Why are some CMOs losing ground when it comes to playing a significant role in setting firm strategy? At a more basic level, why are CMOs even excluded from the strategic discussions to begin with?
There has been a recent spate of managerial and academic articles detailing the lack of–or decline of–the CMO’s presence, influence, and involvement at the strategic levels of the firm. A provocative article in Forbes prognosticated the “death of the CMO position” due to the decline of the CMO’s influence. The author suggested CMOs have effectively been bumped from the boardroom and top management team. Academic researchers Pravin Nath and Vijay Mahajan reported in their study (PDF) that less than 50 percent of top management teams included a CMO (head of marketing) position. And in a recent study conducted by Heidrick and Struggles, nearly four out of the five CMOs surveyed (79 percent) indicated that the No. 1 area they wanted to grow their influence in was “business strategy and development.” The second highest area that CMOs wanted to grow their influence in only garnered 41 percent of the vote.
To generate deeper insight into why CMOs are losing ground at the strategic level of the firm and what can be done to affect change, Kimberly A. Whitler spoke to Dr. David Reibstein, the William S. Woodside Professor of Marketing at The Wharton School and author of "Marketing Metrics: The Definitive Guide to Measuring Marketing Performance."
CMO.com: In a recent publication, you suggested that marketers are struggling to get a seat at the corporate strategy table. What do you mean?
Reibstein: Simply, if you look at who is sitting around the executive table when key strategic decisions are being made, it often doesn’t include the CMO. You will likely have the CEO, the CFO, perhaps the general counsel and, in some cases, the CTO / CIO. The marketers simply aren’t being invited into the discussions. While marketers have tried to elevate their role by putting a “C” in their title, so have several other functions. And while many may have the title, it doesn’t necessarily matter, as they aren’t being invited into the significant decision making discussions. However, it wasn’t always this way. If you go back 20 or 30 years, most CEOs actually came from the marketing function and had great reverence for marketing expertise, but this has changed.
CMO.com: What changed? How did marketers go from having a seat to losing their seat at the table?
Reibstein: A lot has been written about the importance of marketers being able to connect their efforts to financial outcomes. I believe that marketers’ inability to do this has cost them their seat. As regulation and legislation elevated the importance of firm financial reporting, so did the respect for–and importance of–the finance/accounting departments. Boardroom discussions centered more and more on the firm’s financial statements, and, unfortunately, marketers weren’t able to contribute to this discussion. Marketers may be able to talk about awareness, trial, or loyalty, but they are generally unable to connect these metrics to financial statements. Without the ability to converse in the language of the firm’s bookkeepers [finance] or to demonstrate direct impact on the firm’s financial performance, the value of marketing–and marketers–has declined.
CMO.com: I recognize this is heretical, but does it even matter? In other words, do you believe it is important to have a marketer in the firm’s most strategic discussions?
Reibstein: Conceptually, marketers should be included in the firm’s strategic discussions. Historically, marketers have played a coordinating role in the firm, bringing a unique understanding of the external environment--customer, marketplace, competitors--into the firm and helping lead the internally focused functions (e.g., HR, CTO, CIO, manufacturing, etc.) to translate this into superior products, services, and customer experiences. When marketers play this unique role, they have an insight that is paramount in developing firm strategy and driving firm growth. However, and this is the caveat, when marketers have been relegated to firm implementation (e.g., ad development and promotion tactics), they have been marginalized and don’t have the requisite insight to be relevant in strategic discussions.
CMO.com: What can marketers do to get invited to the table?
Reibstein: There actually are a few steps that marketers can take to change the dynamic. First, and most important, they have to demonstrate value in financial terms. I know this is cliché, and there are dozens of articles extolling the same advice, so let me be specific by providing two examples. One of the biggest assets that a company has is its customer base. And who largely manages the activities that determine if the firm is acquiring new customers, increasing loyalty among current customers, and preventing defections? Marketers largely drive this. And, yet, nowhere on the balance sheet is a valuation for a critically important firm asset, its customer base. Marketers, who often have a skill in forecasting, can actually lead the effort to estimate, track, and report the firm’s customer base to the top management team and ultimately, the board.
Let me give you a simple example. My neighborhood florist has a box of index cards with the names of all of her customers. She knows that last year I purchased a $50 bouquet for my wife and one for my mother. In total, I spent $100. After extracting the costs, she knows that she made $40 on my purchases and that I have an 80 percent chance of reordering at the same level next year based on my past three-year purchases. With this basic information, she has the ability to estimate my value as a customer and then total that across all of her customers. That number, at the aggregate level, represents the value of the customer base and, I would argue, one of the most important assets the firm has.
By working with the CFO to create the firm’s “customer value,” and sharing this regularly with the top management team and board, the CMO will quickly elevate their value. More importantly, they have provided information that will change the discussion to a topic that the CMO should be an expert on and toward a topic that the CEO should be regularly discussing anyway. Why? Because the conversation now turns from a discussion about margin or overhead or capital expenses to one that is based on how to drive the firm’s growth via its customer base. And when the discussion centers on growth, it’s good for the company--and it’s good for marketers.
Let me give you one more example of how marketers can demonstrate value. Most CMOs are the “keeper of the brand.” Yet “brand value” doesn’t show up anywhere on the balance sheet. Again, this is fairly surprising given the data suggesting that brands are contributing more and more to overall firm value. If I were a CMO, I would want to understand how I’m contributing to growing brand value and would then want to share this with the top management team and board.
Ironically, when a company is sold, the acquiring company can list the brand value on their balance sheet as an asset. This is part of the asset base that prospective firms consider when buying the firm. If it is important enough to place a valuation on it when selling a firm, why don’t firms track and report the brand value that they have organically created and built? The answer is because finance does this only when required and marketers have not led the charge to do it when it isn’t.
CMO.com: If demonstrating marketing value is as easy as working with finance to measure brand value and customer value, then why aren’t marketers doing this?
Reibstein: This has probably been both the biggest surprise and biggest disappointment. Let me start by saying that some are. There are some CMOs who embrace finance, data, dashboards, and transparency. These CMOs are the ones who are being invited to the table. However, there are many who simply seem afraid. Some seem afraid of being held accountable. The irony is that without demonstrated value, they are actually more at risk of being fired. Some seem to be afraid of what the data will show, that perhaps the valuation isn’t as good as you’d like. However, this shouldn’t be something to be feared as the first time you measure it you are creating a baseline. The goal is simply to be able to figure out how to improve the valuation over time.
Some just don’t know how to go about creating the equations to estimate brand or customer value. And this is easily resolved by partnering with finance. Finance is inherently comfortable with risk--betas are a part of their everyday vernacular--and have a skill set that, in conjunction with the marketer’s knowledge, can interact to create a better estimate. Also, by collaborating with the CFO to create the estimate, the CMO can have an advocate when presenting it to the rest of the top management team.
CMO.com: What is the prognosis for marketers at the level of strategic decision making?
Reibstein: I have hope. There are academics who are actively working to try and get marketing-related metrics to be part of the required financial reports. When this happens, marketers will be in board meetings because shareholders and analysts will be asking why marketing-related performance is increasing or decreasing as they will have transparency into performance.
However, I think marketers don’t have to wait. They can step forward and lead the effort to create measures for key firm assets, such as brand value and customer value. The question for marketers is whether they want to wait for an invitation or force an invitation. They have the power to force the invitation.