A recent study by McKinsey & Company documents the continuing decline in the influence of the marketing function and the growing frustration of CEOs with the contribution of marketing. Much of this frustration stems from marketers’ inability to clearly explain how marketing activities contribute to the firm’s financial performance and the continued use of metrics like brand awareness and brand equity as evidence of performance. There is, of course, nothing wrong with measures of brand health, and firms would be remiss to ignore them. However, they are not the primary metric of interest in the boardroom or among investors, and, by implication, are not of primary interest to the CEO and CFO. Neither is the efficiency of a new piece of production equipment, though such efficiency is likely very important to the production manager.
Common retorts of marketers to such criticism are that CEOs and businesses in general are short-term oriented and don’t appreciate the value of brands, creativity, and innovation, which tend to have longer-term consequences. Such responses only add to the problem of marketing’s credibility. The reality is that most CEO’s and CFO’s have a keen appreciation for the future, and there are a variety of quite useful tools that take account of the future returns expected from current expenditures and activities. Estimates of risk-adjusted future cash flows are a common financial planning tools that provide a means for comparing activities and expenditures that will have an impact at different points in time. Similarly, CEO’s, boards of directors, and investors appreciate brands, innovation, and creativity when they are linked to financial performance. Indeed, investors pay substantial premiums for successful brands associated with long-term price premiums and for innovations that they believe will drive growth, provide a competitive advantage, or otherwise enhance a firm’s future financial performance.
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Analysis of marketing’s credibility problem, both within the marketing discipline itself and by outsiders, has suggested that there is a misalignment between expectations about marketing’s contribution and the definition of marketing’s role and decision rights within the firm. After all, it is unfair to expect a function defined by its role in advertising and sales support, with little input into pricing, distribution, or product design, to have much influence on financial performance, growth, or strategic direction of the firm. However, it is useful to ask how such alignment, or misalignment, occurs in the first place. Some would argue that the absence of expertise and even interest in financial planning among marketing professionals leads firms to organizational structures in which marketing is managed as a cost and set of tactical activities. But this argument also misses the point and produces a suboptimal outcome for the firm. If the requisite talent is not present to assure that marketing contributes to the short-and long-term performance of the firm, there is a management training and development problem.
A clear symptom of this problem is the very small number of senior marketing managers with any P/L experience. Few marketing degree programs in universities emphasize P/L and the obligatory finance and accounting courses rarely equip a graduate for the difficult decisions and trade-offs required by the responsibilities of managing P/L (and this assumes the marketer might have pursued a degree in business).
Investing in a brand can be a good thing in the abstract, but a line manager with P/L responsibilities must trade off the allocation of limited resources to many different potential actions. An advertising campaign might bolster a brand, but training front-line service personnel might improve brand image, sales, and margins even more. The manager who opts to train personnel may be criticized for failing to invest in marketing and for favoring HR, when a broader perspective from a general manager would lead to the conclusion that the manager is actually investing in the brand. Managers with profit-and-loss (P/L) responsibilities, often referred to as general managers, must make many decisions among noncomparable uses of resources: money, people, and time. The business question is not “Should we invest in brand building?” Instead, the question is whether we should allocate funds to this specific activity (such as an advertising campaign) that will cost X amount and generate Y incremental income over the next Z months. This question must be answered in the context of all the many other things, in marketing and elsewhere, to which resources might be devoted, and how the return compares across all these alternatives. Until marketers can address such questions, they will lack credibility and influence.
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This does not mean that every marketer must be a general manager or acquire P/L responsibilities. There are many very competent physicians who offer excellent care but are unlikely to be good managers without training and experience. Similarly, there are many capable and creative copywriters who produce excellent work, but they are not prepared to take on managerial or CMO roles. There are very good copywriters who could be good managers and contribute to the strategic planning and financial management of the firm; they require development.
If we wish to increase the credibility and influence of marketing and marketers, which is in the interests of both the discipline and the firm, it is time to consider how talent appropriate to the task can and should be developed.
Contributed to Branding Strategy Insider by Dr. David Stewart, Emeritus Professor of Marketing and Business Law, Loyola Marymount University, Author, Financial Dimensions Of Marketing Decisions, and Chairman of the Marketing Accountability Standard Board.
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