David Bullard was unjustly fired for using this injunction, but I'll do it anyway. Imagine a world in which the financial director defers to his marketing colleague. Even more strange, imagine a world where the marketing director is on the board and sits next to the financial director at the board meeting.
It doesn't happen because there is no word like fiduciary in company law to define the importance of the marketer in the company (according to Brand Leadership and Ipsos Markinor no more than three in 10 marketing respondents in their 2007 survey report directly to the CEO).
Board meeting agenda
Take a peep at the agenda for most board meetings. After the usual stuff of matters arising and approval of the previous minutes; somewhere near the top will be the financial report. This is not surprising because making a profit is what the company is all about. Once this has been examined, the rest of the meeting is, if one is honest about these things, what can be done to reverse a bad financial performance or ensure that profitable growth is maintained and improved. Whether it is human resources, information technology, maintenance of capital equipment or marketing, the aim of each of those functions is to ensure the money-making organism operates effectively.
The notion that these functions are employed to make money is given emphasis by the position of most of them as line items on the income statement. That, by the way, is a very silly label for the section of the accounts that actually lists what the company spends (expenditure).
Marketing, personnel, maintenance of machines are costs that weigh heavily on the bottom line. Revenues must be high and costs low to make profits that please the shareholders. No wonder the financial director holds such a vital position. No wonder Business Day reported in April this year that there is an average of three chartered accountants per company on the boards of the top 100 firms of the Johannesburg Securities Exchange (JSE). The South African Institute of Chartered Accountants (SAICA) claims that this is due to the value that CAs add to the firms on whose boards they serve.
They certainly know how to read balance sheets and how to maintain the bottom line, but how good are they at ensuring the top line continues to grow and that the assets that prop up the company's market premium are sustained?
It's one thing to be able to state that there are just two ways of “improving our financial position: increase revenue or cut costs”. The top line of the income statement is about revenue or sales; the bottom line reflects the relationship between the top line and the cost of running the company. It's another to be able to bring this about. Cutting costs is what management finds unpalatable but easy: they simply issue an instruction to line managers to reduce the expense of their department or operations.
The basic creed of marketing, coined by Harvard academic Ted Levitt many decades ago, is that our trade is all about “finding and keeping customers”. When management calls for growth in revenue, there is only one place to look: the consumer. Can the marketers find more people to buy the firm's output, and is there some way of persuading the existing ones to buy more? That is a pretty important job to have. Let me state it simply and clearly.
Marketers are responsible for the top line. Without customers there would be no revenue. The job of marketers is to find them and keep them.
Here's another way of looking at it. Managers look at cash flow when evaluating the health of the firm. Whose cash? By the time the accountants look at it and estimate the firm's cash flow, it belongs to the company. But it came from the customers. It used to be theirs until they exchanged it for goods offered to them by the firm.
More illuminating is the concept of discounted cash flow. This popular finance tool is based on a forecast of anticipated cash flows. It is a crucial calculation that is used to plan future strategy, work out the value of the company and, in another form (net present value or NPV), whether management should approve expenditure on new capital equipment. The cash they are looking at is not this year's money; it is money they do not yet have. This is money still to be earned by the consumer. They will decide how to spend it when they have it.
How does the firm know they will spend it? How do they know they will spend it on the company's products or services? Usually without acknowledgement, future income flows are completely in the hands of the marketers. Future sales can only be predicted if the marketers have done their job well and created a body of customers who will continue to buy the firm's products; even if the price rises.
That places marketers at the heart of the firm's operations. But there is an extension of this that is poised to elevate marketers still further. The accountants have decided at long last that brands are assets. They say so in accounting standards released in the past few years. This is not something they can choose to ignore; it is written into the way they have to conduct their business.
Sum of value of assets
Company value is the sum of the value of its assets plus an allowance for that mystical margin called goodwill. On the stock market this is known as the market premium. Profitable firms are usually worth more than the net value of their tangible assets. Modern accounting practice does not allow the premium to be fully ascribed to goodwill. Under certain conditions the intangibles - and that includes brands - must be measured and included in the list of assets that create the value. Increasingly, brands will be measured and mentioned in the report as a message to investors.
Under some circumstances they will be identified as intangibles and featured in the accounts. As recognised assets brands contribute to shareholder value. For example, the Vodacom brand is one third of its market premium and the Plascon portfolio is more than 75% of the premium for the newly listed Freeworld Coatings.
The foundation of almost any scheme used to measure intangible assets is discounted cash flow; future streams of income that are entirely subject to consumer discretion.
That places marketers in pole position as guardians of the brand asset. If that doesn't qualify them for a seat at the boardroom table alongside the CEO, we really are living in a dream.
Roger - preaching to the converted :) Businesses are run by efficiency experts because modern business has grown out of the changes brought about by the industrial revolution and scale economies.
In markets that clear (sell out), the focus is appropriately on process and efficiency.
In competitive markets and markets in which product parity exists this is no longer appropriate. What is appropriate is a focus on customers. Drucker suggested that if the goal is to create a customer then the life blood of business is marketing and innovation.
In markets where the customer is empowered the focus is on engagement and conversation. These are marketing skills. Posted on 8 May 2008 11:58
As has occasionally happened before, I totally agree with Roger. To use a fairly crude analogy, the accountants belong in the boiler room, counting lumps of coal and weighing up the remainder against sea miles covered and miles still go. They have no say on the bridge, where the navigators (as Gordon Cook would have them) decide on the best course to bring us to our destination. Chartered Accountants and Actuaries are best when shovelling the dirty stuff, their hands are far too grubby for the sensitive insturments of navigation. Nigel Fox Posted on 8 May 2008 17:20
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