Measured Thoughts: Dan Henson, President and CEO, GE Capital Solutions

A dialogue on marketing measurement, featuring Dan Henson, Former CMO, General Electric

[At the time of interview, Dan Henson was GE's chief marketing officer; he was recently appointed president and CEO of GE Capital Solutions.]

As chief marketing officer at General Electric (GE), Dan Henson has what most would consider a full plate: functional responsibility for 7,000 global marketing employees, oversight of the company’s advertising, branding, public relations, and communications, and commercial excellence responsibility for 43,000 sales professionals. Oh, and marketing is charged with driving the innovation agenda as well. Henson sat down with Wharton prof and MarketingNPV managing partner Dave Reibstein to discuss GE’s approach to marketing and measurement. The interview is the first in MarketingNPV’s “Measured Thoughts” webcast series; to view the webcast, click here. An edited transcript of the interview follows here.

Dave Reibstein: GE has multiple business units, each of which has its own chief marketing officer. How do those business unit CMOs report in to you or relate to you?

Dan Henson: They typically have two bosses: [a] direct [line] to the P&L leader and then [a] functional [line] to whoever’s above them in the marketing organization. Most of the larger business units will report directly to me on a functional basis. Some of the smaller ones will roll up within a particular segment. But ultimately the line leads up to me from a functional standpoint.

Reibstein: Talk about how marketing helps GE accomplish its business objectives.

Henson: We’re primarily a B2B company. We do have consumer products, but even there we have a strong B2B2C component. So unlike Procter & Gamble we spend a lot less time advertising to the consumer or worrying about in-store product positioning.

Reibstein: But that’s not to say that marketing plays a lesser role; it’s just a different type of role.

Henson: That’s right. In many ways, because a lot of these businesses have long sales cycles, marketing plays an extremely crucial role — it’s difficult to quickly recover from poor market knowledge or positioning. For us, marketing is about understanding what the customer values and needs and making sure we have a solid grasp on how GE is positioned relative to those needs, and relative to our competitors.

Reibstein: So are you responsible for the top line?

Henson: Well, yes — we’re all responsible for the top line. But marketing’s primary charter within General Electric is to help deliver our organic growth goals: to grow at two to three times GDP of whatever economy we're playing in. That's obviously going to vary a little bit industry to industry. Our activities are, in theory, the fuel that helps us achieve those goals.

Reibstein: How would your CEO Jeff Immelt answer the question of the role of marketing in accomplishing the business objectives?

Henson: I think Jeff would almost parrot those words — or more appropriately, maybe I'm parroting his words. It’s about understanding value gaps and delivering what customers want and being aware of where our competitors are. I think he'd probably say it's also being able to see what's around the corner.

Reibstein: If I asked the same question about the role of marketing to the chief financial officer, would there be total alignment along those lines too?

Henson: I think you’d get a different view of the role of marketing. In an intellectual discussion, the chief financial officer might come out parked in the same spot. But in terms of what he would be looking for, it would be more granular payback measurements in terms of what we got out of this campaign, or what results we [got] from the million dollars we spent to do that analysis.

Reibstein: So how are you measuring whether or not you’re fulfilling that role as you defined it?

Henson: At the high level, we're measuring it on the organic growth rate. We just announced our third-quarter earnings and, once again, we had an 8% organic growth rate for the quarter, which we’re proud of. To put it in perspective, in order to hit our organic growth rate targets in 2007, we have to generate the incremental revenues of Nike this year — about $16 billion to $17 billion. And that challenge increases every year. So at the top level, it’s revenue.

Reibstein: Let’s talk about determining how much you spend on marketing. Where does the marketing budget come from and how do you think about allocating that budget?

Henson: The actual marketing budgets or the operating budgets of any of the business units are determined within that business unit. And they do what they deem appropriate. Typically, from a headcount standpoint, 2.5-5% of the employees of a business unit are going to be in the marketing organization. In our nuclear business, it’s going to be far lower. In our consumer credit card business, it's going to be toward the high end of that range.

And the budgets are commensurate to that from an operating standpoint. So it rolls up. Corporate has a relatively small operating budget and we’re basically about guiding the business units and making sure the we're focusing on the skills that they have as marketeers.

Reibstein: So that's the budget for headcount. How about the budget for marketing programs?

Henson: It's going to be pretty high in, for example, our appliance or lighting businesses. And it's going be relatively minuscule in something like a turbine technology or sub-sea oil and gas platforms.

On the corporate marketing level, we start each year with a zero-based budgeting initiative and the chief financial officer, the CEO, and I talk about what we want to push to higher levels. We’ll develop a specific budget around training. For example, this year we want to have all 7,000 marketing people receive some level of marketing training. We’ll also develop a budget at corporate for promoting our Ecomagination campaign. We’ll also support individual skills initiatives like segmentation and pricing. And we’ll develop the appropriate resources to drive those initiatives.

