Companies want to know what returns they are going to get from their corporate hospitality spend, but to get a measure they must first identify the reasons for holding the event. By Richenda Wilson
Frivolity is no longer an adequate excuse. These days, it’s only acceptable to have fun at a corporate outing if some serious business or bonding is happening too.
Corporate entertaining is coming under scrutiny as directors aim to identify just how much it contributes to the bottom line. Then they can work out how much it is reasonable to spend. But measurement isn’t always easy.
"How do you know what will work and how effective it will be?" asks Nigel Cooper, divisional managing director for travel and events at P&MM and chair of incentive industry body Eventia. "A fantastic Christmas party at say 100 a head might boost morale by 10%, but would a 120 party increase it by 15% or would you still get 10% if you only spent 50?
"Of course, not everything can always be measured in ROI," he adds, "particularly if the issues to be tackled are brand awareness, staff motivation, culture and so on. Nevertheless, there must be objectives and the budget should reflect the value of achieving those objectives to the company."
Party beats a bonus
One P&MM client asked its staff whether they would rather the company spent 150 a head on a Christmas party or gave them the money instead. A resounding 80% said they would prefer the party. This way, the company knows that it is getting better value in terms of staff satisfaction and it reaps the benefits from the employees’ willingness to participate and the bonding and improved team working that should follow.
The Chartered Institute of Personnel and Development calculates that the direct costs of recruiting new managerial staff come to around 5,000. On top of this, there are the indirect costs of covering for the leaver (on average, it takes ten weeks to fill a vacancy), induction and training, as well as falls in productivity as the new person learns the job.
A reduction in labour turnover is clearly an objective that can reap big dividends for an employer. And it is measurable, as turnover can be assessed to see if staff retention programmes are working.
P&MM is one company that has turned itself around in the past few years, using staff events as a key factor to improve morale and working practices. Employee turnover is down from more than 30% to less than 10% – against an industry average of 20-25%. Meanwhile, the company has gone from making operating profits of 150,000 in 2001 to 2m in 2005, when it floated on AIM.
Events reflect culture
"Events are a key factor in changing a company’s culture," says Cooper. "We established a set of values to reflect our brand – being fun, open, honest and creative – and some simple strategic objectives, announced them to the staff and communicated our progress regularly. We have fantastic Christmas parties and family days out, with activities designed to reflect the business we want to be part of."
P&MM has a social committee, which owns the entertainment budget, and board directors do not interfere with this.
"We achieved the objectives of our first five-year plan in year two and our second five-year plan two years later," adds Cooper.
Richard Beggs, managing director of catering and events specialists MVM London, agrees that having a set of objectives is essential, whether you are looking to stimulate existing customers, win new ones, increase productivity or reduce staff turnover.
However, says Beggs, you should not look at events in isolation. If you want to reduce staff churn, for example, you need to consider other factors, such as whether you are paying competitive salaries.
Follow up calls
Research after an event is also essential to establish whether it has been a success, says Beggs. MVM London recently organised a family day for 5,000 staff of the Royal Bank of Scotland at G-MEX in Manchester. This time it employed researchers to ask the children for their views of the day itself and their parents’ working lives.
Beggs says that the children’s honesty offered insight into the employees’ satisfaction. By doing this, the company was able to demonstrate that it makes a big effort to keep people happy and the families were endeared to the bank.
When it comes to entertaining clients, the financial contribution of parties can be measured by looking at increases in turnover following the event.
MVM London organised the launch event for the Eurostar high-speed Channel Tunnel Rail Link in 2003. It took 3,000 people, including railway company executives, trade clients, journalists, train drivers and even Tony Blair to Leeds Castle in Kent. Staging the event cost 4.85m, but the event generated a huge amount of television coverage, column inches, and an increase in sales over the next two quarters, all of which amounted to a return on investment of 38.5m.
However, says Beggs, not all events generate instant cash. There is a parallel with the top fashion houses, which make next to nothing from their haute couture lines but must be seen at the shows in Paris, London, Milan and New York, or they will lose market recognition.
Events may be staged for different reasons, says Nick Grimaldi, sales and marketing manager for Bridgehouse Hotels, so their success must be measured in different ways. One car company held an event at New Hall, a moated country house hotel in the West Midlands, that was intended to appease disgruntled dealers.
"The event was based around collaboration not competition," says Grimaldi. "We had duck herding in the rose garden, boat racing in the moat, a Ready, Steady, Cook competition, and then a big dinner. It was all about networking and contact building. It got groups of people to work together and created teams that are still working together now."
Bridgehouse Hotels always calls clients after an event to ask extensive questions about how it went, what has been achieved and whether they will come back. In time, it is intending to probe deeper to discover what financial value they are seeing from an event.
A key element of creating an event that works is to pay great attention to the guest list, asserts Rosemary Stamp, director of the strategic consulting group at Euro RSCG Riley.
"Guests will be under no illusions as to why they’ve been invited, so host companies should be ruthless in identifying the decision makers who can take the relationship forward," she says. "The guest list will also dictate the style of event: what will get senior executives to attend and what direct networking opportunities it will provide. Similarly, clients themselves will be ruthless in determining what they will gain from the event.
"Clients will often put work before networking events so companies should consider selecting well-located, accessible venues to maximise attendance figures and cut down on clients’ expenses."
"Think about who you want to invite, where they live and how they are going to get there," says Jonathan Haskell, chief executive of reward company Michael C. Fina Worldwide. "Ask yourself: will they like this event? A simple phone call to a PA can be invaluable.
Think about the guests
"Put yourself in the shoes of your guests," adds Haskell. "They do not want to be pinned in a corner and given a heavy sell. Our rule in the corporate box at Wasps rugby club is never to talk business."
As Stamp concludes: "Effective experiential events can make an immediate impact and create renewed enthusiasm for the organisation. They will also tend to have a payback over a longer time, and therefore provide an excellent return on investment. The budget does not have to be astronomical but it must cover the costs of providing the right guests with an appealing event that is on message."