On the traditional corporate organizational chart, chief marketing officers' and chief financial officers' paths seldom cross. But given today's market environment, companies can no longer afford to have these executives ensconced in their silos.
Globalization and technological innovations are rapidly increasing the speed at which change occurs. Competitive advantages that companies may have built up previously don't last as long as they once did. Strategies for building growth need to be continually refreshed on a more dynamic basis than previously.
One way to bring CFOs and CMOs together is through an enterprise performance management approach that is customer-centric and balances short-term financial goals with long-term strategic objectives.
Enterprise performance management consists of four key elements:
• Strategic planning and an understanding of the key value drivers for the organization;
• Portfolio value analysis: determining which markets, products, and customers to target to achieve that value;
• Resource planning and allocation of marketing dollars, people, and capital to execute the plan; and
• Performance monitoring and analytics: determining the drivers of performance changes and using that insight to reallocate resources to achieve strategic goals.
While CFOs and CMOs are both interested in the health of the company, their different perspectives can contribute to a natural tension. CFOs are under increasing pressure to deliver quarterly earnings targets. CMOs focus primarily on building brand equity of the company, which typically impacts long-term growth.
But some companies make trade-offs that jeopardize the long-term objective of maintaining the company's brand -- an essential ingredient in sustaining customer loyalty and profitability. For example, under strain to meet short-term financial goals, companies may short-change investments in advertising, employee training, and other efforts to provide a more rewarding customer experience. Such cuts can endanger long-term growth prospects.
The pressure on CFOs and CMOs to produce tangible results is magnified by the fact that their tenures are growing increasingly shorter. CFOs and CMOs have the shortest tenures among all C-level positions. The average CFO lasts about three years, while CMOs typically survive less than two years. Indeed, more than half of CMOs hold their jobs for less than one year.
Measures such as short-term sales goals may not reflect the totality of the CMO's efforts. Additionally, it is difficult for CMOs to demonstrate return on investment because few firms have the robust capabilities to measure how effectively marketing campaigns designed to attract and retain customers actually impact brand equity.
Indeed, our experience and research show that many organizations have put in place the wrong incentives to drive performance. The incentives tend to be near term--focused instead of striking the right balance between short- and long-term performance. For example, some companies measure performance using financial metrics that have no clear linkage to the creation of long-term shareholder value.
Additionally, investment analysts are becoming increasingly interested in nonfinancial information -- especially intangible measures such as brand equity, customer loyalty, employee innovation, and intellectual property that can provide insight into an organization's future value-creation potential.
Business executives are also becoming more aware that their companies are highly dependent on intangible assets to generate value. According to a global survey by Accenture of 120 senior executives in 30 industries, 94 percent said that managing intangible assets was important to their companies' future success in creating long-term shareholder value.
But, as critical as most executives claimed it was for future success, most also admitted that the measurement of intangibles was a weak link in their companies' current management systems. A mere 5 percent reported that they had a robust system in place to measure the performance of their intangibles. The majority, 62 percent, said that they had applied some measures but that these were either disorganized or informal. A full one-third confessed that they did not measure performance of intangibles at all.
Despite the seemingly daunting challenges facing CFOs and CMOs, high-performing companies are succeeding at bringing the two positions into greater harmony by integrating a customer-centric approach into performance management.
Leading companies are becoming increasingly aware of the importance of providing a differentiated customer experience to gain competitive advantage in the market. Savvy marketers understand that one of the best ways to drive loyalty of products and services is to focus on the total experience that consumers have with their companies and brands.
To effectively deliver this experience, they must develop a unique value proposition for their brand across all of the different touch points they may have with customers. Further, this consumer experience must be consistent across all channels. This includes customers' perceptions of advertising, interactions with customer service centers, and interactions with the brand at the retail level and online.
For CMOs, customer centricity gives them multiple ways to interface with customers that go well beyond traditional tactics such as advertising. As a result, CMOs are beginning to understand what levers they need to pull to drive this customer experience. This, in turn, elevates their influence within the company as they interact more directly with multiple channels and educate other organizations within the company as to their role.
Look at the example of a large retail organization, an Accenture client, which implemented a customer-centric approach to a performance management initiative by tying the CMO and CFO together as key sponsors. Analyzing the customer experience, we discovered that the retailer had a significant problem with lapsed customers.
