Marketing professionals around the world lament pitiful budgets, poor executive visibility, and lack of a central role in helping drive corporate strategy. And while we’ve made progress with tracking the right metrics and aligning more closely with the executive suite, would marketing …. as a function … be better served reporting to the office of the chief financial officer (CFO)?
In “Marketing as Strategy“, London Business School professor, Nirmalya Kumar, discusses the challenges of getting “marketing” back on the radar screen of the chief executive officer (CEO). He notes, “Many CEOs, unable to count on their marketing departments for results, have had to turn to operations and finance, cutting costs and re-engineering the supply chain to increase profitability and mergers and acquisitions to grow revenues.”
Dr. Kumar makes the case for marketing professionals to start speaking the language of CFOs, and tracking our progress against the goals of increasing customer retention, reducing costs, increasing innovation and improving the value of the corporation.
In a similar approach, Roy Young, David Stewart and Allen Weiss in “Marketing Champions” also pronounce that marketers need to align our activities to cash flow drivers such as customer acquisition, increasing wallet share, and improving customer retention. The authors advocate “forging a friendship with the CFO” and understanding his or her primary needs in creating healthy cash flows, steady earnings, and improved shareholder value.
The situation is dire, and the authors of both publications point out that in many instances, marketing is:
* Not aligned with the concerns of the CEO
* Not speaking the language of CFOs
* Not tracking the right metrics
* Not playing a role in critical strategy discussions
We know that the above critiques are not true in all instances, but for the sake of argument, let us accept them as valid. We could wait for marketing as a function to “evolve” and over time gain acceptance and credibility as we institute better marketing practices that more closely align with the needs of senior management. But this takes time, and I’ll argue as a marketing professional, time is not on our side.
Another, more drastic option, would immediately change the paradigm …. what if the marketing function reported to the CFO?
The following discussion falls under the category of intellectual prototyping. I don’t have all the answers, nor will I be able to fully encapsulate the ramifications of such a reporting structure. Perhaps the wisdom of crowds … the intelligence of many versus the few–can help enhance the discussion.
Benjamin Franklin is rumored to have divided a piece of paper into two halves, the “pro’s” and “con’s” as a decision making technique. In this spirit, I’ve listed out some of the positive and negative consequences of marketing reporting to the CFO. There are surely others, and I look forward to the Daily Fix community adding more:
Pros
Cons
Interestingly enough, marketing professionals have much in common with Chief Information Officers (CIOs). Just as marketing professionals struggle with building relationships with the finance department, codifying value and gaining visibility with senior management, in some respects CIOs are challenged with similar issues.
CIO Magazine’s annual “State of the CIO” survey shows that more CIOs report to the CEO (41 percent) than to any other position. There are however, a sizable percentage of CIOs who report to the CFO (24 percent in 2007 …. up from 12% in 2002).
To more closely align the CIO position with business issues and impose financial discipline on technology expenditures, many CEOs have taken a drastic step of having the CIO report to the CFO. Is “marketing” next?
My questions for the community:
* What are the pros and cons of the marketing function reporting to the CFO?
* Would reporting to the CFO be a catalyst for changing the perception of marketing within the organization?
* Would reporting to the CFO cause marketers to be more disciplined in approaches to marketing measurement?
* Must “marketing” report to the CEO in order to provide strategic direction to a company?
* Are you a marketing VP or CMO reporting to the CFO? If so, I’d love your opinions on this topic!
Tags: customer retention, increase innovation, marketing reporting structure, marketing reporting to CFO, Marketing Strategy, reduce costs
Will Internet Marketing will ripe profits in a short period.I think they also need many statergy to come across.Many marketing rules wont bind internet marketing i think.
If marketers were business-savvy in the first place, then this whole issue would be moot. I’ve seen many situations where meager marketing budgets were a result of not accepting responsibility for measuring and tracking the effectiveness and efficiency of marketing spending.
