Today’s marketers need creative and financial experience or risk being replaced by chief revenue or growth officers. The CFO can help.
Volatile capital markets, accelerating technological change, and the rising cost of meeting ever-increasing customer expectations across multiple channels are putting marketing departments under growing pressure to manage their budgets.
This scrutiny is not surprising as marketing budgets represent a healthy percentage of total firm spending – 11 percent cross-industry and as high as 16 percent for business-to-consumer companies. While it has been widely demonstrated that marketing helps drive revenue growth, most CMOs still struggle to “quantify and communicate” the value marketing generates for the business, according to recent research conducted by Forbes CMO Practice.
Part of the problem is a failure on the part of CMOs to prioritize and invest in building financial acumen in marketing. To effectively prove ROI and other key performance indicators in marketing activities – and how they tie to the overall performance of the company – marketers need to think beyond their creative side and develop stronger financial acumen. Simply put, marketers need to understand the impact of marketing spending, including how to budget and get more value from their campaigns. Marketing organizations that build strong financial capabilities experience a 5 percent greater ROI on marketing investments and 7 percent increase in growth.
Despite the compelling reasons for building financial acuity in marketing, most marketers still struggle with the basics of finance. In many cases, marketers have not valued financial acumen as a required skill. At the same time, they rely on immature financial process methodologies and lack access to marketing-specific financial tools.
In a recent survey, CMOs were asked which skills they prioritize in hiring, and only 2 percent mentioned financial acumen as the most important. When asked to rank-order a series of skills to be considered in the hiring process, 50 percent of CMOs ranked financial acumen as the least important.
The lack of skills and comfort with finance may be one of the reasons marketers cling to overly simplistic financial processes. Gartner Research found that 50 percent of all marketers rely on immature budgeting methodologies, such as perpetual, incremental, or rollover budgeting. These methodologies are grounded in prior year’s performance and assumptions that often fall apart – as does the budget – when market circumstances change. The result is that CMOs may be making poor investment decisions.
Nearly 30 percent of marketing and finance executives report that not having the right tools and technology to manage and measure marketing investments is a significant challenge in their organization. That’s because marketers are often required to create and manage marketing spending using tools created at the enterprise level. These enterprise software tools often do not align the planning or management of investments in a way that is consistent with how marketing initiatives are delivered. For example, enterprise budgeting tools typically account for spending at the general-ledger level, when marketers create, plan, design, and manage investments at the campaign level.
Research shows for marketing, this mismatch means significant additional work and a lack of transparency around financial processes, which can lead to a general distaste and distrust of finance.
While not all marketers will become finance experts, at least not in the near term, the CMO should work with the CFO and finance team to build financial acumen in marketing. CFOs have their own perspectives on the current level of marketing financial acumen and skills that warrant immediate attention. For example, Forrester Consulting’s research found 48 percent of finance executives listed improving the quality of marketing business cases as one of the top areas for building marketing financial acumen.
It is important for CMOs to realize that their perspective on where marketing financial acumen needs the most improvement may not mirror the perspective of other C-level executives. The CFO is best positioned to identify the marketing skill deficiencies creating the greatest organizational problems and to bring expertise and resources to assist with building and deploying marketing financial training.
It is not possible – or preferable – for CMOs to replace existing marketing resources with new, more financially astute hires. It’s also unclear whether university curricula have kept pace with the need for more financially skilled marketers. This leaves most organizations with little choice but to invest in skill building. Together, CFOs and CMOs can identify the best strategy for building marketing financial acumen.
Fostering effective collaboration between the CMO and the CFO to build financial acumen in marketing takes effort and commitment – on both sides. As a starting point, CMOs and CFOs should consider the following:
This requires a mind-set shift and reprioritization of skills sought in new hires and championing the importance of financial acumen in driving marketing success among the existing marketing organization. What’s more, marketing’s culture needs to place importance on fiscal intelligence and responsibility. Marketers need to recognize and accept their responsibility for managing marketing investments wisely.
This may require time and resources from finance. Particularly, a recognition that on-the-job training is likely to have the greatest impact on skills development. This means a commitment from the CFO to provide skilled staff assistance, guidance, and coaching as marketing engages in key financial processes.
More than 60 percent of marketing and finance decision makers report a lack of appreciation for each other’s function. This lack of appreciation is seen as a significant challenge to encouraging collaboration and cooperation between the two functions. One way to change this is through job shadowing. CFOs should select finance employees to spend time with marketing, and CMOs should select marketing employees to spend time with finance. This way, the two divisions can better understand each other’s processes and responsibilities. Job shadowing can also lead to many previously undiscovered opportunities for reengineering key processes to better fit the needs of both functions.
As with other marketing skills, the skill level required will vary by job role. Working together, the CMO and CFO should determine the specific skills and level of financial acumen required for each marketing role and responsibility. This ensures the CMO and his or her peers hold the same expectations on marketing skills and financial accountability.
The resulting skill gaps can be prioritized by the CFO and CMO to identify those that should be addressed first. Together, the CFO and CMO can develop a plan for skill building. This will likely include a combination of classroom, self-guided, and on-the-job training provided by finance resources and perhaps outside training firms.
In today’s fast-changing, highly competitive environment, marketers need to know more than how to create and measure great customer experiences. They need to know how to manage their current and future spending in a way that aligns with the organization’s broader financial goals. Marketers need to better understand the basics of a balance sheet, how to create a budget, manage accounts, and determine relevant KPIs.
To retain credibility and respect among C-suite executives in future, CMOs need to talk the language of finance – or face becoming extinct. Mastercard’s chief marketing and communications officer Raja Rajamannar recently warned of the “the existential crisis of the CMO” driven by digitalization that is leveling the playing field between big and small firms as well as roles within organizations. He argues that marketers today need both creative and financial experience or face being replaced by chief revenue or growth officers.
At the same time, finance needs to train some of its own people to really understand the nuances and the language of marketing and how marketing initiatives relate back to financial performance. The goal is mutual understanding and appreciation of roles and responsibilities between marketing and finance, which, in turn, can create a stronger business and brand overall.
To learn more about this topic and how KPMG can help your business, please contact Jason Galloway.