Customers were parting for four reasons:
• Products they wanted weren't on the shelf when they were in the store;
• Employees were not available in the store to answer customer questions;
• Products weren't bundled logically or attractively; and
• Overall in-store experience was focused more on driving product sales than on meeting customer needs.
Armed with this insight, measurement capabilities were implemented around customer satisfaction and retention; employee engagement was instilled with the customers; and linkages were demonstrated between the causal drivers and actual financial results. The CMO, a key stakeholder in this initiative, became actively engaged in developing analytics about the customer experience. The CFO, in turn, better understood how customer experience drivers were directly tied to financial results. As a result, both executives were better positioned to make more informed decisions regarding where to target future investments that would drive both near-term financial results and longer-term growth and profitability.
Prior to this initiative, the CMO was disconnected from decisions being made at the store level. But now, the CMO is included in ensuring that these interactions are consistent with the experience that the company wants customers to have with its brand. From a performance management perspective, the CMO and CFO interacted more closely and became more valuable to each other. From a strategic viewpoint, the CFO greatly expanded his role as business advisor to the CEO regarding growth strategy. Similarly, the CMO is now able to better develop strategies that will grow the customer base, loyalty, and brand over the coming years.
Another national retailer undertook a performance management program by setting a strategic goal to double its value in five years. It then determined what metrics were needed, what drivers had to be moved, and what investments to make regarding its brand and capabilities to meet its objective.
The company discovered that its brand was a key driver of value, so it decided to rebrand itself from a traditional consumer products store to a pleasant and efficient shopping experience. Rather than trying to sell customers individual point solutions, the retailer added much sought-after services to a more attractive product mix in strategic store locations. It used brand repositioning to increase store traffic to drive more revenue per square foot and to make its capital investment more productive.
The goal was to improve the customer experience from a strategic and capability planning perspective with a longer time horizon. To actually achieve that goal, the retailer changed its advertising and store layouts, as well as the look and feel of its Web site; it also customized the shopping experience for certain specific customer segments it was targeting. The project involved marshalling a significant number of resources, together with performance management capabilities, so that the retailer could measure expected revenue uplifts and make course corrections as needed on a quarterly basis.
From the beginning, the CMO was involved in thinking through the execution of the campaign by studying both the articulated and unarticulated needs of the company's shoppers. The CMO and CFO were part of the strategic planning discussions about whether the investment could bring a significant uplift in traffic and margin.
A balanced approach to enterprise performance management can enable a company to more fully benefit from the respective strengths, experience, and perspectives of the CFO and CMO. While there is no blueprint for success, the experience of several major companies showcases critical steps toward achieving a balanced performance management initiative:
• The overarching goal is to create value through improved profitability. While keeping a finger on the pulse of a company's target customer base, there is a bias toward external benchmarking and competitive intelligence to inform strategic direction and tactical course changes that factor into performance evaluation.
• Focus on developing a deep understanding of the organization's critical value drivers (current and future) upon which competitive advantage will be built, bearing in mind that how a company differentiates itself through marketing and services will contribute mightily to its ability to outsell the competition on higher margin products and services.
• Create a marketing dashboard from which the CMO can monitor programs globally across channels to see how they track against the company's core strategic direction, and whether targets are being met; this gives CMOs the ability to more readily make any necessary course corrections and access needed information as they work with the CFO.
• Instill a capital markets discipline into internal planning processes, by utilizing a market-based approach to establish minimum performance thresholds/targets and dynamic evaluation of the allocation of capital and resources to the best value-creating opportunities.
• Team to conduct performance monitoring and metrics analysis that can help the marketing organization and the company overall so that the decision makers closest to the customer have the information and tools to make decisions and take actions on a faster cycle than competitors.
• Sustain high performance over time by embedding a performance and value management mind-set deep within the organization in terms of the skills, capabilities, and incentives for the people and the integrated nature of the processes that utilize information to drive decision-making and action.
Given their relatively short tenures, CFOs and CMOs are under tremendous pressure to show rapid results. They must quickly determine where to focus to deliver value to the organization. Despite the sometimes competing demands placed upon the shoulders of these executives, high-performing companies are able to combine their strengths through a balanced enterprise performance management approach that seeks to foster a customer-centric approach to the business.
Watch Brian McCarthy explain [1] how CFOs and CMOs can work together to better leverage intangible assets and together generate value.
Links:
[1] http://businessfinancemag.com/video/leveraging-your-cfocmo-value-link-0624