, that are important to the sponsoring customers. I think ROI, in the old traditional sense, is something you don’t want to ignore, but I think you can really have some very hard numbers and demonstrable metrics around what's happening with your program with the targeted audience. 

Stotz: I’m seeing a continual emphasis on recognition programs, and more organizations saying they either are either maintaining or expanding or are starting recognition programs than in the past.

As we’re coming out of the first recession, there has been a movement back to some annual increases in the workplace for salaries. However, that’s fairly minor — you’re talking about 1 percent to 4 percent for most people. What ywe’re seeing is organizations compensating their high-potential employees, but also wanting to have a general workforce that feels appreciated. So they are maintaining, increasing, or adding recognition budgets. They can provide recognition, appreciation, and this experience of valuing the employee, where they get a real bang for their buck in terms of the impact, which is a an emotional one. So the bottom line is, it’s fairly inexpensive compared to salary increases.

Hart: Strategic sourcing is very good at determining the relative value of something that’s tangible: a reward or merchandise. They have a much harder time understanding the value of the recognition —that recognition and rewards are two different things.  The rewards are tangible, have a cash value. Recognition is about feeling and emotion, and they have a very difficult time trying to understand that.