And then we’ll have episodic events. For example, we’re a top sponsor of the Olympics, so we’ll budget on positioning for the Olympics, on what we’re going to spend on building a showcase in Beijing, on hospitality, items like that. Everything else resides in the business units.

Reibstein: I’m frequently asked about whether sponsorships are worth the investment. And I must confess I don't have a great answer. How do you put together a case for sponsoring the Olympics? It’s obviously a big number.

Henson: The Olympics are a great discussion item, because if you're not close to it, it's just an expense to be able to put the rings on your business card. But let me give you an idea, from a marketing standpoint, of how that’s paid off. We expect to deliver between $500 million and $600 million worth of incremental revenue associated with the Beijing Games.

Beijing is going to spend $40 billion preparing for these Games, with heavy investments in infrastructure. We happen to be an infrastructure-heavy business. By being a sponsor, we have a shot — just a shot — at that business. And we get in line in order to see whether or not we can deliver the value to the Chinese government around building the stadiums and the water reuse facilities, and we've been very successful.

We’ve already booked about $25 million worth of revenue in Vancouver for the Winter Games of 2010 and we’re really just starting there. And we have people on the ground in London for the Summer Games of 2012. So the spend is huge.

But more important than the spend around the Olympics are the learnings. And from a marketing standpoint, this is really powerful. For 131 years, this company has delivered growth through our P&L silos. What we've had to learn in Beijing is how to present one face of General Electric, because the person in charge of the National Stadium doesn't want to deal with a GE Healthcare person, a GE Lighting person, a GE Water person, a GE Electrical person, a GE Security person ... So we have used the Olympics as a pilot and a template to build a seamless “One GE” offering, particularly around these large infrastructure projects.

We have learned how to adapt to the customer's desire. And I joke that for a company that’s been around as long as we have, the No. 1 revelation continues to be that the customers do not organize their buying behavior according to our P&L structure. The Olympics is a big enough denominator to help prove that across the company.

Reibstein: How did you decide how to allocate your spending?

Henson: The Olympics sponsorship is something that obviously goes all the way up the line to the CEO. Jeff Immelt was the driver of the decision to do that. But again, it underscores this corporate-vs.-business tradeoff. Corporate has the sponsorship at the Olympics and the business units have to band together within their budgets to deliver this “One GE” face to the customer. The operating budget for the Olympics that’s tied to the driving of revenues is borne by the business units, not by corporate.

Reibstein: And how did they decide to allocate for the Olympics vs. the other activities they are engaging in?

Henson: Initially we weren’t really sure. So we developed a very methodical approach, an economic analysis around the opportunity associated with Olympics spend. We did interviews with the people who make the decisions around these infrastructure spends. We analyzed who the local contractors are. We determined what product gaps we possess. And then we looked at the opportunity pool, relative to the product gap, and made determinations over whether it's a worthwhile economic venture to fill that gap or perhaps partner with somebody to fill that gap.

Reibstein: Beyond the Olympics, it’s the same sort of process?

Henson: Same process. And that's the beauty: The Olympics has been a great laboratory for us. So that approach is now being transferred to Shanghai for the Shanghai Expo in 2010. We translated it to Macao, where they’re building $16 billion worth of casinos. This approach guides us into how to create this one face of GE. It also gives the business leaders the economic analysis they need to determine whether it's worth the effort to do something out of the normal P&L approach.

Reibstein: Now that we’ve talked about budgeting and allocation, let’s talk about measurement. How do you measure whether you're getting value out of this spend?

Henson: We are a company known for our financial discipline. Once we decide to do something, we measure it down to the point where we probably can tell you how much it costs to measure the measurement. If we decide to launch a new product or if we decide to open up a regional office in Bangalore, we can track the economics associated with that.

What we do not have is good visibility into the payoff associated with the marketing efforts upstream of the decision to take a concrete action — the spend that occurs in marketing in order to determine that we should make a new product in a certain fashion; the ethnography exercise to see how people interact with our anesthesiology equipment; the secret shopper exercises we do associated with our private-label credit cards. There's a lot of money spent there in the business units, and we have the opportunity to develop better methodologies on measuring whether those are going to pay off.

Reibstein: That's not uncommon by the way. It's really hard to measure the value of marketing research, or the value of training. How about trade shows: Can you measure the economic value of a trade show?

Henson: No, it’s tough to measure the economic value of bread-and-butter trade shows. There's a certain gut feel that you have about what type of presence you need to have in whatever industry you participate in.

