By: Tom Watson, Ansgar Zerfass and James Grunig
Measuring Return on Investment has been a hot topic, as public relations seeks to demonstrate its contribution to building organizational value. How can this managerial concept be applied to public relations? Professors Tom Watson, Ansgar Zerfass, and James Grunig add to the debate.
‘ROI’ IN PUBLIC RELATIONS: A DIALOGUE
Since publishing research (Watson & Zerfass 2011) on practitioners’ perceptions of the Return on Investment (ROI), Ansgar Zerfass (Germany) and Tom Watson (UK) have been engaged in an email dialogue with James E. Grunig (USA) about the application of this managerial concept within public relations. With the agreement of all three participants, an edited version of the dialogue is published with the inclusion of papers that were referred to. We hope that this short paper will make a contribution to the ROI debate.
James E. Grunig: In considering the literature on ROI, I’d like to refer to our work on the value of public relations in the IABC Excellence project ( Chapter 4 of Grunig, Grunig & Dozier, 2002). We had an extensive review of the concept of value in that chapter, which is summarized briefly in the Furnish the Edifice article (Grunig 2007, pp. 158-159). I also discussed ROI in my chapter of Public Relations Metrics (van Ruler et al, 2008) especially on pp. 108-111 where I discussed evaluation research at the organizational level. I can also commend my discussion with Mark Weiner – The Public Relations Debate – which appeared in Communication World (Grunig & Weiner, 2007)
Tom Watson & Ansgar Zerfass: Our thinking continues to look at non-financial value creation rather than forcing it into a financial mould. You might be interested in the British writer Philip Sheldrake’s comment on ROI in his recent book:
I dislike any attempt to hijack the term ROI. Accountants know what ROI means, and they can only view any softening or redirection or substitution of its meaning by marketers trying to validate their investment plans as smoke and mirrors. (Sheldrake 2011, p.117)
Although we don’t agree with all of Sheldrake’s thinking, we agree with this statement.
You may also be interested in an English-language booklet on the continental European concept of trying to identify value chains and measuring communication impacts with indicators (but not necessarily financial terms) which has been prepared by PR associations and researchers in Germany, Austria, etc. It is used by several large corporations already.
James E. Grunig: I’m very interested in looking at the value of public relations in terms of nonfinancial indicators or as intangible assets. Essentially, I argue that the value of public relations can be found in the relationships it cultivates with publics/stakeholders.
Relationships are intangible assets, but they can be measured. In addition, it is possible to conceptualize the financial returns to relationships; they reduce costs, reduce risk, and increase revenue.
However, it is difficult, if not impossible, to measure, or attribute these financial costs to specific relationships. They are long-term, lumpy, and often keep things from happening. Thus, we should measure relationships but explain their value conceptually to understand (but not measure) the ROI of public relations. Thanks for telling me about the Sheldrake book.
Tom Watson and Ansgar Zerfass: We agree with all of your statement, with one exception. We are rigorous about the problems of applying ROI out of its business context, as PR’s use (or abuse) of ROI does it no good with decision-making managers who have an accounting or financial management background.
Research has found these views in central Europe amongst business managers in charge of “controlling” (similar to audit) and it is beginning to be identified in the UK. These high-level managers simply don’t recognise ROI in the form that it is presented to them by PR staff or consultants with “PR metrics” or in the concept of ROI outside strictly financial parameters. Hence, we are encouraging PR folks to find their own language which is more accurate such a value creation or value links, etc. The ‘Outflow’ concept which came from Sweden in 1996 is more pertinent than ROI.
James E. Grunig: No disagreement here. I talk more about the value of public relations than about ROI. As I said, you can explain the value of relationships; but you really can’t measure a financial return to compare with the money invested in it. I tend to use the term ROI because PR people want to hear it used. I will now cease and desist from using it.
Tom Watson and Ansgar Zerfass: Glad to hear we are on the same track … this is really a big discussion over here and we feel that a sound position will be supported by those communication officers (often with a managerial background) who are now in charge, while some suppliers still have to do their homework. Understanding that cultivating relationships, listening and issues management is more important than talking and image building is of course difficult and it will take continuous efforts to explain.
References
Grunig, J. E. (2007). Furnishing the edifice: Ongoing research on public relations as a strategic management function. Journal of Public Relations Research, 18(2), 151–176.
Grunig, L. A., Grunig, J. E., & Dozier, D. M. (2002). Excellent public relations and effective organizations: A study of communication management in three countries. Mahwah, NJ: Lawrence Erlbaum Associates.
Grunig, J. E., & Weiner, M. (2007). The PR Debate. Communication World, May-June, 26-30.
