EY: CFO-CMO cooperation increases, but barriers remain

08 September 2015 Consultancy.uk

The changing business landscape in which competitors are rapidly bringing new products and services to the market combined with advanced digital analytics is forcing companies to rethink their marketing in order to stay competitive. This costs money and is thereby pushing CFOs and CMOs closer together. Since these chairs tend to have different ways of engaging with risk, this has the potential to bring friction. In a recent analysis, EY identifies the barriers and considers solutions.

The relationship between Chief Finance Officers (CFO) and Chief Marketing Officers (CMO) can be acrimonious. Marketing is sometimes seen by Finance as a somewhat vague department that often takes a significant (averaging 10.7% of revenues) bite out of the budget, yet whose activities lack clear KPIs. Finance, on the other hand, is sometimes seen as too risk adverse and not willing to give the financial go ahead on innovative marketing. Qualitative differences are backed up quantitatively, with a 2014 EY study finding that only 43% of C-suite executives felt there to be a strong bond between CMO and CFO, compared to 60% who felt a strong bond exists between CMO and CEO.

Although key differences remain between the CMO and CFO, changes to the business environment are forcing the two parties to change their relationship. Businesses today often live with the risk of agile digital age competitors, which can spring up from unexpected place. Particularly pure web-based service providers have the potential to, with low capital costs, enter and disrupt a market. 

A closer connection to the CMO, but not close enough

The digital age is having an effect on the way in which marketing operates. The traditional activity of focus groups that seek to evaluate the needs and behaviour of target groups has given way to more sophisticated techniques of tracking users across the internet to identify their preferences. Following these changes, CMOs are called on to change their traditional strategies or risk being left behind. For which CFOs need to release the funding to make such changes possible.

Growing together
As part of the analysis of the relationship between CFO and CMO, EY surveyed 625 C-suite executives in a report titled ‘Partnering for Performance’. One of the findings is that CFOs and CMOs are already starting to work more closely together. Of those surveyed, 14% says that they are working together to a much greater extent, while 40% say they are working together to a slightly greater extent. Only 3% say that they are less inclined to collaborate.

Changes in CFO and CMO collaboration

The EY survey finds that changes in marketing strategy is one of the primary reasons for the increased collaboration between the CFO and CMO, cited by 33% of those surveyed. This is followed by collaboration on new products and services at 29%. Changes to operating model and the need to better understand the return are both mentioned by 28%.

The barriers
There are a number of barriers withholding a strong relationship between CFO and CMO. The research identifies a lack of common tools and process as the biggest issue holding back collaboration, indicated by 33% of respondents. The second biggest barrier is a lack of clear KPIs that define how well investment in marketing is turning into sales and turnover (32%), while cultural differences between the departments are cited third as potential barrier (31%). 

Main reasons and barriers for collaboration

Moving forward
To break through these barriers the consulting firm suggests four areas in which CFOs and CMOs can develop stronger relationships:

1. Agree on the metrics that matter for enterprise value
This involves the agreement between the two departments on key performance metrics, linked to the organisation’s wider strategic objectives. This would require some capitulation from finance departments, as they include both hard financial measures as well as softer factors like brand equity.

2. Bridge the cultural divide between the two functions
The cultural divisions need to be bridged toward a path of mutual collaboration on wider business objectives, with a balance struck between risk taking and prudence.

Connect four for a fruitful CFO-CMO collaboration

3. Collaborate on marketing’s analytics transformation
For many companies, transforming collected data into marketing and business decision remains a challenge. CFOs play a key role in analytics, by ensuring that the structures and investments are in place for CMOs to do their craft, while CMOs need to be clear about the capabilities they will require.

4. Team on the marketing planning process
Long term marketing strategies remain an essential element of the wider landscape of driving profitable growth. The involvement of the CFO throughout the plan can help ensure that it is going according to the enterprises objectives, as well as being adjusted to potentially changing circumstances.

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