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LISA HENDERLING
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M A R K E T I N G 53

A new way to
market

Nora A. Aufreiter, Teri L. Lawver, and Candace D. Lun

For traditional marketers, organization means structure: distinct

product, channel, and customer groups. But new-style marketing
organizations understand that “boxes and lines” structures
can’t drive value in fast-moving environments.

A s the marketplace evolves ever more rapidly, marketers struggle to

keep pace. Their traditional stratagems—redesigning market segmen-
tations, building strong brands, and hiring cadres of marketing managers—
continue to be necessary. But unless those solutions can be mobilized rapidly,
many marketers could find themselves overtaken by their competitors, for a
fundamentally different way of organizing companies to exploit opportunity
seems to be emerging among many growth leaders. You might call them
venture-marketing organizations (VMOs), since like venture capitalists they
are quick to spot new possibilities, to allocate resources to the best ones,
and to cut their losses as they go.

Such groups realize that to outpace the market consistently, they must not
only create fluid organizational structures but also provide for unyielding
rigor in measurement and decision making. As a result, they enjoy revenue
growth rates that on average are one and a half times those of the competi-
tion (exhibit, on the next page). Incumbent or attacker alike, they are
capturing more than their share of market opportunities.

Nora Aufreiter is a principal in McKinsey’s Toronto office, Teri Lawver is a consultant in the Atlanta
office, and Candace Lun is a consultant in the Boston office. Copyright © 2000 McKinsey & Company.
All rights reserved.
This article can be found on our Web site at www.mckinseyquarterly.com/marketin/newa00.asp.
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54 T H E M c K I N S E Y Q U A R T E R LY 2 0 0 0 N U M B E R 2

Stay fluid
When traditional marketers think of organization, they mean structure:
distinct product, channel, and customer groups focusing on specific func-
tional tasks, such as brand management, customer segment management,
and market research. Functional managers play the pivotal roles in these
functionally focused groups, which are responsible for generating ideas
and taking them to market.

But the traditional approach hinders the fluidity required to keep pace with
the market’s evolution. For when market priorities change, traditionalists
take a “wreck and rebuild” approach that consumes the precious time of
top executives, disrupts action on
EXHIBIT
the front lines, and, worst of all,
VMOs lead revenue growth often fails to yield the intended
Compound annual growth rate (CAGR), 1994–98, percent results. Sixty-seven percent of
respondents in a Watson Wyatt
Average revenue growth of next three
75 largest competitors in industry survey1 said that in most cases the
complex and confusing changes
60
companies passed through during
51
49 46 such reorganizations did little to
39 improve their performance.
25
21 23
17 New-style marketing groups under-
stand that formal structures can’t
Trilogy First USA1 Dell Starbucks Home Depot drive value in fast-moving environ-
1
Revenues measured as CAGR of outstanding credit card balances, 1994–97 ments. To make organizations keep
(before Bank One’s acquisition of First USA).
pace with the market, these groups
rely not on periodic restructurings
but on a continual process of evolution. VMOs do have designated managers
for core products, segments, and channels, but the number of these managers,
the scope of their responsibilities, and the people to
whom they report evolve constantly to reflect changing
opportunities.

At Dell Computer, for instance, the incentive system rewards

marketing managers who successfully identify and capture so
many market opportunities that some of their business must be
passed on to other managers. Divisions divide into smaller and
smaller units, and profit-and-loss responsibility spreads out among more and
more managers—an approach that encourages all of them to turn the needs
of their customers into products and services as quickly as possible.

1
Successful Meetings, October 1998, pp. 79–82.
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A N E W W AY T O M A R K E T 55

First USA’s credit card unit is another organization whose strong growth
over the past few years has been propelled by the new approach. It has few
solid-line reporting relationships. New positions are created above, beside,
or below their predecessors, and new people are constantly being placed in
shared resource pools, which are constantly reconfigured dynamically.

