RESEARCH & IDEAS
Fixing the Marketing-CEO
Disconnect
Q&A with: Gail McGovern
Published: May 21, 2007
Author: Sean Silverthorne
In many companies, the marketing function
has wandered far from the company's overall
strategy. The result: lower margins and
declining productivity, says Professor Gail
McGovern. She discusses what executives can
do to repair the split and introduces a new
diagnostic tool for measuring marketing
performance used in HBS executive education
programs. Key concepts include:
• In many companies a wall has grown
between the marketing function and the
C-suite. Reasons for this are varied, but
may include CEO and board priorities
taken up by other issues or too much
delegation of responsibility to the chief
marketing officer.
• When a firm's marketing activities are not
supportive of its greater strategic goals, the
result can be low growth and declining
margins.
• The key challenge in aligning marketing
activities with corporate strategy is to
develop a set of metrics to be used by top
executives and the board that measure the
impact of marketing activities against the
goals of the corporation.
In most companies, no one knows and
understands your customers and their changing
needs better than the marketing department.
Certainly that knowledge should be routinely
presented and understood by the chief executive
and board of directors, right?
But over time, and for a number of reasons,
the marketing function and the C-suite often
drift apart, resulting in a disconnect between the
overall strategy of the company and what
marketing understands to be the actual needs of
customers. One result is that company strategy
becomes less attuned to market needs, resulting
in eroding profits and susceptibility to
competition. How to repair the rift?
Two HBS faculty developed a CD-based
program called Measuring Marketing
Performance targeted at senior
executives—namely CEOs, COOs, and CMOs.
The tutorial helps execs understand how the
customer base is segmented, how the size and
profitability of each segment is changing, and
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how the company's products and services
address the needs of each segment.
The product was developed by Gail
McGovern, a professor of management practice,
and John Quelch, the Senior Associate Dean
and Lincoln Filene Professor of Business
Administration, in collaboration with Harvard
Business School's Educational Technology
Group. McGovern will be using the product in
the Advanced Management Program
"Managing for Senior Executives" program in
June.
The program has been made available for
purchase through Harvard Business School
Publishing.
We asked McGovern to discuss the
CEO-marketing rift in more detail and describe
the benefits of the tutorial.
Sean Silverthorne: Why has marketing
evolved so far from the executive suite over
the years? You'd think corporate leaders
would want to align the marketing function
with the overall direction of the company.
Gail McGovern: In many companies,
marketing exists far from the executive suite
because the CEO perceives that there is not the
same pressing need to master the marketing
discipline as there is, for example, to master
finance due to compliance issues surrounding
Sarbanes-Oxley. Unlike operations where there
are established techniques in inventory
management and reengineering, there are no
obvious and permanent cost-cutting results to
be gained through marketing, short of simply
slashing the advertising budget. In addition,
marketing is not naturally inherent in a CEO's
day-to-day job as is organizational
behavior/leadership.
Part of the problem is the current corporate
climate, in which questions of governance and
financial purity dominate CEOs' and boards'
attention. Additionally, boards, and even CEOs,
have been lulled into complacency by the chief
marketing officer (CMO). With the emergence
of the CMO position, one might expect that
oversight of marketing would be efficiently
consolidated. However, marketing decision
making has been increasingly pushed down
through the corporate hierarchy. While CEOs
have commonly delegated advertising and
advertising strategy to outside agencies, now
they are delegating sales, distribution strategy,
pricing, and product development to CMOs,
who often lack overarching strategic
responsibility. CEOs expect their CMOs to
drive marketing decisions, but no one is
singularly accountable for the results.
This lack of accountability makes it very
difficult to track the financial impact of
marketing investments, and so marketing
becomes abstract to both the CEO and board.
Q: What are the consequences of not
having this alignment?
A: When a firm's marketing activities are
not supportive of its greater strategic goals, the
result can be low growth and declining margins.
The presumption of organic growth is baked
into most companies' stock value, but many
companies and their boards are faced with a
requirement for organic growth that they're
unsure how to meet. For these companies, the
yawning gap between actual revenue growth
and investors' expectations is a ticking time
bomb. Marketing is the way in which firms can
close this gap because it encompasses all the
activities of an organization that listen to the
customers' voice and ultimately generates
profitable relationships.
CEOs expect their CMOs to
drive marketing decisions,
but no one is singularly
accountable for the results.
Second, responsibility for brand equity still
resides in the marketing function, yet brand
equity has never been more volatile and
important. Today, powerful brands can emerge
almost overnight. Similarly, in recent years
brands have toppled virtually overnight. Poor
marketing is largely to blame.
