How CMOs lost their mojo to procurement

With agencies becoming increasing enfeebled and brands stagnating, Michael Farmer argues it's time for marketers to reassert their authority and find a way to mend their wilting discipline

Marketing is not fully represented by the career-stressed chief marketing officer. Marketing is not the digital/social specialist or the advertising manager. Marketing is not the head of promotions or the brand manager.

Marketing is the network of corporate executives, loosely connected by money, expertise and objectives to achieve improvements in shareholder value, presumably from higher product growth rates. Marketing is the CMO, the heads of business profit centres, the head of indirect procurement, the CFO, the CEO and their media, creative and other ad agencies.

Once upon a time, this marketing network operated like a fine Olympic crew, pulling on the oars in unison and winning competitive races, slicing through the water with nary a splash. This is no longer the case. The marketing team is broken.

Cost reductions have replaced investments in marketing, and there is a loss of confidence in how to spend marketing dollars effectively. Embarrassingly, chief marketing officers brag about their muscular cost reductions, as if cutbacks in marketing spend were heroic accomplishments rather than symbols of failure in expertise and execution.

Holding company CEOs complain about the short-sightedness of their cost-cutting clients and blame holding company share price declines on them, ignoring the fact that their media and creative agencies have failed – scopes of work and media plans have not restored client growth rates. Agency creative efforts and media executions have been a bust, and agencies have lost credibility, further affecting their fees and relationships.

Farmer: ‘Improved product growth rates cannot be built on cost reduction programs. CMOs will have to reassert hegemony over the marketing network’

Since 2008, the marketing emphasis has been on ‘more digital/social’ and ‘more cost reductions’. The marketing centre of gravity passed to indirect procurement, who has driven agency fee reductions, increased the number and rate of agency reviews, eliminated AOR relationships and increased explosively the number of agencies serving brands.

This has been accompanied by a shift of strategic thinking from agency to client and increased client investments in in-house agencies. Clients have increased their own capabilities and enfeebled the capabilities of their agencies.

Brands have continued to stagnate. The marketing network has failed, even if in the short-run it satisfied Wall Street’s need for increased shareholder value through cutbacks in costs. Job security disappeared. CMO tenure is very short – as are agency relationships.

It’s time for a rethink. CMOs need to wrest control of marketing from procurement and create a new dialogue within the extended marketing network:

What will it take to restore brand growth to our portfolio of brands? How much better can our brands be if certain things are done? What are those things? Who needs to be involved to answer the questions? What kind of agency relationships do we need to facilitate growth? What kind of capabilities do our agencies need to be more effective?

How should we develop effective media and creative scopes of work to achieve our full potential? How much spend will this take? What are the problems that need to be overcome? How probable are the outcomes?” CMOs need to engage their agencies in this dialogue and retain the agencies who can contribute meaningfully.

Decades ago, executives in the United States automotive industry, threatened by Japanese share gains, asked those same kinds of questions, and they empowered procurement and their key suppliers to help them find the answers. Procurement went in a new direction with great success: reducing the number of manufacturing suppliers, turning those retained into strategic partners, working to eliminate process inefficiencies and sharing the benefits of ‘higher quality at lower cost’ with their suppliers.

They transformed their supply chains from vendorships to partnerships, found a rational and fair way to pay their suppliers, and eliminated vendor-bashing from their vocabulary and practices. They recognised that a strong and motivated supply chain focused on improving results could perform miracles in the marketplace. Indeed, they did so – automobile manufacturers reduced their “non-value-added costs” by 30-40 per cent and improved car quality significantly.

Ironically, once these same procurement folks migrated from manufacturing to the agency world, they turned antagonistic – agencies were less knowledgeable and much less cooperative than their former manufacturing suppliers – and procurement thus reverted to vendor-bashing practices.

They took advantage of their CMOs’ distaste for agency management and turned it into their own private domain. Their success can be measured by the dominance of procurement folks who now attend ANA’s Financial Management Conferences.

Marketing is very broken. CMOs conceded their authority to procurement. Procurement followed the ‘shareholder value’ strategy of their CFOs by cutting costs. Agencies became willing victims, happy for any morsels of income to satisfy their holding company owners. Agencies are now the shadow of their former selves, understaffed and juniorised, overworked and content to execute and take orders.

Improved product growth rates cannot be built on cost reduction programs. At some point, CMOs will have to reassert hegemony over the marketing network and create product marketing programs designed to achieve improved growth.

It may take the vigorous support of the consulting firms, working with CMOs, to help them develop a new game plan – unless agencies, too, wise up, transform themselves and flex some strategic muscles.

Michael Farmer is chairman and CEO of Farmer & Company LLC, and author of the award-winning book Madison Avenue Manslaughter: an inside view of fee-cutting clients, profit-hungry owners and declining ad agencies


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