Although First USA has had performance problems since being acquired by
Bank One, the phenomenal earlier growth rate of the credit card issuer was
propelled largely by its VMO approach. First USA routinely makes organi-
zational changes in the ordinary flow of business, without slowing down
day-to-day progress on initiatives. After identifying new opportunities
worth pursuing, the company quickly determines what specialized skills are
required and pulls together a suitable “dream team.” To provide qualified
leaders quickly, First USA maintains a pool of available managers whose
specialized skills can be used to develop and launch a variety of new card
products. If building the dream team means pulling people out of their cur-
rent jobs, finding them in the ranks of partners, or hiring from the outside,
those people are pulled, found, or hired.

Contrast First USA’s venture-marketing philosophy with the standard

approach of financial-services marketing organizations. One leading tradi-
tional credit card issuer places all of
its marketing resources in a single
organization split into distinct Venture-marketing organizations
groups focusing on functional tasks. place their employees in shared
Instead of evolving these groups resource pools, which are then
continually, the company reorganizes constantly reconfigured dynamically
them every two years to create the
structure for the next business cycle.
Responsibility for capturing new opportunities is assigned to existing func-
tional groups. This traditional marketer has a strong brand name, uses a
number of channels with great skill, segments its markets effectively, and
runs a high-impact direct-marketing operation. Yet starting from a smaller
base, First USA issued five times as many new credit cards during a recent
three-year period.

Another VMO-style company, Starbucks, tackles new opportunities by

assembling teams whose full-time leaders often come from the functional
marketing areas most critical to success. If the originator of an idea has the
right qualifications, that person may take the lead role. When teams require
specialized skills that are not available internally, Starbucks looks outside.
To lead its Store of the Future project, for example, it hired a top executive
with retail experience away from Universal Studios, and to develop its lunch
service concept it chose a manager from Host Marriott Services.
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After teams at First USA and Starbucks have successfully launched new
products and services, some members continue to manage or sustain them;
others go back into a pool and are quickly redeployed on new-opportunity
teams; still others return to line management jobs. In all cases, success on a
team is vital for promotion or for a bigger leadership role in the next project.

This approach to teamwork also prevails when venture marketers collabo-

rate with outside partners. Starbucks, for instance, wanted to launch a new
ice cream product, but executives
quickly realized that the company
Success on a new-product launch lacked the in-house packaging and
team is vital for promotion to channel management skills to move
a bigger role in the next project quickly enough. It therefore teamed
up with Dreyer’s Grand Ice Cream.
Starbucks understood the specific
marketing skills it needed and acquired them with the dream team philos-
ophy in mind. As a result, the company launched the new product in half of
the usual time, and within four months it became the top-selling brand of
coffee ice cream.

Accountability and performance tracking

Executives tend to shy away from fluidity because they associate it with chaos.
But fluidity can be controlled if discipline is applied in the right places. In
particular, VMOs have clear mandates of accountability for each assign-
ment — that is, clear statements of what marketers are expected to achieve.
And these organizations are highly disciplined about tracking performance,
marketing investments, and marketing returns. What they don’t have are job
descriptions that constrain any marketer’s work.

When one young analyst at Enron, for example, conceived a new weather-
insurance product for utilities, the company allowed her to lead a new group
to develop and launch it. She received clear financial targets and had to
complete daily profit-and-loss statements that quickly showed whether the
product was earning the required return on investment. In this case, the
return was strong, and the group now continues to grow. But Enron routinely
pulls the plug on low-performing ventures.

To reinforce rigorous performance targets, one venture marketer uses pro-

prietary program management software to set clear financial targets and
deadlines for realizing new market opportunities. A manager who assumes
responsibility for one of these opportunities knows exactly what will be
expected and when—and can feel confident that the rewards for strong
performance will be substantial.
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A N E W W AY T O M A R K E T 57

Making it work
Of course, achieving good results calls for much more than merely embracing
an approach; companies must also put it into practice. Effective VMOs follow
three critical principles for day-to-day execution. To ensure that plenty of
good ideas enter the funnel, these organizations make it everyone’s job to
identify opportunities. To give priority to the best opportunities and to coor-
dinate resources quickly, they combine the use of advanced technology with
decision making by top management. Finally, to make themselves more flex-
ible, they hire people for roles, not jobs.