We've taken an interesting approach on that. We have gravitated from participating in trade shows to sponsoring industry-specific or customer-specific thought events. For example, in our oil and gas business in Florence, once a year we [get] the top thousand people in that industry — including our competitors — together for a thought leadership conference that we sponsor. But I would tell you that we’re not sophisticated enough right now to feel comfortable that I have a metric that’s going to tell me what I will get out of spending $2 million to host this symposium in Florence.

This is something that's relatively new for us. Right now it's probably in the bucket of, “Is this a worthwhile expenditure to position ourselves as a thought leader in a very attractive industry?” If the answer is yes, then you do it. I would hope that as we do more of these, we can get more sophisticated so we would know the organic growth rate of Dave Reibstein Inc. as they arrived in Florence. And we would come out of that conference with very specific actions that we want to take relative to our commercial activities and that client, and then we could measure the increment in the organic growth rate. But we're not there yet.

Reibstein: Do you try to capture both the short-term as well as long-term effects?

Henson: One thing that has become very topical for our business units over the last few years is that we're doing a much better job of measuring customer retention. But I would be ahead of myself if I told you I had an R-squared correlation between our investment in thought leadership and customer retention.

Reibstein: Do you look at how expenditures affect retention?

Henson: We have in certain circumstances. I can give you a quick example: We are the world's largest non-bank bank. We have a unit called Commercial Finance that does a lot of things, from financing jet aircraft to equipment leasing. It's actually comprised of 44 distinct sales organizations. A couple of years ago, our vice chairman decided that, for the top 3,000 customers, our approach was confusing enough that it justified putting a single relationship manager to act as a traffic controller for these 44 different sales organizations with these very large companies. We spent $20 million to create that marketing organization. In the first year we did that, the organic growth rate for those 3,000 customers went from 17% to 50% — $8 billion to $12 billion. It will be $18 billion this year, the second full year. We went from 1.1 products per customer to 1.4, and we’re headed to 1.8. So we have very good metrics when we decide to do something concretely. But all of the analysis of the customer feedback that was upstream for the couple of years before we decided to create the organization was not measured.

Reibstein: Do you measure customer lifetime value? What it’s worth to acquire a customer?

Henson: We do in flow businesses such as consumer finance or our small ticket equipment finance, like copier leasing. Those businesses can tell you that it costs $100, for example, to acquire a credit-card holder. It's a little more difficult in locomotives when you have six railroads in North America. And we have more transaction businesses than we have flow businesses.

Reibstein: And those flow businesses can say when they acquire a credit-card holder, this is what they are worth over their lifetime as a customer?

Henson: They can.

Reibstein: Do you measure what activities affect brand and how much they affect brand?

Henson: We love always being in the top on those branding studies, but it's still a little bit of magic in terms of how those values are determined. We take it down to a practical application. Typically, we're going to measure business executives and whether or not they have a positive opinion of General Electric and whether they perceive us as being a leading technology player. We will measure the efficacy of our advertising and branding and public relations activities by participating in brand-recognition and brand-perception surveys.

Reibstein: Do you use specific measurement tools for promoting the brand or measuring customer satisfaction? Or other measurement tools that you regularly use across the various businesses?

Henson: Companywide we have adopted the Net Promoter Score (NPS) as the measurement of customer satisfaction. We have a Net Promoter Score advocates call every month across every business unit.

Reibstein: You live with that pretty religiously?

Henson: We like NPS not because it's the secret sauce but because we are a very diversified, highly complex company that does everything from build[ing] nuclear power plants to provid[ing] private-label credit cards. NPS is such a simplistic tool to measure customer satisfaction. And the beauty of NPS is in capturing the verbatims of customers who wouldn’t do business with you again. It works for a company like GE. You know it's tough for us to use something that has a lot of rules or guidelines around it. It's easier for us to push simplistic concepts across the company.

NPS is the only metric that goes across all business units. Customer retention would be the second most prevalent measurement, and then you get down into our financial metrics of return on equity and return on investment.

Reibstein: Do you look at brand on a business unit level as well?

Henson: No. Our consumer businesses, like appliances and lighting and our consumer credit-card company, would look at how the brand was positioned relative to the competition, but in terms of recognition they would not take that down to an estimate of the value of the brand. We roll that up at the GE level. We would, for example, do a corporate brand study in China. The good news was that 22% or 23% of the Chinese business executives had a positive opinion of General Electric, which is high for a company that in China is not consumer-focused and really hadn’t done any advertising.

Reibstein: Do you do a lot of experimentation that allows you to test what works and what doesn't work? And how do you share that with different parts of the businesses?

Henson: Most of the learnings in terms of brand positioning and segmentation have come from our consumer finance business. For example, they would do a behavioral study or needs-based study and tell you that a female between the ages of 25 and 35 in Poland would likely behave this way if we increased the interest rate on her credit card by 2%. That level of granularity, which is so endemic in the consumer world, can provide guidance to the B2B world as well and give us some impetus for digging into that type of behavioral or needs-based segmentation.

