Much of the increasingly urgent discussion of the “digitalization” of business focuses on the need for clear leadership, with an emphasis on the role of the “chief digital officer,” the supercharged version of what used to be known as the “chief information officer.” This is fair enough, of course. The internet poses challenges that range far beyond the purely technological, with the result that the executive responsible needs to have a robust strategy. But the breadth of these challenges means that he or she cannot be left alone with the issue. Ideally, all executives will be thinking digitally. But there is a special need for chief financial officers – as the people who will receive constant demands for investment in digital – to understand what is going on.
A study by the accountancy firm EY suggests that the issue is so important that finance heads should be looking to collaborate more with chief marketing officers, who are increasingly aspiring to become chief digital officers and thus are often those urging greater spending. It says that, although the relationship between the CFO and the CMO has become closer and more collaborative in the last three years, in many organizations things are not changing quickly enough to adapt to a digital world. The findings of the fourth instalment of the Partnering for performance series – based on a global survey of 652 CFOs and a series of in-depth interviews with CFOs and CMOs – indicate that a lack of common processes and continued cultural differences remain significant barriers to the relationship. Woody Driggs, Global Customer Advisory Leader at EY, says: “CFOs and CMOs have traditionally been distant allies. Yet in today’s digital economy, a strong finance-marketing relationship can spell the difference between high-growth organizations, and those that stagnate or are left behind.” He adds that, for organizations to remain relevant and thrive, the CMO needs to call into question all aspects of the marketing mix, while the CFO needs to make the strategic investments that will enable established companies to adapt.
Key aspects of the report include:
Customer intelligence is key. Nearly two-thirds of CFOs surveyed have made customer segmentation and insight a priority, but fewer than half feel they make a significant contribution to this activity. Noting that knowledge about an organization’s customer base lies at the heart of its profitability and competitive advantage, the report calls on CFOs to play a critical role in turning data into actionable insight, while managing significant data risks.
Digital governance is significant. Only half of the CFOs in the study say digital governance is a high or very high priority. The CFO has a vital role to play in building a governance model that enables the organization to make the right investment decisions across the competing interests of different business units, functions and geographies. Of the CFOs who make digital governance a very high priority, more than half report EBITDA growth of more than 10% over the past three years.
Working together on marketing ROI is important. Increasing marketing spends in response to changing customer demands and channel proliferation in a digital world must be justified by effective measurement methods. While just over half of the CFOs in the survey say measuring return on investment from marketing is a priority, only 13% say that the agendas of finance and marketing are completely aligned when it comes to how this should be done. CFOs say that measuring marketing ROI is the number one area where they feel they need to make a bigger contribution. However, it is important to recognize that not all returns are easy to measure, and the CFO and CMO need to collaborate to agree KPIs for both individual marketing initiatives and less directly traceable measures like brand positioning.
Finding the optimal product mix is crucial. More than half of CFOs consider optimizing the product portfolio to be a high or very high priority. Of the 20% that consider it a very high priority, 81% report closer collaboration with the CMO. This illustrates the importance of CFO-CMO collaboration to address this issue. The two executives need to strike a balance between being focused on customers and introducing too many products.
The clear suggestion that in so many organizations the finance and marketing functions are not co-operating as well as they might should provide encouragement. While simply being more collaborative will not guarantee that CFOs and CMOs will help their organizations succeed in this highly competitive world, it is likely to put them in a better position. At the very least it should make finance heads less liable to being persuaded to invest in technologies and campaigns they barely understand while also encouraging marketers to challenge the demands of their own teams. These are uncharted waters. The ship with a team on the bridge with a clear sense of direction is likely to fare better than the one characterized by disagreement and indecision.
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This article was written by Roger Trapp from Forbes and was legally licensed through the NewsCred publisher network.