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The Agile Brand with Greg Kihlström®: Expert Mode Marketing Technology, AI, & CX
#736: Taking ROI models from confusion to clarity with Carlos Manalo, The Office of Experience
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Welcome to Season seven of the Agile Brand where we discuss the trends and topics marketing leaders need to know. Stay curious, stay agile and join the top enterprise brands and martech platforms as we explore marketing technology, AI, e commerce, and whatever's next for the omnichannel customer experience. Together we'll discover what it takes to create an agile brand built for today and tomorrow and built for customers, employees and continued business growth. I'm your host Greg Kilstrom, advising Fortune 1000 brands on martech, AI and marketing operations. To make sure you always get the latest episodes, please hit subscribe on the app you listen to podcasts on and leave us a rating so others can find us as well. Now onto the show. Are your technology and marketing investments driving real business value or are you simply throwing money at the latest trends? Agility is being able to react to change while knowing which strategies, processes and technologies are ultimately moving the needle and driving real business outcomes. This episode is brought to you by the Office of Experience, a design driven digital first vertically integrated and collaborative agency for that believes in the power of ideas and the strength of people. Today we're going to talk about taking ROI models from confusion to clarity. Specifically, in the B2B E commerce space, we'll explore how to build models that truly reflect business value, avoid common pitfalls and unlock exponential growth. To help me discuss this topic, I'd like to welcome Carlos Manalo, co CEO and Co Founder at the Office of Experience. Carlos, welcome back to the show.
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Thank you. Always excited to be here and Always excited to share what we can to make sure that our friends and peers across all of the diaspora of what we do in B2B E commerce can actually make a dent into the universe.
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Yeah, Love it, love it.
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Yeah.
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And always, always love talking with you here. So looking forward to this. Before we dive in, if somebody hasn't caught you on the show before, why don't you give a little background on yourself and your role at Office of Experience?
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Yeah. So I could spend hours on this, but the short version of it is that, you know, I've been around in the industry for over 30 years. You know, I, I started out in this space that we used to call information architect, Architecture, now user experience, but from there graduated fairly quickly into digital strategy. I've worked client side at organizations like Crate and Barrel and Granger and then the consulting side at organizations like Sapient, now Publicis, bunch of other different places and are now and you know, taken all of that and wrapped that into the proposition that is the Office of Experience. Now we're about 10 years old, focused heavily on B2B ox, does a lot of work in experience, marketing and technology and we love helping move the needle for our customers.
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C
Love it. Well, yeah, let's dive in here. We're going to talk about a few things, but really all around this idea of ROI models and making the most out of them. So I want to start, let's start with the foundations here. So a lot of organizations struggle to even define ROI for their marketing efforts, let alone build a model. So where should companies start when building an ROI model? Especially in the complex world of B2B E commerce.
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A
Yeah, and it's not just marketing, it's about technology as well. Right. So a lot of our work is in replatforming net new investments against that. Where does AI plug in? I mean, I'm sure you and a multitude of the members of the audience are going like, how do I cost justify AI? So putting a finer point to that, where should you start? Well, you got to start with what's available. So I always push people to who is your audience and what exactly do they need? Why are they asking these questions? It's a very different series of answers that you gotta do for your ROI model. If it's the CEO and the CFO versus maybe being a board level presentation versus maybe being the team being proactive and your B2B E commerce product team and your IT team and the market team going, hey, we need to make sure we're getting ahead of this and we need to be able to paint our story for our sponsors. So start with the audience. Who are they? What do they really need? And then step two would be start to manage expectations. So like anything else that is heavily vested in financial modeling, which is really what ROI is about. There's a floor in the ceiling to all of this. Right. So you got to understand, you know, where return on investment can return minimally and what's the potential. And very frequently you end up somewhere in the middle once the teams have coalesced and figured out what the business canvas might look like. So again, to reiterate, step one, start with the audience. Step two are the expectations. How do you manage that floor ceiling standpoint? And then step three, this is critical foundationally. ROI should be in everything that you do. And I know that's a big charter, but start thinking about it bottoms up into everything and everywhere possible. So by the time you're constructed, the business case and what the potential of that may be. Right. Because that's really what an ROI model is. What can we get out of this investment? You're just pulling together all the pieces into a very compelling storyline that everybody can follow on. Because at the end of the day, when you're showing your ROI model, sure, there's some lagging indicators there, but you're going to be talking about potential and what's leading. Yeah. And that's, that's a hypothesis.