Reibstein: You can take that type of learning to the jet engines business?

Henson: You actually can, though it’s harder. As successful as our company has been, historically we’ve been a company that built new products because we could, and then we went out and sold them. Now, becoming intimate with the customer and understanding what they ascribe value to and what their needs are feeds an entirely different view of product development and what we’ll sell in the future.

The railroad business is a good example. We have six customers in North America. Understanding rising fuel costs and increased regulatory controls over the emissions of locomotives and other things that were keeping those customers up at night was one of the primary catalysts for our development of new technology that has become known as the “evolution locomotive.” We built a locomotive that delivers the power of a 16-cylinder diesel with only 12 cylinders, resulting in a 3% to 5% cost advantage relative to its competition. And it puts out 40% fewer emissions. That business is now sold out from a production standpoint for over a year.

It's the same fundamental concept: Understanding what your customer ascribes value to, what your customer’s needs are, what's around the corner, and translating that into, “What do I need to succeed in that environment?”

Reibstein: What you do in the absence of data for making decisions? Because I assume there are lots of things you haven't tried before. What is the decision-making process there?

Henson: The transition we've made over the last few years is, OK, let's not get hung up on the data we have. Let's concentrate on gathering a statistically significant group of data that we can base some decisions off of rather than simply acting on our hypothesis — or not acting for lack of information. So we are getting better about figuring out how to get out there and beta test quickly.

Reibstein: So by beta test you mean gathering a little bit of data and using that insight rather than just intuition, and then iterate going forward.

Henson: Yes.

Reibstein: Let’s talk about who in the organization is responsible for measuring the productivity of marketing. Is that you?

Henson: The business leader ultimately makes the call as to whether his or her marketing organization has been effective. Each one of them is going to do that differently based upon whatever growth metrics they’re prioritizing. So whether it's retention, simple organic growth rate, or profitability, those are the high-level measurements they're using for the marketing organization. But again, it's very easy to deliver the metrics on those relative to specific projects that have been launched.

Where we still have opportunity and need to get better is all of the other marketing activity. We are promoting stronger linkage between the commercial agenda and the marketing agenda. One of the changes we've made in that respect: We used to train our marketing people and our sales leaders separately. They had two different curriculums. Today they have the same curriculum and we encourage the businesses to send them as teams. That fosters an environment where the marketing leader has five top priorities and can draw a very straight line through the top five priorities of the commercial leader.

If we can do that in all of our business units, then we have the framework in place to measure the efficacy of all their marketing activities.

Reibstein: Some organic growth is going to happen even if you had no marketing activity. Do you have ways of measuring marketing performance relative to organic growth?

Henson: We do, at the high level, and there are a lot of other components intertwined with it. We measure ourselves against the growth rate in the industries that we participate in at as granular a level as is available to us. If we decide to change this product or launch this initiative or roll out these services or open an office in this territory, we can measure very granularly. But it's not a reflection just on marketing — it's a reflection on the entire commercial activity. We don't break down the marketing piece individually.

Reibstein: So you don't have any standard metrics for return on marketing investment?

Henson: No.

Reibstein: Do you feel pressure from your CEO or CFO to come up with that type of measure?

Henson: No, we don't. I know it's very topical and we are always open-minded about it. We haven’t viewed it as something that we felt compelled to move forward with. If one day we're given a potential solution that doesn’t seem bureaucratic across a large organization like GE, it's something we’d consider. But we haven’t seen anything out there that compels us to do it now.

Reibstein: If there was one thing you would change in your overall measurement of marketing performance or tracking, what would that be?

Henson: I would insist upon a greater linkage to the activities that occur in marketing and the strategic and tactical priorities of a business. The CMO of a business unit, with his or her colleagues in sales leadership or the business leadership, ought to be able to articulate how their top 10 deliverables directly impact the growth agenda of the business. And if they can't, they need to reflect on whether they are aligned and whether the money or the resource they’re getting ready to utilize for those deliverables is a good investment.

Reibstein: Is that happening today?

Henson: I think it is happening today. It hasn't necessarily happened historically. It's a sign of a disconnected, functional agenda when you ask the CMO to tell you his or her accomplishments for the year and you ask the sales leader about the accomplishments of the marketing organization and you get two different lists. They ought to be the same. And I think we're doing a much better job of being linked on that.

Reibstein: Does each business unit have its own marketing dashboard?

Henson: Most do. And they would include the metrics that are important to the business unit, such as new customer acquisition or cost of acquisition or customer retention. But they don't roll up into a single corporate dashboard. When you start to roll up things that are across different customers, businesses, and geographies, it becomes noise very quickly.