Does the CMO affect your Business Value?

“CMO Impact Study”: Yes, CMOs Drive Business Value

The first-ever “CMO Impact Study” proves that marketers can drive value for their companies.

The new report (executive summary, PDF)—authored by former CMO Kimberly Whitler, an instructor at the Kelley School of Business at Indiana University, in conjunction with CMO.com—makes clear that many factors come to bear on the CMO’s effectiveness, such as the company’s size, the CMO’s relationships with the rest of the C-suite, and the company’s operational priorities. However, one of the most important success factors appears to be the clarity of expectations provided to the CMO from above.

“We in marketing think we matter, but more than three-quarters of CEOs are disappointed with their CMOs,” Whitler told CMO.com, citing a Fournaise Marketing Group study published last year that found 80 percent of CEOs didn’t believe marketing chiefs added value to the business. “Outside of our little circle of believers, there are some people in the firm who don’t think marketers play a significant role in overall firm results,” she explained. “A key issue that many CMOs struggle with—especially in industries where marketing isn’t traditionally valued—is: ‘How do I convince my peers and my boss that marketing matters?’”

The “CMO Impact Study” was designed to help understand whether marketers matter, and, if so, how. Whitler and her team of researchers surveyed 814 marketing executives and interviewed 150 subject-matter experts about the CMO’s role in the business today. They compared the CMO roles from the companies that had the very best marketing capabilities (top 20%) versus the CMO roles from the companies in the bottom quintile (bottom 20%) to understand how these role differences can contribute to different marketing–and firm–outcomes.

The research found that a company’s marketing capability has a significant, positive relationship to overall firm performance. Under specific conditions, marketers also play a significant role in creating that relationship, according to the study. Specifically, the firms that ranked in the top 20 percent in marketing capability gave greater responsibility across more marketing activities to their CMOs (versus another C-level executive) than the companies in the bottom 20 percent.

“The CMOs whose firms outperformed their peers in marketing capability consistently had a higher degree of ownership and responsibility across all 13 different areas of marketing activity,” Whitler said. “It appears that those firms that have a stronger marketing capability tend to give greater marketing-related responsibility to their CMOs, versus either outsourcing it or dispersing it to other functional leaders.”

CEOs who are disappointed with their CMOs should re-evaluate the degree of responsibility and ownership their chief marketers actually have. “During my interviews, there were many CMOs who had very narrow responsibility,” Whitler said. “It’s hard to hold CMOs accountable for driving firm growth if they don’t play a significant role in pricing, distribution, product development, corporate strategy, or sales. It’s simply unrealistic.”

‘Healthy Tension’
The relationship between marketing and business success is not universally accepted, said several executives interviewed for the study in separate conversations with CMO.com.

“We’ve definitely seen what I might describe as a ‘healthy tension’ between skepticism, on one hand, among the C-suite group, but also acknowledgement of the need [for marketing],” said Paul Hoffman, CEO of Calendars.com. “They understand something is there that’s crucial for the business, but they don’t know enough to know what exactly it is.”

Some of that skepticism may be a result of the rapid changes businesses are going through, said Anita Newton, VP of marketing at Adknowledge. Newton also pointed to the recent Gartner study that forecast CMOs will soon spend more on IT than CIOs as an example of marketing’s rise.

The tools have changed dramatically, and the ability to measure effectiveness is much more complicated as more channels join the mix, said Newton, who has also worked in marketing at Sprint, Procter & Gamble, and AMC Theaters. “Strategically, marketing has become like cutting water,” she said.

In companies that made customer centricity a priority, marketers had a better chance at being effective and achieving a significantly higher degree of marketing capability, according to the study.

“We found that the company’s degree of consumer centricity significantly impacted the CMO’s ability to succeed,” Whitler said. “The best-performing marketing firms, meaning those that had the highest marketing capability ratings, had significantly higher levels of market orientation–or customer orientation–than their low-performing counterparts. What this means is that CMOs need to really look at the industry and company to determine whether the environment is ‘marketing-friendly’ before accepting a job. When a company is primarily inwardly focused, there is a greater chance that the importance of the consumer, and therefore the value of the marketer, is diminished.”

While operational excellence inside the company is meant to be a given at most companies, customer centricity is not, added Jan-Patrick Schmitz, CEO of Montblanc North America, who oversees much of the marketing for this luxury brand.

“It obviously starts with the CEO. If he or she doesn’t understand that the business is about the customer and not operations, the CMO is going to have an uphill battle,” he said. “Understanding your customer is about understanding what your business is and what your business will grow into.”

And this, clearly, is where the CMO can play an important role, for the chief marketer has to be the advocate for the customer’s point of view, Newton said.

“Once you understand how consumers are interacting with your products and services, only then will you have the insight to say, ‘How do I address those needs?’ Only then can you make the series of moves to optimize,” she said. “It’s the job of the CMO, now, to be an advocate for the customer in the boardroom, to be a business person. That is the hardest thing: to have the tools to become that data scientist, to understand what’s working and what’s not. It’s a bigger job, it’s a harder job, but it’s what is absolutely required to be effective.”

 

Interpreters And Wizards 
To make that transition, CMOs have to become interpreters of trends and data for the rest of the C-suite, Calendars.com’s Hoffman said.

