I told you why CFOs hate CMOs. It’s time to put the shoe on the other foot.
In an interview on What CFOs Expect From Their CMOs, one CFO was quoted as saying:
“Being a numbers guy, I think everything can be measured. From my perspective—and I know this is an idealistic thought—you should be able to get everything down to a formula-driven type of ROI.”
The CFO’s comments are bullshit. CFOs routinely approve requests from IT for routers and servers without quantitative proof of ROI. When was the last time HR had to show the ROI of a training session?
Everyone knows that there is no ROI on a router or server or on an employee training session. But poor old Marketing has to show an ROI for every one of its expenditures.
My take: CMOs resent CFOs because they feel that marketing is held to a different or higher standard.
CFOs will read that and say “not true — it’s about accountability. We want more accountability from marketing.”
Nice try, beancounterboy, but your six-syllable word isn’t the issue. It’s a four-syllable word that’s at the root of the problem here. In-fra-struc-ture.
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It wasn’t always that IT got away without showing an ROI for stuff like servers and routers. But over time CIOs successfully demonstrated that there’s something called an IT infrastructure that’s required for a lot of things to happen. Nobody wants to spend more than they have to to create this infrastructure, but management came to realize this one very important fact:
There is no ROI on infrastructure. Infrastructure is an enabler. It enables other “things” to happen — and it’s those things that produce (or don’t) an ROI.
HR doesn’t talk explicitly about an employee infrastructure, but no one disputes the notion that employees need skills and knowledge to do their jobs, and that training programs ostensibly improve those skills and knowledge levels (arguing about the effectiveness of training programs is outside the scope of this post, and blog altogether).
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But there is no marketing infrastructure, is there? I don’t mean a marketing technology infrastructure, like CRM apps. I mean, more akin to concept of an employee infrastructure, that there is no explicit recognition of — or need for — a customer relationship infrastructure.
Here’s the premise:
There are “things” Marketing has to invest in, that in and of themselves produce no direct ROI, but are necessary for a successful customer relationship to develop.
What are these “things”?
1. Maybe advertising. According to Yahoo! Research:
“Estimating advertising cost-effectiveness is akin to measuring a relatively weak signal in a sea of noise.”
If that’s true, then, if there is an ROI to advertising, it’s pretty much impossible to measure, right?
But maybe the purpose of advertising, is not to produce an ROI. Maybe the purpose of advertising is to create awareness for your company, and to establish a positive image for your company in the minds of customers and prospects.
The actual ROI — the sale of the product or service — comes somewhere down the line, but couldn’t be done (or done as efficiently or effectively) without the customer relationship infrastructure (i.e., awareness and positive image) produced by the advertising.
2. Maybe social media. Maybe there is no ROI of Facebook or Twitter. Maybe having these “things” creates awareness and positive image. Maybe it creates a platform for customer and prospect engagement that enables something else — for example, a marketing campaign with specific offers and messages — to happen that actually produces the ROI.
3. Maybe [you-fill-in-the-blank].
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So CMOs hate CFOs because the latter want quantitative proof of ROI for every expenditure, which the former can’t provide. So what do CMOs do? The make shit up. And that’s why CFOs hate CMOs.
This problem isn’t going to solve itself. CMOs need to create and hone a definition of what a customer relationship infrastructure is composed of, and what it requires. And then educate CEOs and CFOs — just like CIOs did — on this notion of a customer relationship infrastructure.
It’s a constant battle in IT over how much to invest in IT infrastructure, and it will be a challenge to determine the right amount of spend on customer relationship infrastructure. But that battle — over how much to spend — is different than fighting over the precision of, or accountability for, an ROI calculation.
Marketers make little effort to incorporate tracking mechanisms into their campaigns. They could test Offer A against Offer B. They could use campaign-specific URLs. They could use PURLs. They could use unique phone numbers for different offers/campaigns. They could use coupons, discount codes, etc. Yet most marketers do almost none of this. They make the same ad with the same offer for all media, using the same URL and phone number that they did for the last 23 consecutive campaigns.
There is also usually very little cooperation between marketing and sales/operations. There are things marketing needs frontline employees to do to accurately track marketing effectiveness, but marketing seldom gets this support.
FB: Couldn’t agree more. But after taking “CMOs” to task last week for not being quantitative in their discussions w/ CEOs, one commenter here took me to task for being condescending and talking to the “great unwashed.” So I’ll give Marketing the benefit of the doubt that they’re doing the things you suggest (although there’s no way in hell I believe it to be true).
But even still, you’re talking about CAMPAIGN tracking mechanisms. There a lot of other investments (i.e., line items in the budget) that don’t fit into the “campaign” definition. I’m saying some (a lot?) of these things are candidates for inclusion in the concept of a marketing infrastructure. You can track the spending, and you can have a rationale for why the spending should happen — but the ROI won’t occur until a campaign is executed.
Now we have another problem, you realize, right? Namely: The social media gurus claiming that marketing campaigns are dead. That it’s just one big continuous “conversation.” So how can you determine if a particular effort is successful, if you can’t define the boundaries of that effort?
