In a new book on the subject of educating the CEO about marketing, Marketing as Strategy: Understanding the CEO's Agenda for Driving Growth and Innovation (Harvard Business School Press, 2004), Nirmalya Kumar, Professor of Marketing at the London Business School, challenges us to become customer-focused leaders of growth that is strategic, cross-functional and profitable.
In Part 3 of this series on educating our CEOs about marketing, I summarize some of the key points in Marketing as Strategy and conclude with an excerpt of my discussion with Professor Kumar. Regardless of your level, experience or organization, you can benefit from reading this book.
Summary of Insights
Here are the major points from Professor Kumar's recommendations for marketers:
Our challenge is articulated in this short statement: “The demand from CEOs is for foresight rather than hindsight, for innovators, not tacticians, and for market strategists, not marketing planners. Marketers must learn to lead with imagination driven by consumer insight and not rely on market research for predictions. As marketers, are we ready to face these challenges? We have nothing to lose except hierarchies, national and functional boundaries, and, most of all, the four Ps.”
To elevate marketing from the tactical responsibility to sell more of our products and services to a strategic influence in the future direction of the organization, Professor Kumar suggests we replace our traditional four Ps model of product, promotion, price and place (distribution) with the Three Vs of valued customer (whom to serve?), value proposition (what to offer?) and value network (how to deliver?).
Professor Kumar presents us with a menu of seven initiatives from which we must choose in order to move marketing into the role of driving growth and innovation in our organizations. The seven transformational initiatives, along with some questions from the checklists provided, are as follows:
- From market segments to strategic segments: Who are our valued customers? Which customers are unhappy with current offerings in the industry? Is the target large enough to meet our sales objectives? What is our value proposition? Does it fit the needs of customers we are trying to serve? What benefits are we delivering? Can we deliver and earn a profit?
- From selling products to providing solutions: Do we guarantee customers outcomes and benefits instead of product performance? Have our sales people developed consulting skills and deep industry knowledge? Have we developed effective processes to allocate resources to solution projects?
- From declining to growing distribution channels: What service outputs will the new channel provide? How will the relative importance and power of existing channels change? Which competitors will enter the new channel? What changes in channel incentives to existing members will competitors try? What new competences do we need to enter the new channel?
- From branded bulldozers to global distribution partners: Have we identified our most valuable clients on a worldwide basis? Are there single points of contact for global customers? Have we optimized our supply chain for global efficiency? Have we harmonized pricing structures?
- From brand acquisitions to brand rationalization: Which brands are contributing to our profits? What needs-based segments exist in each category? How much sales revenue would we risk by deleting non-core brands? What is the role of the corporate brand? How will we articulate our program to stakeholders?
- From market-driven to market-driving: Are new ideas routinely imported from the outside? Do we tolerate failures and have processes in place to learn from failures? Do we mix people on teams to generate new ideas? Do we ensure that radical ideas do not lose resources to incremental ideas?
- From strategic business unit marketing to corporate marketing: How does the organization rate on customer focus in processes, including new product development, order fulfillment, customer relationship management? Is the organization organized around customers? Are metrics and rewards related to impact on customers? Does the organization systematically learn about customers?
Professor Kumar offers these words of advice for marketers: “Marketing must prove that it is willing and ready for its leadership role in transforming the company. It must convince others of its unique capabilities, resources and skills, and its mind-set to lead—and that it has matured as a discipline to become more strategic, cross-functional and bottom-line oriented.”
Interview With Professor Nirmalya Kumar
Young: “Strategy” is the most overused and inconsistently used word in business. How do you define “strategy”?
Kumar: Strategy is what will help us achieve our vision of what we want to be about three to five years from today and is generally an articulation of whom to serve (markets, customers), what to offer (products, services, value propositions) and how to deliver them (vehicles—alliances, acquisitions, etc.—and value chain) which I encapsulate with my 3Vs model of valued customer, value proposition, and value network.
Young: You write that CEOs actually want marketing to become a strategic partner. What's your evidence of this?
Kumar: Most CEOs are very aware that marketing is a critical function. But they are frustrated that marketing people are not living up to the pressing challenges of identifying new markets, keeping prices up, and retaining customers. They don't want marketers to tell them how to sell more by cutting prices and running more promotions, because that's not what they have in mind for their company.
Young: Let's suppose there's no chief marketing officer in my company and my CEO thinks marketing is really marketing communications, used only to sell products or services. What should I do to educate my CEO of marketing's broader value?
