Presentation: The CFO-CMO relationship - Partnering for Performance

The EY study reveals that lack of common processes and continued cultural differences remain significant barriers to the CFO-CMO relationship.

EY, a global provider of assurance, tax, transaction and advisory services, has come up with a study titled 'Partnering for Performance', which explores the relationship between the chief financial officer (CFO) and chief marketing officer (CMO). The study reveals that while the partnership has become closer and more collaborative in the last three years, it is not happening quickly enough in many organisations.

The study was conducted using insights from in-depth interviews with CFOs and CMOs, and an EY global survey of 652 CFOs (that included 30 Indian CFOs). The findings indicate that lack of common processes and continued cultural differences remain significant barriers to the CFO-CMO relationship.

"In the digital economy of the day, a strong relationship between the CFO and CMO can be a key differentiator between high growth organisations and those that are low on the growth trajectory," says Dinesh Mishra, partner - advisory services and customer practice leader, EY.

Today's business models are more complex, customers are becoming more demanding, technology is accelerating the pace of innovation and the competitive landscape is being reshaped. The survey underlines this by recognising changes to marketing strategy as the top driver for CFO-CMO collaboration.

Mishra adds, "Digital disruptions in our world are increasing by the day, with multiple game-changing players coming into the market. Traditional organisations are taking note of this and understanding that technology will shape their respective sectors significantly over the next five years or so. The CMO and CFO need to work more closely than ever before, leveraging their respective skills sets and combined data support for decisions to ensure they navigate through newer strategies more effectively, and have a higher probability to generate and preserve value."

Partnering for performance identifies four pivotal activities requiring the CFO-CMO collaboration for success in a digital world.

Customer Intelligence: Although most (61 per cent) CFOs surveyed have made customer segmentation and insight a priority, less than half (47 per cent) feel they make a significant contribution to this activity. The knowledge into an organisation's customer base lies at the heart of its profitability and competitive advantage. As understood from EY's Social Media Marketing - India Trends Study 2014 (SMMITS 2014), released earlier this year, 54 per cent of brands surveyed stated that they gained better customer insights, while 39 per cent stated they were able to provide a better customer experience through customer intelligence gained by social listening. CMOs and CFOs should collaborate to turn data into actionable insight that drive business strategy, gain a competitive advantage and take data analysis to a deeper level, to anticipate future trends and behaviours.

Marketing ROI: Increasing marketing spends in response to changing customer demands and channel proliferation in a digital world must be justified by effective measurement methods, but achieving a leadership position in collecting, managing and mining data for marketing purposes is a complex undertaking.

While more than half (59 per cent) of the CFOs in the survey say measuring ROI from marketing is a priority, only 13 per cent say that the agendas of finance and marketing are completely aligned on the issue of measurement methodologies. However, it is important to recognise that not all returns are easy to measure, and the CFO and CMO need to agree upon KPIs for both individual marketing initiatives and less directly traceable measures like brand positioning. The SMMITS 2014 report revealed similar concerns in India, where around 71 per cent of surveyed brands stated that successfully measuring effectiveness of their previous social media engagements was a key challenge.

Product Mix: 58 per cent of CFOs consider optimising the product portfolio to be a high or very high priority. Of the 20 per cent that consider it a very high priority, 81 per cent report closer collaboration with the CMO, reinforcing the importance of a CFO-CMO collaboration to address this issue. "Optimising the product mix becomes a challenge when organisations need to service more customer segments over more channels, often resulting in a sub-optimal product portfolio and poor allocation of internal resources which limit growth potential. Together, the CFO and CMO need to strike a balance between customer centricity and excessive product proliferation. CFOs play a critical role in understanding where organisations are creating or destroying value in their portfolio, and making room for new product innovations," states Mishra.

Digital Governance: More than half of the CFOs surveyed (51 per cent) say digital governance is of high or very high priority. Most are aware of the increasing market growth opportunities due to new digital technologies, and the associated risks.

Digital governance is an important area for CFO-CMO collaboration because of Cost control: With increasing proportions of technology, spending is attributed to marketing departments (app development, online presence, advertising and analytics) to better understand customer needs and predict behaviour. CFOs need to work closely with CMOs to understand how this cost is being managed, and balance the responsibility of maintaining cost discipline with the strategic demands for value creation.

Risk: Marketing is often on the frontline in collecting and managing customer data, and the CFO needs to work closely with the CMO to manage the associated risks for data protection, privacy laws, reputational risks and mitigation strategies for channels like social media.

Key Steps for a more effective CFO-CMO collaboration-

In order to achieve a successful working relationship, EY outlines four key steps that CFOs and CMOs can take:

• Agree on the metrics that matter for enterprise value

• Bridge the cultural divide between the two functions

• Collaborate on marketing's analytics transformation

• Team up on the marketing planning process