By Logan Flatt, CFA

Recently, Advertising Age announced¹ the publication of two research studies centered on measuring and evaluating the performance of Chief Marketing Officers and other marketing executives (CMOs) at some of the world’s largest for-profit corporations. Based on the study authors’ short comments in the announcement, I question the authors’ conclusions to the studies and offer an alternate perspective on those conclusions.

A Tale of Two Studies

The first study², an academic inquiry into the CMO’s effect on a company’s financial performance, covered 167 for-profit companies over a five-year period. The study concludes that “CMOs on top management teams don’t have any effect on a company’s financial performance.” However, the authors quickly caveat the conclusion by adding, “[our] study is limited because it focuses on financial-performance metrics, such as sales growth and profitability, and not brand equity.”

The second study³, the collaborative effort of a management consulting firm and an advertising industry association, relied on insights gained from “15 incisive and revealing interviews with former and current marketing leaders at household-name companies” to conclude that “measuring CMO performance based on financial performance alone is a mistake.” One co-author of the study declares, “Financial metrics alone do not define CMO performance.” Continuing, he proclaims, “A universal panacea to making marketing accountable doesn’t exist.”

CMO Performance Metrics Must Reflect the Capitalist Imperative

As a plain-speaking Texan, I respond to the authors’ conclusions and proclamations with a drawled “Hogwash!” Why do I feel they are wrong? The authors’ conclusions do not reflect the reality that a for-profit CMO must adhere at all times to the Capitalist Imperative – the prime directive from shareholders to “use our money to make more money.” Under the Capitalist Imperative, financial metrics such as sales, costs, profits, cash flows, and ROI are the only relevant metrics to use when measuring and evaluating CMO performance.

In contrast, traditional marketing metrics such as “lift in brand awareness,” “intent to purchase,” and “brand equity” collapse under the weight of the Capitalist Imperative because they do not measure a CMO’s direct effect on a company’s ongoing financial performance. At best, traditional marketing metrics merely suggest – in vague terms – a CMO’s possible effect on company financial performance. At worst, traditional marketing metrics distract from – or can be used to mask – a CMO’s inability to use shareholders’ money to make more money. Not surprisingly, traditional marketing metrics are of little interest or use to most decision makers outside of the Marketing department. It is no wonder then why CEOs and CFOs do not report traditional marketing metrics in their quarterly and annual reports to shareholders.

Let’s Give Shareholders CMO Performance Metrics They Deserve

Shareholders need to understand and appreciate a CMO’s contribution to company financial performance. A CMO often has discretionary spending authority over many millions of shareholder dollars for company marketing initiatives each year. Therefore, any evaluation of a CMO’s performance must be linked inextricably to financial metrics that reflect whether or not he or she spends those dollars in ways that create value for shareholders.

Yes, measuring and evaluating CMO performance using only financial metrics is a difficult task. It requires a good number of assumptions, estimates, and fancy mathematics to get the job done. Still, hard work and imperfection are not good excuses for simply throwing up one’s hands and declaring that the job cannot or should not be done. Shareholders deserve better than that. They deserve to know a CMO’s contribution to company financial performance in the terms most relevant to shareholders – through financial metrics alone.

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References

¹“CMOs Rapped for Having Zero Impact on Sales: Study Shows Difficulty in Measuring Short-Term Value of C-Suite Position,” Mya Frazier, Advertising Age, July 9, 2007.

²“Chief Marketing Officers: A Study of their Presence in Firms’ Top Management Teams,” Pravin Nath and Vijay Mahajan, Journal of Marketing, forthcoming in January 2008.

³“CMO Thought Leaders: The Rise of the Strategic Marketer,” Gregor Harter, Edward Landry, and Andrew Tipping, edited by Geoffrey Precourt, strategy+business, published 2007.

© 2007 LoganFlatt.com. All rights reserved.