On the flip side of that coin, I’ve also been involved with clients where we increased the marketing budget dramatically (by an order of magnitude), simply by demonstrating that the investment (in marketing) was more attractive than a comparable investment in plant/equipment or other alternative use of funds.
Marketers who treat marketing as anything less than a business proposition deserve their meager budgets.
Paul,
Excellent post! I agree with Michael to some degree: marketers and their departments are often seen as “masters of fluff.” For that image to change, they must change and much of that change has to do with measuring effectiveness correctly. It doesn’t matter who marketing reports to; what matters is their impact on business success.
Paul -
Marketing should report to VP of Sales! Just kidding. I find that if the head of the company is not from a sales or marketing background that the culture tends not to understand or focus on the viability of marketing and indeed considers it to be “fluff”. It is abstract to those types of managers and it takes a real business professional to explain the value and effectiveness. CIOs have been misunderstood but many of them just could not get their arms around the bear when it came to being on board with the revenue generation needs of the company (CEO needs to be a revenue focused type)and how to tie that together with technology needs. If marketing has to report to the CFO, YOU WILL NEED to be both strategic and tactical.
Michael and Lewis thank you for commenting.
I agree that measurement is a key component of why marketers continue to be budget challenged. The difficulty will always be, to show with a degree of confidence, cause and effect. Meaning, because of investment X, the business gained Y dollars or Z results.
This is often difficult to do without the right data collection, financial processes and analytical infrastructure in place to analyze and verify marketing results.
More important than identifying the functions and reporting structure is attracting and hiring people who can work together who share similar values and visions.
If that part is right, it doesn’t matter much who reports to whom. They’ll figure out a way to make it work.
Courtney, thanks for chiming in.
You’ll probably find very few CEOs with marketing backgrounds – most come from operations, finance, and sometimes sales. The business case must be made to the CEO and CFO that marketing provides value to the company. As you pointed out, for this to occur marketers need to tie their programs back to revenue (generation and retention).
Cam, thank you for adding to the discussion.
Having the right people on board is critical – something that every CMO must address within his or her organization. However, a change in reporting structure may dictate new processes, procedures, and areas of focus for marketing professionals. I actually think it matters a lot!
Paul,
You raise many great points in this post. It is and well thought out and excellent, as always.
Because CMOs have been so slow, even reluctant, to quantify the results of their departments’ work with viable metrics, they have not generated respect in many cases from fellow executives and from their CEOs. Marketing remains a nebulous part of the business to many CEOs, and especially CFOs, who have a need to quantify every aspect of the operation in very real numbers. It really is up to marketers to prove their value to their companies and to learn and speak the language of their counterparts. It also takes a willingness to engage in honest, direct communications to remove the mystery and doubt around the marketing function. All of this takes initiative and work, but respect is earned.
It is equally incumbent on CEOs, many of whom are not marketers as you point out, to set strategy with the assistance of their CMOs and to agree on the tactics that will achieve their goals. Overall direction has to come from the top. The most effective companies when it comes to marketing, have engaged CEOs who are in touch with every aspect of their companies. . .like Alan Lafley at P&G.
Lastly, if the CFO is brought into serious marketing discussions and is on the same page with the CEO and the chief marketing officer, that would be helpful, but I still think CMOs should report to CEOs directly. Why? CEOs should be big picture executives for the entire company, encompassing marketing and finance.
Claire, thank you for the thoughtful comments.
I have seen many authors argue for partnerships with the CFO, bringing them in earlier into budgeting discussions, and working closely with the CEO on his/her initiatives for growth, improving productivity and/or reducing costs. All are relevant ideas that should be enacted. That said, thus far anyway, I haven’t seen much change in the perception of marketing.
Should we wait for the eventual evolution? Will we ever get from here to there? What will be the major catalyst that promotes the desired change?
Paul, you make several good points in your post.
