May 24, 2007
Marketing Balance: Divisional vs. Corporate
By Tom Ryan
In a recent study, McKinsey & Co. found that companies whose brand portfolios perform strongly tend to place more responsibility for marketing strategy and execution in the hands of division-level marketers.
For these outperforming companies, corporate marketing serves primarily as “a center of excellence that disseminates information and best practices to line marketers,” according to McKinsey.
At underperforming companies, corporate-marketing organizations spend more time providing marketing services (i.e., managing relationships with advertising agencies), as well as getting heavily involved with global brand and innovation management. McKinsey believes these tasks “can sometimes be profitably performed closer to the front line.”
Nonetheless, the research group said divisional marketing teams do need some oversight to make sure their methods match corporate goals.
“Marketers in charge of categories, products, or brands need the freedom to take risks as they try to expand the boundaries of traditional approaches,” McKinsey reports. “At the same time, however, it’s vital for companies to make sure that marketers don’t overspend – or cloud the meaning of core brands – while pursuing fragmented consumer segments, new-media opportunities, or evolving channel options.”
The findings are part of a survey of chief marketing officers and their subordinates at 20 leading consumer goods makers exploring increasing complexities in the industry. McKinsey believes that many companies are struggling to keep up with “unprecedented levels of change – from an explosion of in the number of media choices to the growth in size and importance of major retailers such as Wal-Mart.”
The study also looked into issues such as brand management, the changing media environment, innovation, consumer insights and retail relationships.
From an organizational perspective, the survey found that more than 80 percent of the consumer goods companies had corporate-marketing organizations in addition to marketing groups aligned with individual divisions. It noted that the right organizational model depends on factors varying by company – such as geographic scope and the number of categories in which a company competes – and a “one-size-fits-all” structure isn’t feasible.
But the research group underscored the importance for all organizations of delineating roles and responsibilities between corporate and divisional marketing teams, especially in an environment where marketers are continually testing new techniques.
“In our experience, striking a healthy balance between corporate- and division-level marketers and clearly defining their respective responsibilities can contribute to strong performance within business units,” McKinsey observed.
Discussion question: Why do you think companies placing more responsibility on divisional marketing teams saw their brand portfolios perform better? How do you think corporate and divisional marketing teams can achieve organizational balance?
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I don’t accept the McKinsey premise of the structure of a Marketing Department being a significant explanatory variable in explaining the strength of a brand portfolio. Product quality, innovation and historical Brand Equity would dominate any organizational explanation of the strength of a brand portfolio. Additionally, it would be helpful to understand the definition of a “strong” brand portfolio. It is my experience that the most effective Marketers are the ones that have an eye for innovation and consumer needs, and that would seem to be somewhat independent of the particular organizational structure of the Marketing function.
Division-level marketers are more likely to be effective than corporate-level marketers because they are closer to the work. That generalization works for all sorts of jobs and tasks, not just brand marketing. Those who are closer to the work often are much better informed and much more effective. Urgent messages get diluted with each successive layer.
In CPG, we see companies getting more global in their consumer marketing and branding and at the same time, more local in their customer marketing/sales/category management structures. I’d say retailers are the same with CMO functions being created but with customized local/neighborhood formats. This makes a lot of sense to me.
While I’m not sure that McKinsey & Co. would ever suggest this, a big recipe for disaster would be to allow divisions that manage sub-brands of the same master brand to take their sub-brands into different positioning spaces without corporate level branding coordination. This is the situation that a new CMO typically finds and it is usually one of the first things they try to attack.
Both Mark Lilien and Mark Hunter are right: the closer the marketing team is to the consumer, the better will be the results.
What I would add to this discussion is the ascendancy of merchandising in the retail sphere to at least an equal place with marketing.
Merchandisers are people and companies who are able to combine market knowledge, product knowledge, promotional knowledge, selling knowledge, multi-channel knowledge, brand passion (and the nuts and bolts of inventory load, turn factor, distribution, etc.) into GROWTH: of sales, profits, market share, share of consumers (and for publicly-owned companies, stock share price).
Of course coordination between and among all levels of the enterprise are called for and required.
I agree with Mark, but I would also add that pushing authority and accountability for results down the corporate ladder often brings better results. It’s hard to create an entrepreneurial spirit within a large centralized organization unless you give individual divisions the tools, support and incentives to “own their results.” The trick is how to encourage your divisions while maintaining an overall vision that is true to your brand.
Let’s see…the closer you are to a problem, the closer you ought to be to an effective solution…hmmm.
