It’s become crystal clear that if you’re going to be successful in the ever-shifting marketing landscape, you need to be able to change direction, and fast. Fluidity and agility are key, and that’s why having technology, media and creative playing on the same team is going to be crucial for the successful marketer or agency.
If you hadn’t noticed, we’re in the midst of a marketing revolution. Thanks to digital connectivity, rapid technology adoption, sophisticated data analytics capabilities, and a new consumer engagement paradigm, marketing’s role within business has been transformed and with it, the mandate of the chief marketer officer (CMO).
This transformation has made it imperative for the marketing leader to forge strong relationships with their c-suite peers. One of the increasingly important executive connections within this mix is that of the CMO and chief financial officer (CFO). Yet the very different heritage, focus, corporate challenges and opportunities these professionals face makes successful partnership no easy task.
Here, we speak with a range of CMOs and industry analysts to ask them how marketing leaders can find common ground with their financial executive counterparts and work together to build business success.
1. Devise a joint CMO-CFO scorecard and vocabulary
Teradata Applications CMO, Lisa Arthur, believes striking up an effective and mutually beneficial relationship with the CFO comes down to understanding and then aligning around the business objectives. “What is it the CFO is trying to accomplish, what is important to them, and how can you link the marketing objectives to that?” she asked.
“The thing is you [as CMO] can’t be a brand executive anymore; you must be a business executive. That requires a healthy relationship with the CFO and CIO, as well as proving the value of marketing.”
One way to achieve this is by CMOs and CFOs jointly develop a scorecard to measure marketing, Arthur said. Rather than look at return on marketing investment in terms of campaigns and channels, a scorecard needs to reflect how marketing spending drives people and the value of that back into the business.
“It might be the case that the CMO develops the scorecard, then enacts a ‘litmus test’ with the CFO to ensure it has financial integrity,” she explained.
“My third point would be that CMOs and CFOs need to develop a shared vocabulary. So many times CMOs talk about our view of ‘conversion’ for example, but that could be very different to the CFO’s view of conversion.”
One example Arthur highlighted in the B2B space that often leads to confusion is ‘lead’. “Several B2B organisations I have worked with have used third-party and industry benchmarks, such as those from Sirius Decisions, to define a clear meaning that resonates with both marketing and finance,” she said.
In the B2C space, measuring brand can be a source of conflict. “Brand awareness may not be important for a CFO but brand affinity, which leads to upsell and cross-sell, may well be,” Arthur pointed out. “By understanding that and coming up with a shared definition, you can better trust one another.”
A high-profile and recent term relevant to both B2B and B2C is big data. According to a recent Teradata survey of 2200 marketers in the US, 71 per cent planned to do projects in big data next year, yet Arthur claimed a lot of CMOs are still unsure of what big data is.
“Big data is a big opportunity for marketing to drive and disrupt their businesses,” she said. “CFOs and CMOs need to work together to leverage big data in order to drive competitive advantage. The CFO in many cases is charged with privacy and compliance, and therein lies the need for alignment around data.”
2. Adopt a new rule book on capex
Oliver Rees, the MD and founder of data analytics advisory agency, Torque Data, claimed CMOs have been getting used to building businesses cases for operational marketing expenditure for several years now. However, ROI has predominantly been based on relatively straightforward objectives, such as sales and brand recognition metrics. Payback periods were also limited to 12 months before new budgets were set.
“Now the massive increase on data collection, storage, access and analytics has put the CMO in a position where they need to pitch for capital expenditure on IT, infrastructure and capability development, which are all bought and measured very differently,” he said. “This is a brave new world where even customer acquisition costs could be considered as capex given they drive benefits over multiple years.”
This means CMOs have to learn a whole new rule book, Rees said. “Metrics need to change and CMOs need to know what discount rates apply to future cash flows [such as customer revenues] to develop robust NPV models,” he said.
At the same time, CFOs need to understand the new world of customer metrics, which Rees claimed are the real indicators of ROI and central to any decisions around future business value and investment strategies. Variables such as retention rates, up-sell/cross-sell opportunities, customer lifetime value all need to be part of the CFO’s vocabulary, he said.
“We are moving from of a view of marketing as an expense to marketing as an investment, often including infrastructure, and all c-level execs need to understand and agree on what the new success metrics are,” Rees said. “Personally I look forward to seeing annual reports, and even management reports, which include the genuine metrics of success - retention, repurchase, customer relationship strength - not just woolly penetration percentages and product revenues which can hide a multitude of sins.”
3. Treat the CFO like a customer
Deloitte CMO, David Redhill, compared the CFO to the type of complex and challenging customer CMOs might meet in their day-to-day job of understanding the market and audience.
“As with any customer, to develop a strong relationship with the CFO you have to understand what makes them tick,” he said. “What keeps them up at night? Is it getting costs under control, building revenue, rationalising inventory; what’s driving their anxiety or sense of opportunity?
“What is on their list of concerns and going further, how are they feeling? Are they focused on the short-term or big picture, domestic or internationally minded? And are they internally focused or engaged in the market-facing dimension of the business?”
Redhill pointed to a longstanding Deloitte research report into the role of the CFO, which identifies four key types: Strategist, catalyst, steward and operator. Each has its own characteristics and priorities. The report also notes a growing dichotomy between the traditional steward role of the CFO and the strategist, and increasing reliance on CFOs to operationalise the strategy set by the CEO.