There will always be a challenge in measuring marketing results and putting marketing under the CFO will not solve that problem, in fact it will exacerbate the frustration associated with that reality. Yes, marketing can be better at measuring the impact of what it does, but that won’t solve the problem of bigger budgets and a seat at the strategy table.
The issue isn’t speaking the language of the CFO, it’s speaking the language of the CEO. Marketing needs to be driving strategy and involved in the senior-level discussions about the direction of the company as a peer to the CFO and other C-level executives. Marketing needs to bring market, customer, and competitor insights to the strategic discussions, and no one can measure the value of that, but no company can live without it being done well.
Providing those insights is one of the key elements of winning a seat at the strategy table and speaking the language of the CEO.
Glenn, thank you for contributing to the discussion.
The CEO is the expert on business issues and strategy. If one agrees marketing is/should be a strategic function it makes sense that “marketing” should report to the CEO. However, it has been my experience that marketing isn’t providing those strategic insights you describe.
I think we all agree on a common problem. If modifying the reporting structure isn’t the catalyst for change, what -specifically -is?
Paul, I hope you don’t mind me including a link to a post I’ve written that answers your question called “CMOs: Step It Up” …
http://www.achievemarketleadership.com/?p=147
I look forward to continuing the dialog on this.
“Marketing” is a big function and possibly too big and diverse to categorize as just one area. In some companies, marketing encompasses everything from R&D, Customer Service, Advertising & PR, marketing research, sales, etc.
Some marketing functions might be well served reporting to the CFO: marketing research is a good example. Often research is used to not only gauge how customer and employees feel about the company but as a RISK MANAGEMENT tool.
Otherwise, I’m of the opinion that the Marketing function is, as others have pointed out, forward looking, while often finance is focused on the immediate period. This short-term focus is at odds for how marketing investments are made (and why CMO’s and CFO’s are often at odds).
Glenn, thank you for the link to the post.
The McKinsey information is interesting, but I think their prescription is heavy on theory and light on execution.
For instance they say CEO support for the marketing is critical. How does one get that “support”, esp when the current status quo in an organization is “no support”. Understanding customers is critical for the marketing function. How does one accomplish this “understanding”? Creating a closer connection between marketing and the organization is important – how does one accomplish this?
Eric, thanks for adding to the discussion.
Your example of the marketing research function reporting to CFO is interesting, but I think that function is more suited to reporting to CMO – who then reports to CEO or CFO.
Also, CFOs increasingly have more business knowledge and influence in the organization. While public and many private companies are managed short term and quarter to quarter, I think in many instances the role of the CFO is becoming much more “strategic” and focused on building long term shareholder value.
With the change in business processes to view the seamless supply chain incorporating both demand and supply, the role of marketing within companies is in drastic need of an overhaul.
Currently many companies have IT in charge of collecting scanner data, creating a datawarehouse, and analyzing data. However, the most important role of marketing is to understand consumer demand, to develop consumer insight, and to be part of the strategic discussion of how to serve consumers’ needs at a profit.
If only profitability is a concern and the VP of Marketing reports to Finance there is a real danger of having the demand part of the supply chain become unimportant. While profitability may be attained in the current market, planning for the future will be stunted. If that happens the company will lose its customers to more adept competitors.
Marketing and Finance are equally important and need to collaborate for the company to have effective strategies for the future.
The VP of Sales and the VP of Promotion and the VP of market research should all be reporting to the Senior VP of Marketing who will work with the Senior VP of Finance and the top management group to create company strategy.
If the balance is too far on meeting consumer needs without making a profit the company will go under. If the balance is too far on the profitability side without empahsizing consumer needs the company will go under.
Marketing and Finance need to be equal and interdependent for a company to remain health.
Camille, your comments add perspective to this post.
We often like to think of CFOs as interested only in the bottom line, but it’s my understanding that CFOs are wrestling more with compliance, budgeting, funding and prioritization of such activities. Their purview is increasingly expanding … and their role is requiring much more of a strategic mindset.
