Academic journal article The McKinsey Quarterly

Reinventing the Marketing Organization

Academic journal article The McKinsey Quarterly

Reinventing the Marketing Organization

Article excerpt

A field report on how leading marketers are moving beyond their traditional organizations

The past decade has not been kind to marketing. Leading packaged goods companies - long viewed as the best marketers - have been unable to count on their marketing departments for innovation and growth. As a result, their CEOs have had to look instead to operations and finance to increase profitability by cutting costs, eliminating marginal products, and "reengineering" the supply chain. In their view, the blame for marketing's failure lies squarely at the feet of the brand management system - a system that may have helped companies like P&G achieve spectacular earnings growth during the 1950s, 1960s, and 1970s, but that has long since shown itself unable to cope with today's complex marketing landscape.

Meanwhile, deregulation and increased competition in many other industries like financial services, airlines, and telecommunications convinced CEOs that their companies needed to get better at marketing. So they hired away hundreds of the best and brightest from firms regarded as world-class marketers. At the time, this seemed a reasonable idea, but it was doubly flawed. First, it was impossible simply to graft marketing expertise onto an organization that was not marketing oriented. Second, the very skills these companies sought to emulate had become obsolete. By the time banks and telcos got around to raiding the leading packaged goods firms, the traditional brand management system they represented was already on its last legs.

Today, however, there is encouraging news to report. The last few years have witnessed tremendous innovations in marketing organization innovations not confined to the best consumer goods companies. Indeed, at the forefront of activity can also be found financial service companies, retailers, airlines, and hotels. This article describes the organizing principles that lie at the heart of the new approaches and sketches out how some companies are reinventing their marketing organizations. They are not, however, trying to rebuild their marketing departments. When an entire organization is focused on marketing, the need for a separate department often disappears.

The rise and fall of professional marketing

For the past 60 years, ever since consumer firms began to evolve from "make and sell" organizations to "marketing" organizations, two basic models of marketing have been dominant: product management and marketing staff.

The first has taken many forms - among them, brand managers in packaged goods, buyers in retailing, and marketing managers in general merchandise. As formulated by P&G in the 1930s [ILLUSTRATION FOR EXHIBIT 1 OMITTED], brand managers were taught to be mini general managers. As their role developed, they became responsible for working with the R&D, manufacturing, and sales functions - as the "hub of the wheel" - to bring products to market and maximize market share and profits [ILLUSTRATION FOR EXHIBIT 2 OMITTED].

This model worked spectacularly well during the golden age of high consumer trust, weak distribution channels, growing prosperity, and homogenous demand. In such an environment, mass advertising of relatively simple product offerings was the key to growth. Thus, product managers, with their intense focus on a narrow product segment, were able to achieve unprecedented levels of growth and profit for their companies.

By contrast, the marketing staff model, common in industries like airlines, hotels, banking, and consumer electronics, relegated marketers to a staff function, where they were specialists responsible for such areas as consumer information (which they often guarded jealously) and advertising/promotion support services. This model worked well in fast-growing and often heavily regulated industries, where purchasing decisions were relatively unsophisticated. In the best cases, it enabled companies to build world-class skills that far surpassed those of generalist brand managers. …

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