The relationship between finance and marketing hasn't worked for years — but CFOs can change that.
Tim BurkeMarch 2, 2009

When directors at DHL Express say there’s a close working relationship between finance and marketing at the company, it’s not just a turn of phrase — CFO Oliver Gritz sits in an office right across the hall from George Kerschbaumer, the firm’s head of marketing. The physical proximity is symbolic of the connection between the two functions at the €14 billion express mail subsidiary of Germany’s Deutsche Post. In the past, Gritz says, marketing and brand awareness was such an area of focus for DHL Express that it led to “very peculiar organisational structures,” whereby business analytics and costing, for example, were looked after by the commercial department rather than finance. Although these areas are now the responsibility of his team, the CFO adds, “the close co-operation between the two [departments] has prevailed.”

Not all finance chiefs can say they share Gritz’s close ties with marketing, physically or philosophically. In many businesses, the departments may seem worlds apart, even if their bosses are separated only by a cubicle partition.

This matters now. While economies contract and consumers tighten their belts, it’s more important than ever for companies to get the right message to the right customers. But in a downturn, any business spending without a clear link to profit runs the risk of being scaled back. According to Sharan Jagpal, professor of marketing at Rutgers Business School in New Jersey and the author of Fusion for Profit: How Marketing and Finance Can Work Together to Create Value (Oxford University Press), this means that “marketing looks like the easiest and most logical [budget] to cut because [companies] don’t know how to measure its productivity.”

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It doesn’t have to be like this. New metrics won’t appear overnight and companies cannot change the interplay between finance and marketing teams easily. But the finance chiefs of companies that have built closer ties between the two agree that there is still room for improvement. If CFOs want to understand the link between marketing and their financial performance better, they say, they’ll need to work more closely with their creative counterparts to agree which aspects of their marketing initiatives to measure and how to monitor them.

Where There’s a Will, There’s a Way

Measuring the effectiveness of marketing with mathematical precision has eluded even the most proactive CFOs and chief marketing officers (CMOs), but it’s still worth trying. Following a poll of more than 600 European CFOs and CMOs, a study by document-management group Xerox and consultancy Coleman Parkes found that nearly all the respondents on both sides of the fence believe marketing can have a positive impact on profitability. But they also agree that the effect is difficult to assess. Some 40% of the CFOs polled didn’t know whether their company even attempted to figure it out.

Yet for those companies that have made an attempt, the results are confusing. Not only did the CMOs who were polled say they report more marketing information to their CFOs than the CFOs say they receive, but CFOs believe more measuring is taking place than CMOs say is the case.

The findings suggest that the problem is not that there isn’t enough interaction between marketing and finance; it’s just that the quality, rather than the quantity, of interaction needs greater attention. “Strategically, they’re talking the same language,” says Ian Parkes, a director at Coleman Parkes. “The delivery of [marketing] and the reporting of that delivery — that’s where the breakdown happens.”

High-quality reporting that makes sense to both sides is a benefit that DHL Express’s CFO doesn’t take for granted. There, the co-operation between finance and marketing means that Gritz’s team runs all analysis related to product reporting and volume forecasts for the marketers. Finance also looks after billing, which the CFO says customer surveys show is the interaction with the company most valued by them, after the physical shipment of a delivery and customer service. The result is that although Gritz admits the two teams have a “sometimes adversarial” relationship when it comes to budgets, “those differences of opinion don’t end up in open warfare.” And rather than worrying that numbers from the marketing team aren’t reconciling, Gritz — who’s been CFO since 2006 — knows the teams have worked closely enough to have confidence that there is “one acknowledged source of the truth, not one party saying their numbers say this and [another] saying, ‘That’s not quite right.’”

Indeed, Gritz’s advice to finance chiefs who want a more fruitful relationship with marketing is to make sure IT systems allow the teams to share data quickly. “The companies that have had the luck to go through a fully fledged [ERP] implementation had to think about all of those data inter-relationships very carefully,” he says. “But if you’re coming from a more traditional background of having production systems, commercial systems and so forth that are not fully integrated, it might be that you get to many different data points that do not necessarily tell the same story.” That shouldn’t be news to the 40% of respondents to Xerox’s survey still using paper-based measurement systems rather than proprietary tools or spreadsheets.

Simply sharing data isn’t enough, however. “Data is not a problem now,” Jagpal of Rutgers asserts. “It can be fairly instantaneous today, so the usual lags of data collection and data processing are pretty much gone. But the key question is what do you do with the data and how do you make sense of it?” Even at a company as sophisticated as DHL Express, Gritz says there is no easy way to track how any increased investment in advertising, for example, flows through to the bottom line. He believes that’s partly because for a business-to-business company, it may be harder to do than for a business-to-consumer company, which can see a “much stronger relationship between advertising dollars and what that does to your volume.”

The Three Rs, Plus One

But even at consumer-focused companies, measuring marketing is no walk in the park. According to Jesko Perrey, head of the European branding and marketing ROI practice at consultancy McKinsey & Company, the bad news is there’s “no one KPI that [can] track all your marketing investments.” And the problem is, as the Xerox study reveals, CFOs and CMOs aren’t using the same KPIs. For example, more than half the CFOs said the environmental impact of their marketing was measured at least fairly frequently, although only 36% of CMOs said this was the case. Similarly, when it came to the cost of new customer acquisition, more CFOs than CMOs said the figure was monitored.