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C
Right, right, right. And so, you know, even, even taking step one in there, you, I know you work with a lot of large organizations, you know, in, in the enterprise, an audience that's, that's a lot of, there's a lot of detail that could be, There's a lot of audience members. There's a lot of, you know, potential components to that. You know, how much detail is, is too much detail when constructing an ROI model. And, you know, how do you find that balance between, you know, we want to be comprehensive, we want to give the, you know, the right insights, but we don't want so much information that it's unwieldy.
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So I'll answer that in a couple of different ways, but I'll tell you a story now. Maybe six, seven years ago, eight years ago, you were working with a manufacturer who wanted to set up their, their B2B E commerce site. And, you know, the, the founder was still in play. Yeah. And he was an engineer by heart and, you know, loved the financial aspects of it, but love attribution and tracking and building his own stuff. So when we started talking about the, the ROI of B2B E Commerce. He wanted a canvas across technology infrastructure, digital marketing. We even built a model around return on experience spend. So how do you make sure that it's converting and all of that. But at the end of the day, if you looked at all the four or five massive swim lanes he wanted to track from an ROI perspective. There was a million items under each one and I had to pull a stop cord and I basically said to the this gentleman and he was driving his deer co a little crazy with all the things he wanted to track and I basically said, let's have a one on one. Let me walk you through this dashboard. You're looking for an ROI dashboard. You want to make sure the teams are accountable and you're spending your money in the right ways. I said, what can you really move on month over month or quarter over quarter? And I built him a little prototype and there was, there was no way he could go through everything. And he was like, all right Carlos, what should we do? I was like, well, I think you should focus on six to eight items to track and that could change over time once you line it up. And I know you're a believer in this and Greg. So ROI models should not be evergreen and should be set in stone for the next 20 years. You should calibrate against mission parameters at hand, put a time horizon to it and once you've solved it and it's going, then you can shift and change in terms of which, which component of the ROI you're going to be looking at next. So for C Suite, my, my thumbnail recommendation for everybody. Manage their expectations, ask them what can you consume and what's going to have a material impact on your business. Generally it's going to land in the six to eight type of range. Why? Cognitive load. And then everybody around and below that. You should be doing your bottoms up modeling along the way anyways so that you're not reacting to those big asks and you're having to do what my CFO likes to say with his financial brethren. He calls it accident reconstruction, which is the worst spot to be in when you're doing an ROI model.
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C
Right, Right. Yeah. I mean that six to eight, I mean that definitely tracks with, with my experience as well, is just, you know, there's there are as. As much as even as large as a company may be, you know, there's only so many things that you can reasonably do as you know, whether it's an executive team or you know, stakeholder group or whatever. So, you know, and to your. To Your point? I think for those that may be concerned that I don't want to be stuck with these eight things for the rest of my tenure. Yeah, yeah, exactly. Like it's, it's something, it can be agile, right? It can be, it can be modified over time, right?
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Yep.
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So beyond kind of what, whatever you want to call it, whether it's over scoping or just adding too many things and too many dimensions to the model, what are some other, you know, pitfalls or things to avoid that you see brands making when they're trying to measure these technology and marketing activities?
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Okay. I feel very strongly about this spot because this is where the art of the business canvas comes in. The worst thing you can do when you get asked to justify a current program or you have a thesis for a net new one that you're standing up, the worst thing you can do is be reactive. So if you're a VP of E Commerce and let's say you're a year in and they say, all right, great, that now that you've got a year in and that we're making progress against this, what's next? And they say, we're going to track it based on these levers and we need an ROI model. The worst thing you can do is just react to that. They're not operating that component. They don't know the line level details against it and they will likely have a miss because they're not operating. So what you need to do there is do a yes and yeah, shift and pivot and go. Here's the things we were already tracking. I can show you progress against that. Here's where it's going to be going in terms of net new investments. And here's what you, what we should be reviewing as a team for a return and investment. This way you've got joint accountability. Doesn't take you off the hook. You're the leader.
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Yeah.
