Death by tools and metrics #2: The P&L ~ Brand Mix

Tuesday, January 15, 2008

Death by tools and metrics #2: The P&L

This is the second in a series of posts about the dangers of blind allegiance to tools and metrics. In the wrong hands, used for the wrong purposes they can be killers.

Like the P&L. Of course, no business could run without managing the topline, bottomline and all the lines in between. This tool is fundamental to efficient business operation. But, unfortunately, it doesn't cover all the things that a brand manager needs to pay attention to. Specifically, it doesn't measure brand equity. That's an intangible asset only to be found (with difficulty) on the balance sheet.

The unfortunate consequence of this is that equity that has been built up in a brand, sometimes over years, can be used or tapped into at any time to help meet P&L targets. And the temptation can be very difficult to resist. Behind in sales in the first quarter? Let's cut advertising and get back on track. It works but it has a hidden cost. The good news is that brands are generally quite resilient and can stand up to some abuse. But with long term neglect, the damage can become irreversible.

A couple of ways companies can protect their brands against the short term bias a P&L tends to generate:

1) Promote leaders who are brand believers and strong enough to protect them against those who want a quick fix for financial problems

2) Add other performance measures that make it less easy for the brand treasure chest to be raided with impunity

First post in this series: Discounted Cash Flow and Earnings Per Share and their crimes against innovation

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