Identifying opportunities

To capture opportunities continually, a company must have a continual

flow of ideas. Venture marketers encourage this flow with a combination
of cultural reinforcements, feedback loops, and explicit financial and
professional incentives to make everyone, rather than a specific
group or department, responsible for identifying opportunities.

At Trilogy Software, for example, the marketing

organization’s mission is “100 percent understood
by everyone to be identifying and capturing the
biggest new market opportunities,” according to
the marketing vice president. Instead of vesting
responsibility for identifying new opportunities
in a new-business development group, Trilogy has
charged all marketers—and, to a large extent, all employees—with that
responsibility. As part of an entry-level training exercise, for example,
one new hire came up with the idea of expanding a core service line by
bundling products and targeting a new segment. Instead of reporting
to his original assignment when training ended, he joined a team newly
assembled to pursue the opportunity, which now accounts for 30 percent
of the company’s business.

Starbucks uses strong cultural incentives to drive the identification of oppor-

tunities. All company employees are called “partners,” signaling a level of
responsibility maintained by few companies with sales in the billions of
dollars. Anyone who has an idea uses a one-page form to pass it to the senior
executive team—and gets a response. When the company pursues an idea,
its author, regardless of tenure or title, is typically invited to join the launch
team as a full-time member.

Consider, for example, the evolution of what eventually became Starbucks’s

Frappuccino, a cold coffee drink. A front-line manager had the idea in
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58 T H E M c K I N S E Y Q U A R T E R LY 2 0 0 0 N U M B E R 2

May 1994, and a five-person, top-level team soon gave it a high priority.
In June and July 1994, the team developed marketing, packaging, and
channel approaches; a joint venture with PepsiCo was in place by August.
The manager who originated the proposal was put in charge of a pilot proj-
ect, and the first-wave rollout started in October 1994. National launch of
the product followed in May 1995, and in its first year it accounted for
11 percent of the company’s sales.

Speed and coordination

Transforming a pipeline full of ideas into a value-generating portfolio of

products and services is hard. Many companies fall into some combination
of three time-wasting traps. They give each functional
group (such as product management) a number of
ideas to evaluate, and the heads of those groups must
then compete for funding. They establish complex
“gating” processes, often with dozens of steps and sub-
steps, for launching new ideas. And they try to achieve
consensus among all key leaders before moving forward.
By contrast, the new-style organization uses technology
where possible to automate many decisions—and fills in
gaps with fast, centralized, senior-level decision making.

Trilogy Software, for instance, has helped its clients (and

its own internal operations) by developing a computer pro-
gram that includes data on their past marketing campaigns.
The program allows users to predict which marketing vehicles
work best for different combinations of customers and products, as
well as the likely financial outcome of deploying any particular vehicle.
What once took weeks of manual market research now requires just a
few hours of automated testing.

When technology tools can’t sort out the options, VMOs resort to unabashed
top-down decision making by a three- or four-member senior-executive
group (usually including the chief executive officer) that has the authority
to make decisions and allocate resources immediately. The group’s members
may devote as many as two days a month to making sure that the right
opportunities get priority.

Starbucks, for example, has a high-level steering committee that meets every
fortnight to rate each new opportunity by two simple criteria: its effect on the
company’s revenue growth and its impact on the complexity of the company’s
retail stores. The committee uses a one-page template for each of these ideas
and relies on a full-time process manager to ensure that information in it is
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A N E W W AY T O M A R K E T 59

presented consistently. Starbucks sets a minimum goal of $4 million in annual

revenue for potential ideas but will raise or lower this figure if they make its
retail stores more or less complex, respectively. At The Home Depot, CEO
Arthur M. Blank makes many new-business decisions unilaterally, not waiting
to build a consensus throughout the organization, but with a robust fact base
gathered by a central market-analysis group; moving quickly doesn’t mean
making decisions carelessly.

Each company’s approach is simple, transparent, fast, and rigorous. The

process supports entrepreneurialism by ensuring that anyone who generates
an idea gets the freedom and the resources to pursue it or clear feedback
about why it has been denied.