You bring up the concept of equality and partnership. If, as you say, the most important role of marketing is to understand and develop customer insight and demand, then one of the key ways that companies are going to achieve this “insight” is through data collection (customer purchases, behaviors, and other corporate activities) and analysis of the data into meaningful information that can be used to better run the business. This can be accomplished with a proper analytical IT infrastructure and processes. “Marketing” will have to heavily partner with the CIO and the CFO (to fund it). All three functions will have to work together very closely to increase corporate value.
There are, and will continue to be necessary interdependencies between marketing, finance, sales, IT etc. But does interdependence require independence from a reporting perspective?
Paul, I’d like to address your excellent questions:
I don’t agree that there is “no support”, I believe the support today is secondary on the CEO agenda whereas it should be primary. How do you get primary support? In some cases, it may not be available, in which case I would argue against taking the job, unless what you want is the title of CMO, but the role of Chief Marcom Officer – not what you and I have in mind here. To get the primary support, you have to fight for it as a prerequisite to taking on the job. We’d see more CEOs who were former CMOs if this were the case.
How does one get to an understanding of the customers? I won’t bore you with a treatise on this, but suffice it to say that through the right kind of research, and the right kind of political muscle by the CMO, the company can take a customer-centric view.
The way you create that closer connection between marketing and the rest of the organization is to prove your value as a marketer by providing insights the rest of the company needs to succeed at their functions. And do it with the support of the CEO.
Glenn, thank you again for contributing to the discussion.
Primary support from the CEO is indeed one of the things we’re after as marketing executives. We’ll get that support through a deep and thorough understanding customers–accomplished through primary research and my favorite- transactional data capture and analysis. Customer data can/should be leveraged to understand customer behavior and create offers/programs, products and services that customers actually want and need. Marketing can champion this data driven approach.
The analytical marketer, with a pulse on the customer (current and future wants, needs, behaviors), is much more valuable to the organization and can help create unmatched competitive advantage.
Paul – I agree it matters, as it helps determine a lot of other things, but I don’t know that it absolutely must be one way over another in every instance.
If you have the right people with the right common purpose, vision, values, etc., who trust one another, typically those things can be worked out.
If that means the CMO reports to the CFO or the CEO, so be it. I guess what we can agree on wholeheartedly is that neither of them report to the CMO.
First, I’d answer with an emphatic “no.” Marketing has no place under a CFO. However, I think there are several issues that can help shed light on this complex problem.
CEO’s are bound up by SOX compliance on one hand and this quarter’s revenue on the other; and their tenure is not much better than the average CMO.
CFO’s are desperate to be seen as something other than bean counters. They have their own problems to deal with and wouldn’t know what to do with a marketing department.
CMO’s usually come from advertising, because that’s where the biggest dollars are spent. Few ad guys understand business beyond agency relationships. So they fail at driving growth, managing product portfolios, dealing with channels (which they gratefully give to sales, letting the fox guard the hen house).
The biggest credibility gap that marketing faces is that it’s bloody hard work and isn’t easy to measure — if you’ve got IRI scanner data, great, but if you don’t sell through grocery, things get harder. There are lag times, channel swapping, impulse buys, and operational issues, none of which are easy to track. There’s no other function like it in business.
CFO’s have no ownership of financial measurement. CMO’s can (and should) speak this language, too. CMO’s and marketing need to report directly to the CEO.
“This is often difficult to do without the right data collection, financial processes and analytical infrastructure in place to analyze and verify marketing results.”
Actually, it’s IMPOSSIBLE to do. What drives sales and when is not something most businesses can quantify. A marketing plan that’s focused on short-term results isn’t a smart one.
Even the methods we have of measuring “results” are severely flawed. If someone clicks on a banner, was it an accident, did that banner count a rollover as a click, or did the person really have an interest in your product?