Third, and perhaps most important, the
fundamental nature of marketing has shifted so
rapidly that many companies have not kept
pace, making them vulnerable to more savvy
competitors, and unable to capitalize on new
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growth opportunities. Over the past 10 years the
mix of marketing skills needed by a company
has radically changed, and many senior
executives—specifically, those who have
remained detached from the marketing
discipline—have not kept pace. The changes
within the discipline have been particularly
pronounced in the area of customer relationship
management; not only have the technologies to
support CRM changed radically in recent years,
but the principles that firms use to serve
customers have evolved as well.
Q: What are the key challenges in
aligning marketing activities with corporate
strategy?
A: The key challenge is to develop a set of
metrics that measure the impact of marketing
activities against the goals of the corporation.
Many marketing managers will tell you that
marketing performance can't be measured. It's
not that managers are short on measurement
tools, or that marketing metrics lack utility. The
problem is that these managers don't know what
metrics to measure or how to interpret the
results. They may collect all manner of
plausible marketing-performance metrics, from
customer satisfaction to retention, but if these
can't be correlated with marketing activities and
revenue results, the data aren't very helpful.
Indeed, popular metrics such as customer
satisfaction, acquisition, and retention have
turned out to be very poor indicators of
customers' true perceptions or the success of
marketing activities. Often, they're downright
misleading. High overall customer satisfaction
scores, for example, often mask narrow but
important pain points—areas of major
dissatisfaction—such as unhappiness with poor
customer service or long wait times. They can
also mask backsliding against competitors;
while gently climbing satisfaction scores may
be reassuring to management and the board, if
competitors' scores are increasing faster it
should be a cause for alarm. Acquisition rates
may be robust, but if old customers are
abandoning ship as fast as new ones are coming
on board, strong acquisition can give a
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HARVARD BUSINESS SCHOOL | WORKING KNOWLEDGE | HBSWK.HBS.EDU
deceptive picture of marketing performance.
And what, exactly, should the board make of
stable customer retention? If customers are
staying on because they're held hostage by a
contract, good retention may be obscuring the
truth that customers will flee the instant they
can.
Selecting the wrong metrics can actually
cause firms to lose ground with customers. For
example, Starbucks was measuring "innovative
beverages" as a key metric. As a result, their
efforts were focused on designing complex
drinks that ultimately slowed their operations.
They subsequently learned that customers
valued fast service more than product
innovation and added staff to shorten waiting
times. Similarly, Kinko's was measuring
on-time performance for copying large batch
jobs for their corporate accounts. Their staff
was thus engaged in back office activities to
generate these copies. However in actuality,
their customers were seeking a more
user-friendly layout in their retail stores.
These examples show that even if today's
boards wanted to exercise their governance role
over marketing activities, they often wouldn't
have the information they need to make sound
judgments. Boards need a fundamental
understanding of how the company is meeting
its customers' needs, and how marketing
strategy supports this goal. It is rare to find a
firm that provides its board with a scorecard
that allows this.
Q: From a 30,000-foot view, how do the
Measuring Market Performance CD and
tools help? Once users complete the tutorial,
what will they have learned?
A: The tutorial provides instructions as to
how to improve the link between high level
corporate strategy and the marketing function.
Selecting the wrong metrics
can actually cause firms to
lose ground with customers.
First, participants are exposed to three
companies in which marketing programs are
tightly aligned with corporate strategy. Second,
the CD explains how to create a marketing
dashboard that can reveal the true performance
of a company's marketing activities. The
resulting dashboard can be used to inform
boards of directors and senior leaders as to how
well their marketing efforts are supporting
customers' needs. Unlike isolated measures of
marketing performance that are often
insufficient, irrelevant, or misleading, this
dashboard allows the board to quickly and
routinely assess how effectively marketing is
supporting corporate strategy and determine
when marketing and strategy are misaligned.
Armed with a clear understanding of
marketing's role and performance, the board can
optimize this critical function in the
organization.
The dashboard is structured to develop and
track:
• Business Drivers: business conditions that,
when manipulated or changed, will affect
performance directly and predictably.
Business drivers are leading indicators of
revenue growth.
• Pipeline of Growth Ideas: a set of future
customer initiatives and innovations that
translate into sustainable future growth.
• Marketing Talent Pool: the skills that are
needed to facilitate the marketing function
as well as a plan to address any gaps
through staffing, training, and/or
outsourcing.
Lastly, the tutorial takes participants into the
Harvard Business School classroom, where they
can experience first-hand how other executives
learned to master the marketing dashboard
creation process.
About the author
Sean Silverthorne is the editor of HBS
Working Knowledge.
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