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But they're in it with you and defining the levers that you're trying to move. That's the one biggest thing that, that pitfall that you can hit is just reacting to a series of requirements against this. So like back to my earlier example, same issue. If you just reacted to the ask of the founder and the CEO of that company, 80% of your job would be tracking down KPIs and trying to justify an ROI model against all of it. Right. Which doesn't help anybody. Number two, not focusing on the potential impacts against time horizons within ROI modeling. There's all this conversation around CapEx, OpEx, what do you attribute. And then there's payback periods. A lot of people are not comfortable with payback periods because you don't know. But if you don't lay that down and say, I think we're going to recoup our investment by year 1.5 and why. And I need these three things in order to hit that mark. Right. If you don't do that, then all you have on your back is a target and not a, a, a place of, of investment number three. I'm going to be flipping about this one, but I was at a, at a thought leadership conference that had CFOs. And the panel basically asked what, you know, a whole series of CFOs, what are you looking for in, in an ROI model? All of them basically said, whatever you do, don't position it as strategic. Which is really funny coming from CFOs.
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Right, right.
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And when asked why, it's like, well, it doesn't mean anything. Okay, okay, give us your hypothesis and why you calling it strategic is not justification.
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Yeah, yeah, yeah. I mean, it makes sense. And how many, how often do we hear that word thrown around? Too often. Anyway, so CFOs are saying that. Yeah, yeah, yeah. Because they, because I mean, an ROI model, like they're actually interested in the, the results are in the eye.
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Yeah, exactly. Yep.
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Nice. So, you know, maybe to make it a little more concrete, you know, do you have a specific example of a company that kind of navigated some of this and achieves results from it?
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Sure. As you know, we've worked with a lot of big brands in the B2B E commerce space over the last 10 years. So I'll give you two. The first one was a company who wanted to do a replatform and you know, they were told what to do and there was no E Commerce leader in there, so they weren't sure what to do. So they were just executing. And there was no ROI model in the beginning. Midstream, throughout the cycle, the sponsor started to look for what the ROI model should be and they just hired the new VP of E Commerce. But then he was reacting to that as well. So they built the ship in flight and we had to help with cost justifying even the smallest of things like where's my truck? And what kind of ROI am I going to get off of investing X amount of dollars to make sure we have a notification strategy Omnichannel. Right. Because every one of those features actually has a pretty good capital outlay. And then there's a payback period that you get to line up. After it all settled, the leader took all of those requirements, boiled it down here and basically said to his steerco that these are the things that we should be watching and here's the cadence that I'm going to present this to you so we can make good decisions off of our investment. So the learning there is, even if you don't have a leader in the very beginning or if you don't have a built out ROI model, when you get asked to expend a certain amount of capital against a large effort, start by doing what I was saying in the beginning. Figure out who your audience is, manage expectations, give them what they need and then manage the story of progress along the way so you can get to proving at the thesis. Yeah, that's one, they were lower in the digital maturity curve, but they course corrected after a leader came in who was seasoned, reset it. Number two, this one is a very mature organization, multiple hundreds of millions of dollars a year in terms of size. But they were going from yearly budgeting and this is much, much longer ago, but so maybe there are more players in the space who are at this juncture that they went from yearly budgeting to going, oh my God, there's so much potential because they were in a fast clip of innovation and marketing and conversion rate optimization that they were starting to shift to something called zero sum budgeting where all departments of the E commerce team actually had to review all available dollars for investment available month over month so they can redeploy where it was needed most that was going to get the most impact. So this is ROI on the fly. But the journey there was going from merely budgeting to like a month over month zero sum budgeting environment. I can tell you the zero sum budgeting did not work as everybody intentioned. Yeah, they ended up in QBRs quarterly business reviews. There, there always has to be a middle. But even large very well instituted organizations who do this very, very well, they still have a long way to go. And again it's managing the thesis against the impact against the horizon and doing it at the right cadences.
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Yeah, well, and, and maybe to the, the first example, you know, let's say somebody's listening to this right now and they're like mid, mid flight on something. I mean it's, it's better to do it mid flight than it is to wait until the end, right? I mean.
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Oh my God. Yeah, yeah, yeah. You gotta, you gotta take control of the wheel because there's a lot of leakage if you just react and imagine the amount of spend if you wait until end of, end of month of end quarter, depending on what you're investing on, whether it be a campaign, a conversion rate optimization program from product detail page to cart, or a big technical block, or installing AI, generative AI in your product detail page creation. If you wait till the very end, you're going to have a lot more to justify.