Marketing is not the job of the marketing department. It’s the job of every department. Web 2.0 has radically changed the way companies and consumers interact (I call it The Real Digital Revolution™) and consumers now have the upper hand as they can research and vet all marketing claims.
This leaves the marketer with one primary weapons: design (and by design I mean everything from the shape of the cups in a restaurant to the font the hotel uses on its complementary shampoo to the music playing in the supermarket.)
Imagine if the most successful marketers of today: Apple, Amazon, Starbucks, Whole Foods, had listened to marketing plans that relied on “quantifiable results.”
Glenn Gow is correct that too many CMOs don’t get the respect they deserve and more importantly, they don’t get the support from the top levels necessary to create anything close to an effective marketing plan. I wrote about that here at Daily Fix a few months back:
http://www.mpdailyfix.com/2007/11/defeating_the_armies_of_no.html
But I can’t stress enough how counterproductive it is for marketers to get themselves tied up in discussions about “measurable results.” We’ve been searching for that Holy Grail for almost a hundred years now, with very limited success.
Important challenge, Paul.
As you say, our book, Marketing Champions (Wiley 2006,) argues that the output of marketing is cash flow — in the short term and long term.
If Sales sells, R&D invents, Operations makes and delivers, HR staffs, Finance funds, then what does Marketing do that is of any financial consequence to the business? That’s what everyone in the organization wants to know.
Marketers must ensure that Marketing is perceived as a direct or indirect generator of current and future cash flow. Of course, Marketing does not do this alone in its silo; it produces cash flow by working closely with other functions.
So, whether marketing reports to the CFO or reports to Sales, as it does in many business-to-business organizations, it is up to Marketing to demonstrate how it contributes to cash flow.
If Marketing reports to the CEO, the function much demonstrate how it contributes to meeting the CEO’s greatest challenges: topline revenue and bottom line growth.
What we marketers must realize is that who we report to is out of our control. But what is in our control is strengthening the perception that Marketing is a generator of value in terms of cash. If we are successful, we will be powerful and influential regardless of who we report to.
I don’t have time to read every response right now so maybe someone has made this point already. The key is not to change who marketing reports to but to make marketing (and sales for that matter) more numbers oriented.
Stephen, thanks for adding to the conversation.
There are many “transactional” businesses that produce data suitable for making better decisions. You mention retail (indeed), but there are also travel/transportation, communication companies, financial, insurance, healthcare etc. The list goes on. There’s plenty of data …. including website data …. available.
The real trick is to have the acumen and the tools/technologies and processes to be able to separate the noise from the relevance for better decision making. If “marketing” can lead the charge in this area …. with a focus on the customer …. I believe we can be seen as a more … as you put it- “credible” function.
TT, thank you for weighing in with your take …. it’s valuable as always.
I don’t think you are suggesting that marketing shouldn’t focus on quantifying results. A real challenge is of course, delineating cause and effect, but I think every function in the organization has these challenges. We know that a “sale” is often a result of a diverse collection of influences …. we cannot be 100% “certain” our marketing efforts drove sale X, however through the use of an analytical infrastructure– at the very least– we’ll be able to make a better estimation of our effectiveness.
Neil and Roy, thank you for commenting.
Roy, you describe a real change in mindset and skillset for the marketing professional …. one that I believe is sorely needed, especially when you consider some of the comments from Stephen Denny about typical CMO tenure and background.
Neil, your comment about marketers needing to be “numbers driven” is right on. With the amount of data doubling every three years, marketers will need to need to be pros at gathering the right data, adding computational tools to the mix and being able to interpret the data for better decision making throughout the organization.
As a profession, the time for change has arrived. Let’s hope the evolution takes place quickly.
Well Paul, I realize that internal forces often demand quantification, but I just don’t see it as realistic.
What goes into a purchase decision is subjective, not objective. Even a direct response play has external factors that come into play.
The more we try and define something that can’t be defined, the more we look like snake-oil salesmen. Our insistence that these things can be measured – and the often comical methods we use to measure them– are what make the marketing department the butt of jokes.
