Is Marketing demoralized by Top Management?

Marketing is fading away from firms’ top management eyes to an extent that worried
some of the marketing academics (Anderson1982; … cited in Nath & Mahajan 2008),
something that has been noticed by Nath and Mahajan during their research and encouraged
them to investigate the Chief Marketing Officer phenomenon appointed at the top management
level and responsible mainly for all marketing activities. The authors were concerned with the
fact that the number of CFOs in the largest normalized 1000 firms in comparison to the CMOs is
approximately 69% - 31% respectively (Booz Allen Hamilton and Zorn 2004 cited in Nath &
Mahajan 2008). The merit of their qualitative research which was supported by quantitative
analysis is to help firms make well defined decisions with regard to the choice of having CMO
on board. They examined the Marketing strategic importance to the leadership table by
introducing the factors related to the CMO presence/absence; to indicate the marketing
influence at the level where corporate strategy is originated. That directly led them to raise the
following questions:

“What are the factors associated with the likelihood of CMO presence in firms’ TMT?
And what are the consequences of CMO presence for firm performance in the face of
these factors?” (p.65)

CMO’s Presence/Absence

In theory, the authors based their initial qualitative stage on three core ones namely
Contingency, theories of Power and homophily. Followed, they argued that marketing
uncertainty are directly related to the strategic, structural and environmental factors that TMT
faces. And accordingly, contingency theory claims there is no best way to organize a
corporation (Wikipedia.org), forcing firms to adapt. Hypothetically, firms are more likely to have
a CMO when they have reasonably high levels of innovation, differentiation and corporate
branding strategy, when CEO is an outsider, and when TMT's marketing/experience is fairly
high (p.68). We could argue here, although the CEO could be an outsider, he/she could still
resist releasing the Marketing authority to the CMO following the theories of power and as
FedEx Kinko’s CEO Gary Kusin said “If you’re a CEO brought in to turn around a troubled
company, you can’t delegate marketing,” (cited by McGovern and Quelch p.37). In smaller
firms, as diversification increases, CMO presence decreases, suggesting that executives seem
to be unwilling to give up authority over marketing to a CMO.

In support of homophily, CMO presence being more likely as TMT/CEO

marketing/experience increases. While authors claimed that Market Concentration is negatively
related to CMO presence, they failed to prove it and allow us to argue that it is slightly unrelated
factor. Their argument was comparing Customer oriented industries to Competition oriented
industries, ignoring that managing competition is one of the marketing activities that a CMO is
supposed to do. (Vorhies and Morgan 2005 cited in Nath), for example, Oracle has CMO
although it has taken aggressive competition strategy by applying heavy acquisition (ZDNet,
Oracle.com).

CMO consequences on Firm’s Financial Performance!

Surprisingly, using financial performance measures, they found that CMO presence has
no impact on firm performance. One can argue that financial performance cannot be used to
measure long terms marketing objectives rather brand equity (Ambler, Kokinaki, Puntoni p.479)
and customer satisfaction are more suitable (Srinivasan, Hanssens 2008 p.25). In fact, Ambler’s
team (p.485) has found a different approach by measuring Brand Equity against internal
expectations (plan) and external (competitor) performance versus financial valuation, a more
appropriate way to asses a CMO consequences on firm’s Performance. On a different
argument, marketing literature suggests that a marketing initiative will increase sales, cash
flows, stock price and shareholders’ wealth, supporting that CMO’s role improve performance in
the stock world. Additionally, comparing CMO’s presence to Firm’s financial performance could
be slightly irrelevant, because the effect of marketing can be unpredictable and fluctuates on
sales/purchase behavior. According to Rao & Bharadwaj, citing Lamey and colleagues (2007)
buyers act differently depending on economic situation (Rao & Bharadwaj 2006 p18,p.23 ).
Conspicuously, however, authors found CMO presence is positively connected with Tobin’s Q,
a market-based measure of performance.

