On the folly of rewarding A, while hoping for B

A colleague and I have just completed a AR effectiveness audit that compares the performance of a group of IT services firms. One activity, which we call Analyst Mindshare, involves reviewing the research of a group of analyst firms, weighting each report to reflect its impact on sales, and then comparing the changes over time.

I love to do these studies, because they show how firms try to find short cuts to boost their profile with analysts. Some firms in the study have seen the volume of reports written about them increase by 40% or 50% in one year. However, that is achieved by targetting firms that write more, or are less influential. For example, two US blue chip firms saw the volume of reports written about them increase by up to 31%, but when each each report is weighted to show its influence, the mindshare of those firms has both fallen: they are getting less profile in the most important analyst firms and more profile in the least important firms.

This reminds me of an academic classic I was reading over this weekend, On the folly of rewarding A, while hoping for B. At both the blue chip firms listed above, new AR heads were installed in 2004. These managers needed some time to develop deep insight into the issues with their firms’ analyst relations. Each of them decided to aim for some low hanging fruit, and focus on getting the volume up. This probably tells you something about the measurement systems at these firms. These companies both talk about wanting to spend more time helping the analysts who influence their customers: in fact they are spending more time with the least influential analysts.

My concern is this: I wonder if these managers know they have traded off quality for quantity. It’s far more likely that they are presenting these large rises as a step forward, and preparing to continue on the same course next year. However, without any more effective way of tracking progress with analysts (more effective than weighing the reports) they will continue to abstain from the battle for ideas which their more nimble competitors are winning.

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