It’s our job to be really in tune with what the market is telling us, and translate that into a language the CFO can understand.
Getting a strong gauge on the CFO’s position using all of this information provides the basis to better work together, Redhill said. Alongside this, a good relationship between CMO and CFO relies on the strengths each has.
For instance, the CMO is someone who understands the market and what is out there. CMOs also can help within the business to organise people to be agile and better brand ambassadors, things that are not often in the skill set of the CFO, Redhill said.
The CFO meanwhile, is tasked with the operating environment inside the business, risk, supply chain, but isn’t generally focused on what might happen, market volatility, or the ‘black swans’ outside and inside the business, he said.
“There is a role for the CMO as a ‘lightning rod’ or a soothsayer, to translate information about what’s happening across the business and outside in the market,” Redhill continued. “It’s our job to be really in tune with what the market is telling us, and translate that into a language the CFO can understand.
“Our CFO has always appreciated me sharing nebulous information on challenges and opportunities as long as I package it up in a way that outlines the financial consequences should those things not be resolved, or if momentum is not increased. Ultimately the CFO makes the decision, but by giving them a holistic and intelligent perspective on what’s happening out there, we build a better relationship.
Increasingly, executives and boards recognise the tangible business impact of traditional ‘soft measures’ advocated by marketing, such as brand engagement and strength, loyalty, employee engagement and product differentiation. At the same time, organisations are coming to terms with the value of business models built around client-centricity and data, trends which put marketing front and centre.
In addition, marketing’s responsibility is also expanding and could include working with the CFO on potential M&A opportunities, post-merger integration, and long-term ways marketing can help make a finance strategy work, Redhill said.
“The more you show you understand the CFO’s concerns, and the more you’re perceived as making an effort to educate, inform and deliver insights that are useful to them, the more reciprocation you’ll find from the CFO in terms of curiosity and interest in the world of the marketer,” he said.
As a final note, Redhill emphasised the importance of “plain old-fashioned honesty”. “Marketers have traditionally had to build strong business cases for getting funding for things that are essentially intangibles, and there has been some tendency to over-dramatise situations. My success with the CFO has been because I have never exaggerated the need for something or diminished the risk of something.
“Being honest and asking the CFO to help solve the issue with me makes for a good, trusting relationship based on integrity.”
4. Focus on marketing realities
According to vice-president of IDC’s CMO Advisory Service, Kathleen Schaub, CMOs must adopt two mandates if they want to make finance marketing’s collaborator:
- Translate marketing into ‘business-speak’
“Marketing is a specialty function with its own private language. CMOs err by talking jargon to the CFO and by sharing execution-level data that is too deep in the weeds. Instead, CMOs should report operational metrics that map the inner workings of marketing into the language of business. Operational metrics include Productivity Metrics that measure how efficiently marketing uses the resources under its control and Performance Metrics that measure the success of business priorities such as "improve reputation" and ‘create new customers’.
- Educate the CFO about the realities of marketing
“CFOs have paid little attention to marketing (except to dip into the budget when the quarter looks bad). Their often simplistic and antiquated views result in impossible demands. CFOs may try to treat marketing like an ordinary expense, asking for ROI similar to the straightforward type that applies to the purchase of new equipment. But marketing is not a candy machine. CMO's must educate CFOs on how marketing, especially in a long buying cycle, is a complex set of influences applied against quirky, ambiguous, buying behaviour. Marketing ROI requires a much more sophisticated approach supported by lots of automation and data. CFOs may also not realise how very early we are in the digital transformation. CMOs need to help CFOs understand that to be a leader the company must also fund customer experience R&D.”
5. Position marketing with revenue-aligned metrics
For Websense Asia-Pacific director of marketing, Simon Walker, marketing’s inability to effectively measure and report on the value and ROI it delivers to the business has been a barrier to forging closer working ties with the CFO.
“Today, marketers are in a much better position to clearly articulate the value that the marketing investment delivers to the business,” he said. “Being able to demonstrate this value and the strategic role marketing plays is ultimately a key factor in fostering closer working relationships between the CMO and CFO.
“The value from a CFO’s perspective is not how many leads marketing has generated, nor is it the number of inbound enquiries and unique visitors that have come through the corporate website; it’s how marketing is going to help deliver revenue to the business and support key corporate goals such as retaining and growing the customer base or driving aggressive new logo growth into new markets.”
Being able to articulate marketing’s story based on these metrics and importantly, provide progress reports to the CFO are vital to the CMO / CFO working relationship. Walker’s list of metrics guaranteed to help foster a closer working relationship with the CFO are:
- Delivering Revenue to the Business – how much revenue has been generated by marketing and within what time frame?
- Opportunity to Won ratios – what is the ratio of marketing generated pipeline that is converting into closed won business?
- Cost per Lead / Cost per closed won opportunity – provides guidance to the CFO as to what marketing spend / ROI will be delivered back to the business
- Pipeline velocity – how quickly are qualified opportunities being nurtured and progressed through the sales cycle to closed won business?
- Customer retention rates - including customer advocacy through metrics such as the Net Promoter Scores
- Net New Logo vs Install base pipeline and revenue – what is marketing’s contribution to helping grow the existing business versus growing net new business?
- Brand equity and reputational risk – although more difficult to measure, building brand equity and managing reputational risk effectively, can have a significant (positive)impact on an organisation’s market capitalisation and financial stability
Next page: A CFO shares her views on how marketing and finance can work better together