Hire for roles, not jobs

Most traditional marketers hire people for specific jobs that are viewed as
“permanent.” This approach doesn’t provide the flexibility needed to keep
pace with changing markets.

When one telecommunications company, for example, built a team to manage

customer segments, it hired industry experts for key segment management
jobs: a sales manager from a regional bank for the banking segment, a retail
merchandiser for the retail customer segment, and so on. These people’s
skills were geared to reporting on industry-specific trends, not to antici-
pating the needs of changing customer segments. As the market evolved,
the company soon realized that a
segmentation scheme based on
product requirements would yield New-style organizations hire their
greater value than one based on marketers not for jobs but for either
industries, but the industry-focused of two broad kinds of roles:
managers lacked the marketing skills those of integrators and specialists
needed to identify and pursue
opportunities outside their indus-
tries of expertise. While the marketing vice president struggled to replace
these segment managers in the face of corporate hiring and head count con-
straints, the company lost share to competitors whose customer segments
were based on product requirements.

New-style marketing organizations, by contrast, hire marketers not for jobs

but for two broad kinds of roles: those of integrators and specialists.
Integrators are marketers with broad skills who coordinate the delivery
of products and services to the market from beginning to end. Specialists—
more narrowly focused marketers with specialized skills—can be mobilized
quickly to provide the particular expertise a given opportunity team requires.
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60 T H E M c K I N S E Y Q U A R T E R LY 2 0 0 0 N U M B E R 2

Hiring people with the right marketing skills is critical but not sufficient:
companies such as Starbucks and Trilogy Software also look for entrepre-
neurially minded candidates who can thrive in uncertain, rapidly changing
environments. To ensure that the right candidates are chosen, recruiting
at these companies is a line rather than staff responsibility, for traditional
corporate recruiting administrators and third-party executive search firms
can rarely link marketing strategies with candidate-screening procedures
in an effective way.

Getting started
These three principles—universal responsibility for identifying opportunities,
reliance on technology and (when that isn’t enough) on top-down decision
making, and hiring people for roles rather than jobs—help organizations seize
new opportunities before their competitors do. Regardless of industry, the size
of a company, or its original competitive position, marketing organizations
using this approach have consis-
tently outperformed competitors
Don’t try to undertake a large-scale that don’t use it.
corporate restructuring; start with
pilot projects and then roll out If the new approach seems to be
the new approach more widely right for your company, a vital first
step is to understand the nature and
extent of the differences between
your organization and a VMO. Even if the gap is large, you can make this
change happen; the important point is not to undertake a corporate-wide
restructuring but rather to begin by tackling as many as three core market
opportunities and then rolling out the new approach more widely.

Rank your current opportunities in order of priority. Most companies have

many floating around but lack any means of sorting them out. You can get
a great head start by holding a senior-level working session to scrutinize
them across three time horizons: six months, a year, and three years. One
person— typically the CEO or the chief marketing officer—should have
clear responsibility for setting priorities quickly.

Choose two or three targeted ideas to pursue during each interval of time,
and identify the key skills (and thus the dream team) required to implement
them, regardless of current resource or budget constraints. Then launch
one or two targeted venture-marketing teams, with the right mix of skills,
and have them report to the CEO or the CMO, thus emancipating them
from typical corporate process constraints. Learn from these pilot projects
how to target the specific marketing skills and roles that will best help your
company drive value.
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A N E W W AY T O M A R K E T 61

Meanwhile, give all marketers incentives to identify and pursue new market
opportunities. Although this actually can be done without altering the current
incentive structure, most companies find that certain incentives are particularly
useful. For example, at one well-known venture-marketing company, 3M,
employees can spend up to 15 percent of their time working on new projects
of their own choosing, supported by grant money outside department bud-
gets. To win the right to funding for further new projects, managers must
derive at least 30 percent of their sales from ideas developed during the four
preceding years.

Once your pilot teams show results, you can expand the venture-marketing
approach into your standard operating procedure. Becoming a venture mar-
keter is no trivial exercise; like any other major change, it requires unrelenting
commitment and discipline from the top.