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Yeah, yeah, yeah, agreed. So I know we've touched on this a little bit, but you know, beyond demonstrating, you know, beyond just demonstrating value, certainly you know that, that's a, that's a big part of ROI models. But how can they be used to proactively drive strategy and unlock growth opportunities? Not just small growth, but you know, exponential large growth opportunities for B2B E commerce?
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So I mean, I would assume that a good portion of the audience is rooted in Agile. But what I like to add in terms of continuous improvement on Agile for B2B E commerce is truly employing the scientific method. Right. So it's six steps generally. Observe, question, develop your hypothesis, experiment, conclude, result, and then the whole thing starts all over again. If you do that for marketing, you can shorten those cycles. Right. If it's a campaign, you can hyper optimize in weeks, that months.
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Yeah.
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If you do that for again, use case. How do I employ generative AI so it makes my search and my product details better? Well, there's going to be a bunch of permutations against that, against service categories.
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Right.
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And product categories. So it may be different for each one. So you got to stand up different experiments. And then from a technology side. All right, and this happens all the time, we got to optimize our PIM attribution, it shows up better. And there's a data technology lift where we have to take it from five different sources to normalize it, to put it into play. Well, again, what's the current state? What are the questions that are coming up? What's your hypothesis for fixing that? Stand up two or three POCs, particularly now in the age of ML and AI in terms of normalizing all of this data across your technology stack and then how do you bring that to conclusion and forward? Those generally take quarter over quarter or even longer time horizons because of some of the scale that we have to deal with in B2B E commerce. But if everybody is used to the scientific method, you can call whatever you want. But if they're used to this optimization type of work track across all fronts, then you can minimize your investment risk because you're testing and learning along the way if you test two or three concepts and once a clear winner, then the other two, your ROI potential increases x fold depending on the variance between how well that succeeded in the ones that did it. Yeah. And you can almost project that. Actually have a little estimator built against that. Nice.
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I know. You do. Yeah, well, and that's, I love hearing that because when I get on my Agile soapbox, I like to remind people that being agile is not being reactive to that. You know, it's actually employing things like the scientific method and stuff, not just simply saying, oh well, last sprint didn't go well, let's change everything. And you know, so, so it literally involves a scientific method of, of thinking. So no, that's, that's, that's great to, to reinforce that. Do you have an example of, you know, how, how a client used an ROI model to, to inform a strategic decision?
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Oh yeah, this one's a big one. This one is actually happening unfolding as, as we're speaking. You've got a client in the B2B space and what's going on right now is we got called in because a RE platform did not go well and RE platform dollars, as everybody knows, is a pretty big investment. So there was a draft ROI there, but they did not take into account the cost of change for their customers and the cost to change on the omnichannel, on the customer, customer support, client success side and in the sales organization. So now that the platform has been deemed, it needs to be redone and reset, we're getting called in to go, well, how do we fill this out? And you know, the new VP of E Commerce has to go actually go in. I don't know how many times they've gone in before into and cost justify the, the failed implementation and what they're going to do to reset that. And now they have to factor in customer success and sales into that canvas.
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Got it.
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So the ROI model that we're co creating is taking on a bigger thing, but it's no longer ROI of E Commerce, it's ROI of Omni Commerce.
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Yeah, yeah, got it.
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That's a very real story and that's probably happening across all fronts. And yes, there's an AI component to it because in the AI rows of that business model it's like, well, where do we get more gain and how does that reduce our cost? And that has to be part of the business justification of this as well.
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I know a lot of what we're talking about is, you know, working on the, the model how it, how it works and the components that go into it. A huge part of this and it's kind of a through line through your examples as well is the communication of this as well. So. Right. You know, we can have the best model possible and be sitting in our, on our, on our laptop and loving it. But if there isn't buy in, if there isn't utilization across the organization, then you know, it can't be truly, truly successful. How do you ensure that everybody from, you know, C suite to the marketing team and beyond understands and benefits from the insights that are generated by these models?