This is often an issue of effectiveness versus efficiency.
It is clear that the most effective marketing can be done at levels of the organization closer to the marketplace and the consumer. Corporations often argue that this leads to inefficiency of media, programs, etc.
The best marketing efforts strike a balance between the two by engaging the marketplace at the local or disaggregate level while maintaining a consistent strategy and brand identity.
I’m not sure about “divisional teams,” but “retailer specific” teams (in some organizations perhaps they are the same) seem to be able to hone in on the complexities of how different retailers work. Many manufacturers seem to have a nice synergy between what the retail teams want to try and what corporate needs to have done. Corporate, in some cases, is pulling back the retail teams when they get too far from the overall strategies and in other cases is allowing things dictated by certain retailers that may not fit corporate thinking.
Yes Divisional Marketing groups are closer to the issues pertaining to their division, so the tactical execution is better carried out by these groups, and the strategic direction and is probably best left to Corporate Marketing. But a strong interaction between the two is essential for Corporate Marketing to shape future direction. In an executive forum event at UConn School of Business, Dan Henson, Chief Marketing Officer, GE (“Innovation in GE” April 30th, 2007, Stamford, CT), highlighted the fact that the business landscape tends to evolve over time, and it is important for companies to keep up with this evolution. This is possible only if Corporate Marketing strategies are in sync with changes taking place at the frontline. Dan pointed out that the portfolio of services and products GE owns can completely change in a ten year time-span (e.g. Divestiture of GE Plastics earlier this month, spin off of GEFA–now Genworth). A CMO can feel the pulse of the market only if he is closely connected to the Divisional Marketing groups. So although it is important to offer divisional marketing groups a freedom to adapt corporate marketing strategies to their specific needs, this study should not be interpreted to mean that the two functions should not be closely integrated for the long term health of the company.
Top management should set the strategy and the divisional and local levels execute. Certainly top management needs some oversight.
For example, the new Maytag commercial misses the mark. Choosing a new person to be the “lonely repairman” is fine; using the concept of the lonely repairman is absolutely the right thing to do; updating the commercials makes sense. However, now the lonely repairman is in people’s homes fixing TVs, cable systems, and checking everything else. How is that lonely repairman ever going to get the calls and provide service if not in the office? OK he can be reached on his cell phone but he has no computer with him so he has no access to company information. Second, if you are an expert on repairing Maytag products, why does that mean you can fix cable systems, TVs or any other appliance. And why are these homeowners letting him? Top management needed some oversight here. This isn’t helping the brand.
Not only are the divisions closer to the work–they’re closer to the customer.
Who was it, in this space, who pointed out that the CEO of a client company had never shopped for the product or cooked a meal?
That may be true of a few folks at the divisional level, but probably a good deal fewer. And at least they see the reports from research and sit in on focus groups.
In my ideal world, divisional groups would do all the brand and product marketing, leaving corporate groups to market to the customer-like groups they know best–the financial community; regulatory agencies and political activists; and internal stakeholders.
Balance can only be achieved when the national/global team stays focused only on setting the brand strategy and establishing the parameters of the brand equity. Allowing the divisional team to carry out the execution of the marketing strategy will, with rare exception, always deliver a higher return. The reason is simple; as a society–both national and global–we are becoming much more “interest-niched” than previous generations. For this reason the closer to the consumer the marketing team is the better the results.
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I don’t accept the McKinsey premise of the structure of a Marketing Department being a significant explanatory variable in explaining the strength of a brand portfolio. Product quality, innovation and historical Brand Equity would dominate any organizational explanation of the strength of a brand portfolio. Additionally, it would be helpful to understand the definition of a “strong” brand portfolio. It is my experience that the most effective Marketers are the ones that have an eye for innovation and consumer needs, and that would seem to be somewhat independent of the particular organizational structure of the Marketing function.
Division-level marketers are more likely to be effective than corporate-level marketers because they are closer to the work. That generalization works for all sorts of jobs and tasks, not just brand marketing. Those who are closer to the work often are much better informed and much more effective. Urgent messages get diluted with each successive layer.
In CPG, we see companies getting more global in their consumer marketing and branding and at the same time, more local in their customer marketing/sales/category management structures. I’d say retailers are the same with CMO functions being created but with customized local/neighborhood formats. This makes a lot of sense to me.
While I’m not sure that McKinsey & Co. would ever suggest this, a big recipe for disaster would be to allow divisions that manage sub-brands of the same master brand to take their sub-brands into different positioning spaces without corporate level branding coordination. This is the situation that a new CMO typically finds and it is usually one of the first things they try to attack.