“[Non-marketing executives] can’t get under the hood to understand all the nuances, so there has to be a lot interpretation, alignment, and trust. And the only way to achieve that is through collaboration,” he said. “The CMO has to be a little bit of wizard. He or she has to be a team leader, a coach, a motivator. He or she has to understand finance—which in past days wasn’t really necessary—and he or she has to prove value in ways that aren’t as straightforward as they were before.”

Company size matters, too, at least in balancing the depth and breadth of a CMO’s work, according to the study’s findings. The study shows that the larger the company, the narrower the CMO’s responsibilities—but the larger the budget. From that vantage point, a company with sales of $1 billion to $10 billion can potentially offer the best balance between a broad scope of responsibility and adequate resources to achieve results.

“If you like to be involved in a lot of different activities—from new-business development, to distribution, to pricing to strategy—it’s less likely to be the case in an $80 billion company,” Whitler explained. “For example, those CMOs in smaller firms [less than $500 million in revenue] had greater responsibility for research, pricing, product development, distribution, sales, corporate strategy, and so on. The nature of large firms requires a lot more specialization at the top. While most CMOs aspire to work at bigger businesses with bigger budgets, there is a downside: loss of breadth of responsibility.”

The study also found that firms with better marketing capabilities have CMOs with higher status and longer tenures.

“As the CMO, we are best when we are learning from what is happening around the world and sharing that around the world,” saidCandace Matthews, CMO of Amway. “We are the sponge that needs to learn, but also add the insights and the strategy to it and say, ‘By the way, realize here’s a trend that is happening here. Here’s a trend that we need to be capitalizing on globally.’”

Matthews, who has been CMO at Amway for six years, noted that backing from management and the company’s focus on customers have been crucial to her longevity. “I’ve had the support of our president and CEO,” she said. “When you get that type of support, and you have the ability to make a difference, then the tenure is pretty sustainable.”

But to achieve that longevity—and success—marketers need a clear understanding from their CEOs of what their job is meant to be and how they will be judged. The study’s findings showed that firms with the best marketing capabilities have CMOs who believe their skills and background are closely matched to the requirements of the job. More importantly, they are also clearer about what’s expected of them.

“If CMOs are not clear about expectations, they are more likely to underperform versus their peers. That’s Management 101. Both the CMO and CEO share in the blame when expectations are unclear,” Whitler said. “If a CEO is expecting significant change from the CMO, but the CMO thinks that the CEO wants nominal change, the misalignment is a recipe for disaster. The two parties have to be clear about expectations.”

The research suggests that it is crucial for CEOs to make their expectations clear (whether they want the CMO to be a brand steward, or a change agent, or a champion for growth, for example), set clear metrics for measuring success, and communicate effectively those expectations to their CMOs, preferably in writing. However, this doesn’t always happen, and so the CMO must drive clarity when the CEO doesn’t.

“Change is expected, but the CMOs who are less satisfied in their roles usually don’t understand what’s expected of them,” Whitler explained. “It’s OK for things to change, but expectations have to change as well.”

Measurement Is ‘Mission-Critical’
Setting expectations can be complicated, marketers said. The consumer journey is no longer as straightforward as it was in the past, so the metrics used to measure ROI can also be less straightforward as well. Today, marketing effectiveness is as much about generating conversations through various channels, such as content marketing and social, so the way the metrics are applied is changing, Adknowledge’s Newton observed.

“It used to be, how many dollars did we drive? Now it’s about the conversations we’re generating and engagement and customer satisfaction that is all woven into that,” Calendars.com’s Hoffman added. “The math is harder, but if expressed right, those factors are as compelling as pure numbers.”

In some cases, marketers themselves are resisting the push to set guideposts: “In a conversation I had with Dr. David Reibstein, an authority on measuring marketing and an author of the bestseller ‘Marketing Metrics,’ I asked why some marketers aren’t taking the lead in driving clarity around measurement. He indicated that it can be because some marketers don’t have the skills, while in other cases, it’s because they may be afraid of being measured,” Whitler said.

But being measurable is “mission-critical,” according to Montblanc’s Schmitz: “You can’t measure everything, but if you don’t measure and you don’t open yourself up to being accountable, then it’s not clear what you contribute,” he said.

In some companies, communication is better handled through personal and verbal interactions, rather than in writing, Schmitz said. If the C-suite is scattered around the world, personal communication is critical, no matter how busy the CEO might be.

“CEOs who only talk to the senior brass tend not to succeed. The message becomes diluted the deeper you get in the organization,” Schmitz said. “It is a mistake to see communication as a burden with all the other priorities one has.”

But in the end, it falls to the CMO to force the issue and make sure expectations are clear. That way, there is a greater chance that those expectations can be met, Whitler said.

“Between the interviews and the survey, the clearer and more specific expectations are, the more likely CMOs are to outperform peers,” Whitler concluded. “On average, the CMOs from firms with the best marketing capabilities were significantly clearer about what is expected of them. In particular, they are much clearer regarding what performance is expected and what authority they have.

“The bigger revelation is how many marketing executives are notclear about either their responsibilities or how their performance will be measured. The ‘ah-ha’ here is that CMOs have to take the bull by the horns—if the CMO isn’t clear about these things, then he or she must drive the discussion and create alignment.”