What’s more, the digital era has only widened the choice of metrics both camps are using. (See “Made to Measure?” at the end of this article.) From click-through numbers for online ads to unique visitors stats for websites, there’s a host of new metrics for companies taking business online — but little agreement on which prove the worth of marketing initiatives.

One way to narrow down the choice and help make sure marketing and finance stay on the same page is to focus on metrics that demonstrate as close as possible the link between marketing spend and the bottom line. That’s been the case at PartyGaming, a $458m (€364m) Gibraltar-based, London-listed online gaming company. “Marketing for online gaming companies is based on the three Rs — recruiting, retaining and reactivating players,” says CFO Martin Weigold. “But it’s also very much about another R: return on investment.” 

When new players sign up to one of PartyGaming’s sites, the company immediately begins tracking how often they play and how much revenue they generate each time they do. Attrition rates are also watched closely (which has in the past shown that only one in four customers continues gambling on its sites 12 months after joining). PartyGaming analysts then compare the “player values” to the cost of signing them up through its various marketing initiatives. “So we can work out the expected profit on each new player sign-up,” Weigold says. “And we do this across each marketing channel — offline, online, search-engine optimisation, affiliate — as well as by brand and country.”

The finance department does not carry this out in isolation, but rather in partnership with marketing. “That doesn’t mean I want to micro-manage how they deploy their resources at an individual campaign level. They are the undoubted experts in that area and I stay well clear of those decisions,” Weigold says. “But I can and do become involved in looking at how they should consider deploying spend at a higher level, whether by country or marketing channel, based on our internal analysis.”

More recently, that analysis has included carrying out regression exercises to understand the incremental return on the company’s marketing spend. “If you reduce your marketing spend by 50% in a particular territory, what is the impact on sign-ups?” the finance chief asks. “Do they fall proportionately or by just 10%? And what happens to sign-ups in future periods? Is there any impact on player retention or spend? Understanding this better has given us some very valuable insights into the effectiveness of our marketing spend, which is increasingly important in the current economic climate.”

Certainly, the economic downturn weighs on PartyGaming and other online gaming upstarts. As Weigold notes, this is the first full-blown recession that the industry has experienced. He reckons these companies are “resilient rather than recession proof,” and will have to face a slowdown in customer spending. “This means that we have to be even smarter with our marketing spend and make sure we adapt to this new environment,” he adds. “If we want to maintain our margins and our player values are falling, then we need to reduce our spend accordingly — taking advantage of the adverse climate to negotiate better rates with media suppliers, for example.”

Never Too Late

Repairing the relationship between finance and marketing can take time, and many companies will be wary of starting right now. After all, CFOs whose companies are in survival mode have more to worry about than their latest ad campaign.

More fortunate companies, such as PartyGaming and DHL Express, forged stronger bonds between the two teams during better times. Their CFOs probably feel a lot more relaxed about their marketing team’s spending, despite the recession.

That’s the case for CFO Martin Stewart at Park Group, a £225m (€251m) UK-based company that sells Christmas hampers and gifts through a network of agents. The close relationship and understanding between his department and that of marketing director Mark Lucius, means that the finance chief doesn’t have to worry about cutting the company’s marketing costs even in the middle of the financial crisis. In fact, he says the company is reaping the benefits of a 2007 marketing blitz in print and online press, TV and direct marketing — the most successful in its 40-year history. Thanks to that campaign, the number of new agents Park recruited to sell its products increased by 20%, and orders 17%, from the previous year.

That’s not to say that Lucius has been spending money carelessly. “Everyone’s got to tighten his belt at the moment,” the marketing director says. “I’ve done so every single year, whether it’s been good or bad. The way I’ve done that is to look at clever ways to substitute an expensive activity with a cheap activity — offline for online, for example.”

Park has the kind of finance-marketing teamwork that many companies lack. But CFOs who haven’t yet started to break down the walls between finance and marketing needn’t be disheartened — starting during a downturn is still preferable to not starting at all. As Parkes of Coleman Parkes puts it, “If [companies] make the decision now to toughen up and create that level of communication [between finance and marketing,] imagine what it’s going to be like when we do come out of this.”

Tim Burke is senior editor at CFO Europe. 

Measuring marketing initiatives


Seen It All
“What you see still in some companies is that the CMO and the CFO are not always working together,” says Jesko Perrey, head of the European branding and marketing ROI practice at McKinsey & Company. In some, they may even see each other as opponents.

Imagine, then, being responsible for both functions. That task fell to Herbert Ortner of Palfinger, a €695m Austrian crane manufacturer, last year. When the CEO, Wolfgang Anzengruber, resigned in June to join another company, Ortner was promoted from CMO to replace him. If that wasn’t a tough enough transition to handle, he had to take over interim duties as CFO until January 2009, as Anzengruber had also overseen finance. And, during it all, he had to help the new CMO, Wolfgang Pilz, get established.

After sitting on both sides of the finance-marketing divide in quick succession, Ortner has a rare level of insight into how the two teams need to change in order to work better together. “In many companies, I see that there is a big problem between the finance department and the marketing department,” he says. The problem, he explains, is that many marketing professionals lack the financial know-how to read and understand balance sheets and P&L statements, and so struggle to understand how their work affects the company’s financial performance. On the other hand, he adds, there are plenty of finance people who look down on marketing, and see little value in even trying to measure or analyse the work that marketing does.

But get the two teams to understand each other’s work, he says, and the company benefits. “At the end of the day, it only works hand in hand.”