How to bridge the CEO-CMO gap? Marketers must take an ‘investor mindset’, McKinsey advises
The Media Leader Interview
McKinsey partner Kathryn Rathje speaks to The Media Leader from Cannes about the challenges facing CMOs — from acquiring budget to breaking the cycle of short-termism.
The disconnect between marketing and other business functions is growing wider.
That is one takeaway from a report by management consultancy McKinsey & Company, released earlier this month, which found marketing has “slid to the back seat” at many companies amid tightened budgets and a loss of understanding of the value marketing drives for business outcomes.
“A lot of CMOs are appropriately anxious about what’s happening,” McKinsey partner Kathryn Rathje tells The Media Leader amid the bustle of Cannes Lions last week. “There is a reality right now of our economic conditions, pressure on business performance, a lot of industries have grown on price not on volume over the last few years, so there is a reality of the budget shrinking”.
Speaking in a private room at the maze-like Hôtel Martinez, she warns of a “widening gap between what a CEO thinks and what a CMO thinks”.
According to McKinsey’s The CMO’s comeback: Aligning the C-suite to drive customer-centric growth report, there has been an “alarming” 20 percentage point drop over the past two years (from 90% to 70%) in the number of CEOs that say marketing has a clearly defined role within their organisation that is well understood across C-suite.
And while 64% of CEOs say they “feel comfortable with modern marketing”, just 31% of CMOs feel their CEO counterparts are actually comfortable with modern marketing.
What’s driving the gap in perceived understanding? According to Rathje, the increasingly complex marketing ecosystem has made it more difficult for CMOs and CEOs to get on the same page. Meanwhile, marketers remain under constant pressure to justify costs to CFOs, who tend not to view the endeavour as a legitimate business investment.
“The biggest thing I consult a lot of CMOs on is to make best friends with the CFO”, says Rathje. She calls the relationship between the CMO and CFO the “secret weapon” in improving understanding between the CMO and the CEO.
“Some marketers kind of hide from finance, but I think the key is to embrace it”.
Adopting an ‘investor mindset’
According to Rathje, marketers must do a better job of understanding and aligning with what their business is trying to solve for, whether that’s driving growth expansion, margin, or trying to enter a new consumer segment.
She suggests CMOs work closely with CFOs to “align the marketing KPIs and objectives back to how the business makes money” and its broader strategic goals.
“You need to have a very clear, defined view of what your KPIs are and how they ladder up and down the funnel and relate to each other,” she advises. “And it can’t be alphabet soup of all the different acronyms”
With marketers often struggling in recent years to defend marketing budgets, Rathje believes more CMOs should take an “investor mindset” in building the case for increased funding.
For example, they could “test their way into” growing budgets; if they believe they’re underfunded in brand-building, for example, they could set up a hypothesis to prove marketing effectiveness in order to unlock the “next tranche” of funding, not unlike venture capital growth models.
Rathje indicates that CMOs tend to struggle with exercising this “different kind of muscle” as opposed to receiving large budgets up front.
Of course, such a strategy is reliant on providing strong effectiveness measurement, something Rathje believes “many companies outsource too much of”, leading to a misalignment and lack of trust among the rest of C-suite in marketing.
According to the CMO’s comeback research, just 30% of CMOs feel their organisations have a clearly defined view of what constitutes marketing ROI. 70% of CEOs indicate they measure marketing impact based on year-over-year revenue growth and margin — a 20 percentage-point increase in two years — yet just 35% of CMOs use the same metrics to measure success.
“A trap that a lot of CMOs and companies fall into is they outsource it to the people that are doing their media and are grading their own homework a bit,” she continues. “Platforms, media agencies… I think you need to have your own independent perspective”.
While marketers don’t have to in-house “absolutely everything”, they could take greater accountability to understand and pressure test their marketing effectiveness, Rathje says.
“Our clients struggle with thinking some of these measurement things are just a one-and-done [effort] or that MMM will be their one source of truth, and it’s not sufficient. […] The generalised framework is you need to have a balanced scorecard of things that are at the top of the funnel (consideration, awareness, etc.) and you need to understand what some of the drivers underneath are”.
Moving away from short-termism
One recurrent issue Rathje identifies is the negative impact short-term business pressures place on CMOs with regard to which channels they spend with.
She admits marketers “struggle to pull money” from performance-driven channels like social platforms “because of the short-term orientation” of their business models.
“I have a lot of CMOs that feel they have overrated towards the bottom of the funnel the last few years, especially with all of the digital explosion accelerated in Covid, and they’re trying to get back to some of the basics on: ‘what does our brands stand for?'” Rathje reveals.
But chasing “the drug of performance marketing” is a “dangerous trap”, she says.
One way to break the cycle is to incrementality test. This requires “going dark” by turning off media spend for a short while on a channel to test its relative impact on business outcomes, something Rathje and her team at McKinsey has done with a number of brands.
She notes this requires a strong relationship with the CFO in order to get them on board with taking a short-term business risk as a requirement to understand how to be more efficient in the long-term with their marketing budget.
Rathje tells The Media Leader that in general, when McKinsey has consulted on incrementality testing, “We typically find that some of the lower-funnel stuff isn’t as incremental as you think it is, and that there actually is benefit to shifting more to mid- or upper-funnel channels”.
While she isn’t in favour of “go to zero” on lower-funnel activations, she mentions the likes of branded paid search and retargeting strategies as tending to lack incrementality, though it’s dependent on the brand, their overall strategy, and how they message on different channels given many media channels now have full-funnel offerings.
Evolving ‘outdated’ brand advertising
That said, Rathje isn’t sold on the contemporary way marketers tackle long-term brand advertising efforts, either.
“The funny thing to me is when I’m in conversations with CMOs on that brand piece, the way they think about it is still very old school”, she says.
She describes that many CMOs still spend six months developing “the big brand campaign”: working on the creative platform, pre-testing, shooting a long TV spot and cutting it up and skinning it for various digital formats.
This process is divorced from the way consumers engage with brands today across a large variety of touchpoints, all with their unique communities and messaging standards. Argues Rathje: “‘One message for everybody’ is dated”.
“Of course you need to have a north star as a brand in terms of what you stand for, but I think there needs to be a lot more flexibility in how that brand comes to life through different channels, through different creators, through to different audiences,” she says.
“I think you should be thinking about what channels you’re going to be engaging consumers in and thinking through how you tell fit-for-purpose stories in those”.
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