by Jim Lenskold
The mental playbook that guides every CMO’s decisions is in need of a new chapter. Created through years of success in the marketing organization, the lessons in it are currently built on predictable marketing strengths such as brand management, strategic positioning, customer management, integrated communications, lead generation and sales management.
Now don’t get me wrong; those are incredible assets when they are consistently leveraged in intuitive decision-making. But when it comes to the discipline of profitability management, far fewer marketing executives have the same depth of career-long experience from which to draw. Perhaps it seemed like a safe assumption to make at the time: If finance managers didn’t need to know marketing, then marketers wouldn’t need to know finance. In today’s corporate environment, however, marketers are now being held accountable for driving profits to the bottom line.
Business-savvy CMOs understand the need to demonstrate and deliver a clear contribution to corporate profitability, regardless of the pressures within the organization. Today’s momentum toward greater accountability from marketing may be a challenge to CMOs because it’s unfamiliar, but demonstrating that accountability will assure marketing executives a higher level of credibility and respect.
The starting point is to understand the four primary components of the infrastructure supporting marketing profitability management. They are:
Goal Alignment – Most marketing organizations have a solid process for setting, tracking and managing clearly stated goals and objectives. The problem is the significant gap between traditional marketing metrics and corporate objectives. Data, technology, analytics and methodologies have advanced, but metrics have become the goals instead of the measures. The time has come to re-align marketing objectives and metrics with critical financial and strategic business objectives.
As part of that process, you’ll need to map the objectives for each tactical initiative to the business goals, providing clarity in the role of marketing at both the organization and staff levels. Are your marketing objectives and metrics dominated by traditional measures such as brand awareness, cost per lead and response rates? Or do they focus on business goals such as profit growth, ROI and customer value improvements? Be sure you have the marketing metrics to clearly and consistently drive decisions in support of those business objectives.
ROI Optimization – The financial management component of the infrastructure is made up of measurements, modeling, analytics and ROI calculations. It is this ROI framework that uncovers the key profit drivers underlying marketing decisions and feeds financial intelligence into the strategic planning process.
With a consistent approach to estimating, calculating and measuring, the marketing organization would be well-positioned to prioritize and optimize its budget allocation. However, the analysis that feeds into ROI calculations is generally weak within the marketing function. The discipline of market testing, for example, is ingrained into the culture at some organizations and completely alien to others. And, even though media mix modeling is used often in packaged goods companies, the conclusions are often underutilized or not fully understood.
The initial challenge with adopting ROI analysis is the lack of historical information for creating reliable assumptions. Building a knowledge base that reflects marketing’s financial performance and profitability dynamics will allow CMOs to improve precision over time earn him or her a greater share of profits. To do that, be sure to ask yourself this: Are the techniques and processes in place to manage resource allocation and optimization in the strategic and tactical planning stages?
Funnel Management – Sales organizations live and die by their ability to manage the sales funnel. When prospects fail to progress through the funnel in a consistent, timely manner, the impact on the next few quarters’ results become all too apparent. Marketing needs to embrace funnel management and the insights gained from a tight linkage between brand positioning, demand generation, prospect relationships, revenue generation and, ultimately, the customer relationships that follow.
The process involves mapping the detailed stages through which prospects progress— from both the organization’s perspective (build awareness, establish positioning, generate response) and the buyer’s perspective (acknowledge pain, seek solutions, assess options). Only by understanding where current marketing initiatives are concentrated within the funnel stages can you identify gaps, further analyze reasons for progression and leakage, and tighten integration between the series of marketing contacts required to drive profitable actions at the end of the funnel. Moreover, funnel management will help to maintain the CMO’s focus on influencing customer progression and break the habit of focusing on delivering marketing activities.
Marketing Dashboard – While the marketing ROI framework enables marketers to complete the analyses necessary to assess profitability at the tactical level, the dashboard enables marketing executives to manage profitability across the organization.
A marketing dashboard is much more than a graphical representation of summarized marketing results. It combines diagnostic and predictive functionality to deliver actionable insight. And it prompts corrective actions when necessary. A well-designed dashboard presents CMOs with an easy-to-assess, one-page overview of the top metrics that align with business objectives.
A mix of financial projections, brand health, funnel progression, strategic initiatives, and organizational metrics are carefully selected and customized to the role of each management level. Alerts and triggers indicate when the variance in performance represents a major threat or opportunity that requires additional diagnosis or action. Just for starters, consider how a consolidated view of marketing performance could strengthen your own decision-making. What metrics are the best indicators of how well marketing is performing? What is driving variance in that performance and the expected outcome on results?
The benefits of marketing profitability management go well beyond basic profit improvements and addressing accountability concerns. As marketing gains greater control over delivering on business objectives, its credibility and importance in strategic decisions at the corporate level increases significantly.
Each of the four components above supports the disciplined process of marketing profitability management extending across strategic planning, measurement, forecasting and portfolio management. Establishing and advancing strengths in these areas requires the development of skills, tools, culture, and technology. The organization’s mindset is the key driver of success, a success that depends on the commitment levels and mindset of the business leadership.
As a marketing organization advances its capabilities, closes gaps, and integrates the marketing process within each of these four areas, its ability to take greater control over profitability outcomes can increase significantly. And a number of clear benefits will become apparent as that infrastructure evolves. First, you will see improved analytic capabilities. You will also gain increased insight and understanding, allowing you to make more informed decisions. Finally, the creation of a rich repository of historical performance and increased forecasting capabilities will lead to increased profitability.
Creating an infrastructure that supports profitability management will provide the CMO with the ability to plan, test and manage major marketing initiatives with a higher degree of confidence. It also supports development of a financially sound business case that meets the needs of the CEO and CFO.
It’s a whole new game for CMOs today. The question is whether you are choosing the game of avoiding these new expectations for accountability or choosing to lead the organization’s adoption of more advanced approaches for managing marketing profitability. Certainly the opportunities exist to gain a competitive advantage as CMOs build on current strengths in infrastructure and close gaps where weaknesses exist. The mental playbooks each marketing executive brings to his or her role only becomes more valuable with the insight that marketing profitability management brings.
Copyright © 2005, CXO Media Inc., reprinted by permission from CMOmagazine.com.