Although they were concerned only by studying the CMO presence as a phenomenon,
we cannot ignore the importance of engaging the CMO strategically, a study done by CMO
Council shows that Strategically Involved CMOs Get High Marks for Performance. (CMO
Council p.9)

Methodology and Analysis

The authors observed CMO’s presence in the TMTs of a multi-industry sample of 167
with more than $250Million publicly listed U.S. firms for a five-year period (2000–2004). They
use various secondary sources of data, including firms’ 10-Ks or proxy reports, annual reports,
and Standard and & Poor’s COMPUSTAT.

Two types of analysis were conducted, First Analysis: assuming that the CMO decision
was visited every year; represented by two models; model 1 was done using Generalized
Estimating Equations to avoid any errors. Model 2 was done similarly to model 1 except they
have used a different control variable for the industry effects. In the second analysis, they
assumed that firms tend to have a CMO over the entire period of the study represented by
model 3 focusing on the logistic regression. Finally, they measured the performance of the firm
using two Models, namely Tobin’q and Sales Growth.

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Limitations & Contribution

The Research doesn’t allow firms to simulate the same environment to generalize the
results on variables such as sales growth, performance and volatility. Basically, there is an
insignificant relationship between CMO presence and performance. To empower this
relationship they must have studied the entire population or similar industrial environment then
quantitatively research it (Bryman and Bell 2007). The market concentration was not supported
and alternatively, the authors tried to base that on finding of customer satisfaction’s weakness
on shareholder value (p.70). Missing samples for small firms < $250Mil/sales or didn’t report
any R&D in their financials, similarly, missing factors such as Time Constraints, Marketing
Accountability, relevant Marketing Metrics, CMO experience and CMO tenure being 23 months,
make the research tough to match marketing reality domain. (Nardone and See 2005, Greg
2004)

Ultimately, the authors raised crucial research knowledge to the marketing domain and
explained quantitatively and qualitatively the rationales based on the contingency, power and
homophily theories. They have tried to guide the firms with the choice of having a CMO by
introducing the structural and strategic factors related to that. Picking branding strategy as an
example, the authors have emphasized on the complexity of building a corporate brand name
suggesting a CMO to exist on the firm’s TMT to uncover this uncertainty. Authors claimed that
no prior research has expanded the study to the branding strategy being critical to the TMT
structural choices.

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 References

Bryman, A, and Bell, E. (2007) Business Research Methods, 2nd Edition, Oxford: Oxford
University Press.

CMO Council (2007) Define & Align the CMO

Gail McGovern and John A. Quelch, (2004) The Fall And Rise of the CMO , Special Report
strategy-business.com

John Nardone and Ed See, (2005) The path to marketing accountability: A foundational study,
Marketing Management Analytics

Ramesh K.S. Rao & Neeraj Bharadwaj Marketing Initiatives, Expected Cash Flows, and
Shareholders’Wealth Journal of Marketing January 2008

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Nath, Pravin; Mahajan, Vijay. (2008) Chief Marketing Officers: A Study of Their Presence in
Firms' Top Management Teams. Journal of Marketing, Jan2008, Vol. 72 Issue 1, p65-81.

Shuba Srinivasan, Dominique M. Hanssens (2008) Marketing and Firm Value: Metrics,
Methods, Findings, and Future Directions. Forthcoming, Journal of Marketing Research.

Tim Ambler, Flora Kokinaki, Stefano Puntoni, Assessing Marketing Performance, Journal of
Marketing Management, 2004, 20,475-498

Oracle Executives: http://www.oracle.com/corporate/execs_content.html

Wekipedia.org http://en.wikipedia.org/wiki/Contingency_theory

Welch, Greg (2004), “CMO Tenure: Slowing Down the Revolving

Door,” (accessed May 1, 2005), [available at http://content.

spencerstuart.com/sswebsite/pdf/lib/CMO_brochureU1.pdf].

ZDNet.com: http://www.zdnet.com.au/video/soa/SAP-MD-dismisses-Oracle-s-growth-strategy-
as-bunk/0,2000065477,22169919p,00.htm