Kumar: Then you are in trouble. Marketing is really about a way of looking at your company. The best education for him or her would be to meet other CEOs of companies that see marketing as the driver. The only way you can educate a CEO generally I find is by having them talk to other CEOs.
Young: In your book you identify seven transformational issues where marketing has a vital role in determining strategy. Which of the seven is the best place to start?
Kumar: It depends on the kind of company you are.
For example, if you're having problems selling products because the products [in your industry] have commoditized, then clearly the transformation from selling products to providing solutions becomes the critical one. Then your success depends on how you can add bundles of services to your product so that you get the value added, especially if the product can be produced by anybody at a cheap price.
Now if you are a company that has a tremendous product portfolio because you have grown from a lot of acquisitions over the past, then brand rationalization becomes very critical for you because you can support only so many products, especially against strong distribution partners.
Young: Are there any issues that apply to all organizations?
Kumar: Almost every company today faces some channel migration issues—in the sense that every company has [distribution] channels that are declining and channels that are new or becoming stronger, whether the growing channel is the Internet or whether the growing channel is mass merchandisers.
Young: What if my CEO has primarily a short-term focus? What can I do then?
Kumar: Then, the best thing to do is to show how the short-term indicators of tomorrow are dependent on the marketing investments of today. The question is how to educate CEOs so that they understand that if the marketing metrics decline today—such as customer satisfaction, customer loyalty—then you will see the effect, maybe not in the next three months but definitely in the next year.
So you have to make the linkage between customer loyalty and customer satisfaction, sales, revenues and profitability.
Young: You distinguish between metrics that are valuable and those that are not. Which metrics are valuable?
Kumar: The metrics that are valuable are the ones that can be linked to either revenue enhancements or profitability. We understand that there is a time lag between them, but we need to track this data over time so that we can show that when customer satisfaction declines, revenues and profits decline over some period of time, depending on what type of business you're in.
So each company should be tracking this data and trying to link it to profitability and revenues to show that the decline in marketing metrics is a leading indicator of decline in revenues at a future date.
Young: Do you have an example?
Kumar: Consider Harrah's casino, where one property made record profits one year but employees did not get a bonus that year because the customer satisfaction data was not up to par. That's a very strong message to send to the entire organization.
Young: Do you see technology playing a role in making marketing the transformational engine of the enterprise?
Kumar: If you look at the technological initiatives that have taken place in the past few years, clearly CRM was supposed to bring us closer to customers. But most CRM initiatives in companies are run by the information systems department rather than the marketing department. Most marketing people are considered to be less than comfortable with technology, so they have not been able to make technology a good slave in their companies.
Instead of being a tool that is used to serve customers better, technology has often taken a life on its own. A lot of the technological investments are made to keep up with the competitor rather than serve customers better, either by giving them more services (or more customized services) or by lowering the cost of services.
Young: So you don't see much hope in technology?
Kumar: Unfortunately, most technology is being driven by cost considerations primarily and IT staff. You know that if you have to wait 20 minutes on the line before you can get through to a customer service rep, it's not designed to take the customer into account. To tell you the truth, I've been very disappointed in how technology has been adopted by companies for serving customers.
Young: You advise us to bring the customer into the boardroom. What is the best way to do that?
Kumar: The best way is to suggest that the board regularly look at projections for the future. Among those indicators [of future performance] are customer satisfaction, customer loyalty and maybe shelf space or whatever are the important marketing indicators [for your industry].
Could be level of premium prices we are getting, could be market share. But we need to bring in these marketing indicators that reflect the perceptions and future behavior of our customers.
Young: Now, just as few CEOs come out of the marketing function, I also understand few people on Boards have marketing backgrounds.
Kumar: I have to tell you're going to have even fewer people coming from marketing and a lot more people coming from accounting and finance as a result of increasingly strict standards of reporting and Board member financial liability.
Young: In your book, you discuss marketing's key cross-functional interfaces. Which relationships are most critical?
Kumar: The two most critical relationships are with the Chief Financial Officer (CFO) and the Chief Operations Officer (COO). One has to spend a lot of time convincing the CFO that investment in marketing and investment in customers produces revenues and profitability in the future. We really are sometimes on two different planes, because the marketing people come and they ask for a lot of money, but they don't often enough make the link to revenues and profits, which the CFO needs before he is going to approve any investment.
The second most important interface is with the COO, because we cannot deliver the products and services without the help of the COO. We cannot even deliver innovation, because product development and market launch are highly dependent on the COO.
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