Sheldrake, P. (2011). The business of influence. Chichester, UK: Wiley:
Van Ruler, B., Tkalac Vercic, A., & Vercic, D. (2008). Public relations metrics. London: Routledge.
Watson, T., & Zerfass, A. (2011). Return on investment in public relations: A critique of concepts used by practitioners from communication and management sciences perspectives. PRism 8(1): http://www.prismjournal.org/homepage.html
In reply to Bill Huey, can I suggest that Excellence Theory is the closest to a complete theory on public relations? It focuses very much on the creation of value to an organisation and can be aligned with measurement and evaluation.
Expanding on Jim MacNamara’s comment about trying to ride on the coat tails of other fields–PR will never develop a means of measuring its effects or proving its value until it develops a coherent, comprehensive theory of how it works. Not how it is SUPPOSED to work, or prescriptions about how it SHOULD work, but how it really works.
The academic and research community has so far failed to take up this challenge, but the Institute can help push it along.
Without a comprehensive theory, we will continue these faddish searches for relevance and be slaves to inapplicable techniques such as AVE and ROI.
I’m a little late to this discussion but I’d like to make one point, based on the following question.
Is it possible to calculate a financial return on a financial investment in a Marketing program (product development through to a sales close) or in a Human Resources change management program? That is, is there a calculable financial ROI for the programs run by other functions in an organization?
A considerable number of authors seem to believe there is, if the popularity of books on Marketing or HR with ROI in their titles is any indication. Of course, PR/Communication provides the relationship management and communication campaign support for these programs.
Therefore, the point I’d make is that it’s not a question of the ROI of a PR/C program per se, but more the ROI of the broader program. One can’t determine a financial ROI for the communication campaign in isolation from the broader program. Those who say they can are merely sprinkling around fairy dust.
Thank you all for an excellent discussion. Along with some others, I have found the concept of ROI interesting and alluring over the years – and, strictly speaking, the R stands for Return which need not be a financial return. It can be another form of value, as Jim Grunig notes (e.g. good relationships). But, it is true that, in the day to day world of business, ROI is the language of accountants and financial controllers and it has a very specific meaning to senior management. I agree with the statement that PR has to find its own language – and demonstrate its own value contribution. Trying to ride on the coat tails of other fields – e.g. ROI from the financial sector or AVEs parodying advertising – is not workling for PR. Thanks again. Excellent food for thought.
Thanks for comments on the paper.
My response to David is really made by Christopher Storck. The point made by the three of us in our dialogue paper is that ROI is an very specific financial management term that should be avoided. Practitioners, however, shouldn’t ever lose sight of the need to identify outcomes, related to corporate strategy, from their communication activities. I’d also add that the value links concepts built into “communication controlling” are a much more appropriate and content rich way to demonstrate the richness of outcomes and outflows.
Having read David and Don Stacks’ paper on standardization in PR measurement and evaluation (see p.4), I think we have very similar views on most points.
In response to Sascha, the financial management definition of ROI is defined in many business texts. The one used by Ansgar and I in our recent paper is: “a ratio of income or earnings divided by the costs that had been applied to generate the income or earnings.” That works well in judging, for example, the income generated by a capital purchase such as production machinery which operates in a controlled, linear manner. PR and communication activity almost never operates within such controlled boundaries to create actions or behavioural changes that can be directly related to the total financial cost of an event or campaign. I’m glad you enjoyed the dialogue.
I am eager to have “decision-making managers who have an accounting or financial management background” explain their ROI 😉 Apart from that: excellent initiative.
The conclusions that Ansgar and Tom have drawn from their research are fully in line with the position shared by the German PR Association (DPRG) and the International Controller Association. The same goes for what David points out in terms of how PR can contribute to corporate value creation. The problem just lies in applying the term ROI to this contribution. Using elements of management terminology without sticking to conventional meaning will hardly lead to growing respect for PR professionals among business leaders. Top managers are more likely to frown on communicators throwing around with words without knowing what these words “really” mean. Let’s use the concept but avoid the buzzword.
The concept of measuring ROI for public relations is a challenging concept in light of the fact that ROI, as Tom correctly points out, is a financial and accounting concept. Public relations role is to support the business function. In that role, we create the necessary, but not sufficient conditions that allow for the actions to be taken (e.g., product purchase) that result in ROI. The key is not to measure the end of the cycle, but instead the ability of a public relations program to establish the foundation that allows ROI to be achieved. A fuller description of this is available at https://instituteforpr.org/topics/standardization-in-public-relations-measurement-evaluation/