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Well, I wish to say that you can do this as a bottoms up and everybody just buys into it and everything's hunky dory. But unfortunately, in all the work I've done over the last 30 years, you do have to get executive sponsorship from the very top as high as you can go and as clear as you can get them. So that would be my. It goes back to what we were talking about in number one. Like if you have a very strong executive level sponsor at the C suite on the operation side or on the technology side or even if you're lucky, the CEO, then the potential for what you're trying to build in cost justify has a lot more success. Yeah, yeah. If they're not bought in and you bring forward a radical new concept, hey, I want to use Gen AI to automate 80% of our work. Sure might look great on paper but it could affect multiple departments and that buy in from the top, you're not even, you're ROI models. Not even get to steer co because you're going to get challenges from all the other departments who are going to get impacted by what you do. Specific to B2B E commerce, it's just commerce now really. Right. Like it's not digital commerce, it's just commerce. It affects all of these channels and you got to get that organizational buy in. But it goes so much better when you've got a very clear vision from the top as to what you guys are trying to do. Yeah, yeah.
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So looking ahead, how do you see the role of ROI modeling evolving in the future of B2B E commerce and you know, particularly obviously, you know, AI automation, all those things as well, you know, are increasingly influencing.
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Oh my God. Yeah. Hot topic all across the board. Board, but fully legit and very exciting. So real time analytics is a thing now.
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Yeah, yeah.
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You can see, you know, just on basic use case, you know, I was recently at a trade show where they were where the platform was showing the impact of where the generative bots were coming from and how much traffic it represented and all that real time. Right. So there was a Geo dashboard and they were doing the attribution against that. So where do I think it's going? Well, clarifying the levers, once you've lined that up, there are some universals, like in E commerce is always number of engaged customers, conversion rate and average basket size or average order value. So let's just play that out, right? Like even if those on those three basic levers you can show in real time at the product detail level how it performs, you can add attribute back to what campaign, you know, for sessions, what's converting from a merch and UX standpoint and then how big the average basket size is from that. And that it tells you in real time where the opportunities may be or the deficits or sub performance are month over month, week over week, however it goes, that's where I think it's going to go. But it's all rooted in the fact that you have to be very clear about the ROI components that you're tracking so that you can deliver off of that real time analytics and bundle that into the story of progress, which I know all these teams want to do. Yeah, yeah, Love it.
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C
Well, Carlos, always great to talk with you. Thanks for sharing today. One last question for you before we wrap up. What do you do to stay agile in your role and how do you find a way to do it consistently?
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Oh, Lord. Well, I read all of Greg's books, of course.
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C
Of course, thank you.
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But he produces at about, I don't know, six a year at this juncture. It feels like totally kidding if y' all have not read Greg's books. They're great. But I read a lot. I read business books, I read the blogs, I read quite a bit of what's going on in the space. I listen to a lot of podcasts. That's number one. Number two, I talk to a lot of prospects and customers. The more keyed in you are to actual problems people are having on the operation side of this day to day, the better you are as a, as a consulting company, like Office of Experiences. And then the last bit is I always like to look at Horizon one, Horizon two, opportunities. So how do you stay relevant? Well, it's not just consuming, it's not just hearing. It's also having a point of view. Like where's this stuff going? What's interesting? What's going to deliver business value? How do I make the customers feel better and you always have to have an ongoing backlog of next generation thinking. And I'm not saying be a hyper futurist like Greg is, but be rooted in things that people can actually do do to move the levers. And if you orient your horizon 1 horizon 2 horizon 3 thinking against that, it feels like you're just continually making progress, being relevant and just helping people activate. And that's part of the joy of what we do. All right, thanks so much and thank you again for Greg, our host. And thank you everybody listening to this. Feel free to reach out. We're here.
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C
Yeah. Love it. Well again I'd like to thank Carlos Manalo, co CEO and Co Founder at the Office of Experience for joining the show. And thanks to our sponsor, the Office of Experience, a design driven, digital first vertically integrated and collaborative agency that believes in the power of ideas and the strength of people. Learn more at www.officeofexperience.com thanks again for listening to the Agile Brand. If you enjoyed the show, please take a minute to subscribe and leave us a rating so that others can find the show as well. You can access more episodes of the show@theagile brand.com that's theagile brand.com and contact me. If you're interested in consulting or advisory services or are looking for a speaker for your next event, go to www.gregkilstrom.com that's G R E G Killst K I H L S T R O M dot com the Agile brand is produced by Missing Link, a Latina owned, strategy driven, creatively fueled production co op. From ideation to creation, they craft human connections through intelligent, engaging and informative content. Until next time, stay curious and stay agile.
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