Both Mark Lilien and Mark Hunter are right: the closer the marketing team is to the consumer, the better will be the results.
What I would add to this discussion is the ascendancy of merchandising in the retail sphere to at least an equal place with marketing.
Merchandisers are people and companies who are able to combine market knowledge, product knowledge, promotional knowledge, selling knowledge, multi-channel knowledge, brand passion (and the nuts and bolts of inventory load, turn factor, distribution, etc.) into GROWTH: of sales, profits, market share, share of consumers (and for publicly-owned companies, stock share price).
Of course coordination between and among all levels of the enterprise are called for and required.
I agree with Mark, but I would also add that pushing authority and accountability for results down the corporate ladder often brings better results. It’s hard to create an entrepreneurial spirit within a large centralized organization unless you give individual divisions the tools, support and incentives to “own their results.” The trick is how to encourage your divisions while maintaining an overall vision that is true to your brand.
Let’s see…the closer you are to a problem, the closer you ought to be to an effective solution…hmmm.
This is often an issue of effectiveness versus efficiency.
It is clear that the most effective marketing can be done at levels of the organization closer to the marketplace and the consumer. Corporations often argue that this leads to inefficiency of media, programs, etc.
The best marketing efforts strike a balance between the two by engaging the marketplace at the local or disaggregate level while maintaining a consistent strategy and brand identity.
I’m not sure about “divisional teams,” but “retailer specific” teams (in some organizations perhaps they are the same) seem to be able to hone in on the complexities of how different retailers work. Many manufacturers seem to have a nice synergy between what the retail teams want to try and what corporate needs to have done. Corporate, in some cases, is pulling back the retail teams when they get too far from the overall strategies and in other cases is allowing things dictated by certain retailers that may not fit corporate thinking.
Yes Divisional Marketing groups are closer to the issues pertaining to their division, so the tactical execution is better carried out by these groups, and the strategic direction and is probably best left to Corporate Marketing. But a strong interaction between the two is essential for Corporate Marketing to shape future direction. In an executive forum event at UConn School of Business, Dan Henson, Chief Marketing Officer, GE (“Innovation in GE” April 30th, 2007, Stamford, CT), highlighted the fact that the business landscape tends to evolve over time, and it is important for companies to keep up with this evolution. This is possible only if Corporate Marketing strategies are in sync with changes taking place at the frontline. Dan pointed out that the portfolio of services and products GE owns can completely change in a ten year time-span (e.g. Divestiture of GE Plastics earlier this month, spin off of GEFA–now Genworth). A CMO can feel the pulse of the market only if he is closely connected to the Divisional Marketing groups. So although it is important to offer divisional marketing groups a freedom to adapt corporate marketing strategies to their specific needs, this study should not be interpreted to mean that the two functions should not be closely integrated for the long term health of the company.
Top management should set the strategy and the divisional and local levels execute. Certainly top management needs some oversight.
For example, the new Maytag commercial misses the mark. Choosing a new person to be the “lonely repairman” is fine; using the concept of the lonely repairman is absolutely the right thing to do; updating the commercials makes sense. However, now the lonely repairman is in people’s homes fixing TVs, cable systems, and checking everything else. How is that lonely repairman ever going to get the calls and provide service if not in the office? OK he can be reached on his cell phone but he has no computer with him so he has no access to company information. Second, if you are an expert on repairing Maytag products, why does that mean you can fix cable systems, TVs or any other appliance. And why are these homeowners letting him? Top management needed some oversight here. This isn’t helping the brand.
Not only are the divisions closer to the work–they’re closer to the customer.
Who was it, in this space, who pointed out that the CEO of a client company had never shopped for the product or cooked a meal?
That may be true of a few folks at the divisional level, but probably a good deal fewer. And at least they see the reports from research and sit in on focus groups.
In my ideal world, divisional groups would do all the brand and product marketing, leaving corporate groups to market to the customer-like groups they know best–the financial community; regulatory agencies and political activists; and internal stakeholders.
Balance can only be achieved when the national/global team stays focused only on setting the brand strategy and establishing the parameters of the brand equity. Allowing the divisional team to carry out the execution of the marketing strategy will, with rare exception, always deliver a higher return. The reason is simple; as a society–both national and global–we are becoming much more “interest-niched” than previous generations. For this reason the closer to the consumer the marketing team is the better the results.