I totally agree that building in measurable/analytical aspects to campaigns could be really helpful in the building of credibility for marketing expenditures. The problem becomes a bit of a chicken-and-egg scenario, though. Everything you mention in your comment requires MORE expense than a basic campaign. You have to get the buy-in before doing it – -and it can sound a bit like asking for funding for a science experiment. (“Shouldn’t you be the expert in our target audiences and already know what is going to work?”)
What I think is at the route cause is not even knowing where to start with the marketing budget. Typically marketing budgets are set by looking at the previous year — did the company do well? Great! 10% more! Did the company fall short of it’s goals! Booo! 10% less.
No one really knows where to start with a marketing budget, so it’s hard to tell if a program is failing based on lack of resources, or because it just sucks. My company, CoreBrand, is using quantitative methods to help companies find optimal budget levels (point of diminishing returns) and even optimal marketing mix – based on a model that links these spending to changes in stock price/market cap. But a certain amount of data is required to populate the model – and a lot of companies (especially privately held ones) don’t have that in the first place.
It’s difficult to expect a specific ROI, when you don’t even really know what you are supposed to be spending (or what is a reasonable amount to spend) for the investment in the first place.
Ellen: thanks for your comment. Great point re: budgets. It’s a sticky problem: Companies start with last yr’s budget as the starting point, which isn’t optimal, but starting with a clean slate is a prescription for diasaster.
Really hope that Corebrand can come up with something good here. I think this is a very different animal than tha brand valuation calculation.
In general, I do agree that marketing expenditures carry a higher level of scrutiny and accountability relative to other functions; especially at small to mid-size financial institutions. I believe this is due to the marketing function’s initiatives historically being viewed as “discretionary” (questionable/open to challenge/subjective), versus other functional spend traditionally being viewed as “business necessity” (unquestionable). I think this double standard has developed because by default, marketing managers have not traditionally been strong in analytics. Nor have they been strong champions of how their initiatives drive definitive financial performance (clearly articulate the linkage between their initiative and some financial result). Initiatives may have been questioned in the past without a suitable response from marketing that was grounded in business fundamentals. This caused marketing to lose “trust” amongst their counterparts. This in turn meant that going forward; all new initiatives were viewed with skepticism in the context of how the marketing manager failed to articulate a clear business case for his/her previous proposals. To combat this reputation, marketers today must go above and beyond in providing transparency and detailed analytics in order to win back their colleagues trust from other departments (even though they may not be providing this same level of accountability). This higher level of accountability includes the macro business plan level in addition to the micro campaign/promotional level. Smart marketers can actually “raise the bar” for their colleagues as part of this aggressive commitment to analytics and ROI. I do concede that not all marketing initiatives can be attributed back, but the vast majority of them can be to a certain extent. Another explanation for this double standard is due to the historical tendency for marketing departments to be run by creative types who insist on owning and living the ideas they themselves create. This produces a natural conflict with other organizational discipline leaders who are more analytical and process-oriented thinkers. I prefer an alternative tactic: to hire smart strategic thinkers who understand (not own) the creative and its business purpose, can sell it internally, and deploy it successfully in the market to achieve measureable results linked directly to financial goals.
George nails it. When we marketers talk solely about results in terms of hits, followers, brand awareness and other marketing terms, we take ourselves out of the executive discussion. No one else cares.
The Big Trend in B2B marketing is toward financial accountability. With 60% of B2B marketing budgets often devoted to demand generation, the heat is on to tie spend directly to revenue. Kent notes, below, that many marketers don’t have the revenue/cost mentality first and foremost, and get dinged for it by CFOs and other executives.
The faster we can adopt marketing practices that provide more measurable financial outcomes, the faster we can speak more like other business executives, and receive the privileges – and the accountability pressure – we need.
One of the benefits of aging is that you get to see and experience a lot of things in business – the good, the bad and the ugly. I’ve had the fortune (or misfortune) to experience all three. One of the constants I’ve found across my experiences is that most (note I said “most” and not “all”) researchers and marketers are not astute at the actual management of a business. I’m not talking about their profession. I’m talking about the nuts and bolts, brass tacks of managing an enterprise that must make decisions on how to invest limited capital, and for most in a way that maximizes the return on that investment. This is the real problem in my opinion. Marketers aren’t facing a double standard and in my experience are held to the same standard as any other department asking for resources. It’s more that they aren’t articulating how their use of capital will deliver the organization’s minimal level of return.
We (researchers and marketers) are very good at understanding consumer needs, segmenting markets and creating campaigns that sell more things. What we are not good at is translating that into the language of business. How will this spending ultimately impact cash flow? What is the NPV of the five-year anticipated revenue stream? What is the cost structure and how does it change with volume? In other words, how does this investment impact the income statement and balance sheet over time? If, as a marketer, you can’t explain your needs in the language of finance, you are going to have a very difficult time getting the funding you need. It was the best advice I have ever received from the CFO at the mutual fund company where I worked and it has helped me immeasurably in the various roles in which I’ve worked over the years.
There will always, however, be CFOs who just hate marketing based on reasons other than finance or business language. Unfortunately we’ll never be able to change that!