Hi Toad, do I detect a wee bit of cynicism regarding marketing’s quantification efforts
No doubt, without the proper IT infrastructure (data warehousing environment), data (cleansed and of good quality), data collection processes and applications to do the job right, ROMI becomes a chore – if not as you point out, (nearly) impossible.
Paul,
You are exactly right. We went for a while without good numbers and it was like flying blind.
Our company improved tremendously when we got serious about the numbers. We really started to grow. It made a huge difference to be consistently focused on the numbers.
In most organizations, having Marketing report to the CFO would result in the slow death of the department and function. The average CFO is too busy with compliance, and managing short term to please investors, Wall Street, bankers etc. There are those with the luxury of looking longer term, especially those charged with planning. However, many of them are not strategic thinkers even though they are charged with the function. Their planning focus tends to be on capital budgeting, HR planning, etc and the assumptions they use regarding market growth etc are often weak because they dont have the insights marketing does or should have. I came out of that particular kind of finance and planning function and moved into marketing 22 years ago. I was trained in the CPG industry and our marketing had a very clear line and results oriented focus to it. Our CEOs usually came out of brand mgt or sales and understood and appreciated the marketing function. we still had to show how our investments vs. spending got results and we spoke in business and finance terms…ROI etc. I never knew how rare that was until I left that world 10 years ago and went into the services business. Much of the marketing done in that environment is indeed fluff. Its hard to show what results come out of it…indeed there often is limited thinking as to why its being done inthe first place.It has been intersting to teach subordinates a more bottom line oriented approach…but it has been very challenging to teach it to CEOs and CFOs. Most of them have been shocked to find out that I even talk that language and look at things that way. Marketers need to learn the way the other areas think and how to show they earn their way, can set and achieve results etc. Without that you dont get respect.
Wade, thank you for your perspective.
I’ve had the privilege of guest lecturing at many “capstone” marketing courses in major universities. Students often ask me what I would have done differently in my marketing career- knowing what I know now. Without reservation I tell them I would have taken extra finance courses. In fact, a minor in Finance would be very beneficial to most marketing majors.
This is a great discussion with some very good pros and cons. Many of which I agree with. However, one pro not mentioned is one of the roles of the CFO is to safeguard and protect the corporate assets. A company’s ‘brand’ is arguably the most valuable asset on a company’s balance sheet and yet that value is not even on the balance sheet. With that said, the goal of the CFO along with marketing should be to develop brand building strategies in conjunction with business building strategies to increase the overall value of the company. If that means marketing should report to the CFO, then so be it.
Richard, thank you for commenting.
While “brand” might not be on the CFO’s radar screen, you can be sure that “risk” is. And with Web 2.0 technologies opening up “communication” between companies and customers, CFOs should be very in tune to the risk’s associated with reputation management.
You can’t measure what you don’t measure. That’s the first rule in marketing metrics.
There are a million “Johnsons’ out there who are putting the accountability of their marketing budgets, and their reputations as marketers, at risk.
That’s why the advertising industry launched buysafemedia.com!
I think CMO’s should now take steps ahead in talkin to its CFO’s, as what is required now is a more combined & calculated effort to increase revenue generation to benefit the organisation as there is increase in the troubled economy, the over spending and the lack of effective marketing investments.
Marketing is often first in line for cuts as corporate leaders attempt to identify immediate cost reductions that may take longer to achieve in other areas. But despite a 75 percent decrease in marketers’ marketing budgets this year, as well as 65 percent who said they were expected to drive more sales with the same or lower budget, marketing accountability programs have taken on a greater significance. In order to increase the effectiveness and the efficiency, both sides of the equation i.e., the ROI and the cost of using the lever should be factored into investment decisions.
I read this interesting article on the following blog:
http://blog.cequitysolutions.com/Customer-Management-blog/bid/8971/Talking-to-your-CFO-makes-Marketing-smarter