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CMOs Rapped for Having Zero Impact on Sales

Study Shows Difficulty in Measuring Short-Term Value of C-Suite Position

By Published on .

Top Marketers Make Their Case
COLUMBUS, Ohio (AdAge.com) -- Pay attention, CMOs: If you've been fighting for more influence with top management, hide this publication -- now.

A study to be published in the Journal of Marketing that covered 167 companies including Procter & Gamble, Microsoft and Apple over a five-year period concludes that CMOs on top management teams don't have any effect on a company's financial performance.
(From l.) Pravin Nath, a professor of marketing at the LeBow College of Business, and Vijay Mahajan, a professor in the department of marketing at the University of Texas at Austin
(From l.) Pravin Nath, a professor of marketing at the LeBow College of Business, and Vijay Mahajan, a professor in the department of marketing at the University of Texas at Austin

The disheartening finding in "Chief Marketing Officers: A Study of their Presence in Firms' Top Management Teams," slated for the January 2008 issue, is sure to reignite the longstanding debate afflicting the suite: Should a CMO be judged on tangible or intangible metrics? On solid stats such as sales, or on more amorphous concepts such as brand equity or even awareness?

The authors themselves -- Pravin Nath, a professor of marketing at the LeBow College of Business, and Vijay Mahajan, a professor in the department of marketing at the University of Texas at Austin -- admit the study is limited because it focuses on financial-performance metrics, such as sales growth and profitability, and not brand equity, and both were quick to offer caveats to the conclusion.

The common financial metrics used to measure the performance of CFOs and CEOs don't apply as well to the CMO position, Mr. Mahajan argued. "Those are very short-term," he said. "You cannot use short-term metrics to measure the performance of someone who is supposed to have a long-term impact."

Indeed, both academicians were careful to note the need for more studies on CMO performance, especially considering the dearth in the literature compared to the ample research available on measuring the performance of CFOs and CEOs. Still, at some fundamental level, marketing is thought of by most companies as a sales driver, and the fact that this study shows CMOs having no impact on that key metric won't exactly enhance their perception in the C-suite.

All the companies included in the study were public with revenue of at least $250 million each. The researchers did not disclose the full list, but said IBM and Intel numbered among them. Additionally, only firms with significant research-and-development budgets made the sample.

Different titles
Among the companies studied, less than half, 40%, had CMOs in their top-management teams. As a comparison, 97.2% of the firms in the study had a CFO in that team. The actual use of the title CMO was not common, with only about 20% of companies using it; other titles, such as VP-marketing and senior VP-marketing, dominated.

The researchers worked to isolate the factors that lead to CMO presence within top-management teams and found firms are "more likely to have a CMO in the [team] when they have relatively high levels of innovation and differentiation, when they follow a corporate branding strategy, when the CEO is an outsider, and when [the top-management team's] marketing experience is relatively high."

The correlation could be especially important for a fast-rising marketing executive considering a job at a company with a top executive team that lacks marketing savvy. "It seems that marketing experience is required in the top management team for a CMO's role to be consistently appreciated," the researchers noted.

At least CMOs don't do harm: "It is important to note that CMOs do not have a negative impact on performance," the study found.

More than numbers
Whether financial performance is the best or fairest way to judge a CMO's performance is one issue addressed in a soon-to-be-released study by Booz Allen Hamilton titled "CMO Thought Leaders: The Rise of the Strategic Marketer" based on 15 in-depth interviews with some of the marketing world's best-known CMOs. The main takeaway is that measuring CMO performance based on financial performance alone is a mistake, according to Andrew Tipping, a co-author of the study.

"Financial metrics alone do not define CMO performance," he said, adding that the search for a "universal panacea to making marketing accountable doesn't exist."

He said other possible expectations for CMO performance should include: "embracing and understanding how to use new media; aligning with the rest of the organization's imperatives; and making sure the consumer is at the heart of marketing."

Mr. Tipping added: "Yes, financials should be included, but intangibles have to be, too, and described in a way you can talk about at the end of the year."
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