Reinventing The Marketing Organisation

Reinventing the marketing organization A field report on how leading marketers are moving beyond their traditional organizations

Michael George, Anthony Freeling, and David Court

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.

T

HE PAST DECADE

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 graƒt 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 Authors’ note: For a fuller summary of the research on which this article is based, see Marketers’ Metamorphosis, McKinsey & Company, 1994.

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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 oƒten 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 staƒf. Exhibit 1

P&G brand management, 1930s President

R&D

Purchasing

Manufacturing

Advertising

Brand manager, Ivory

Sales

Brand manager, Camay

Responsibilities Develop annual marketing strategic plan and budget Implement marketing tactics Monitor competitors Manage creative strategy

R&D

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 (Exhibit 1), brand managers were taught to be mini general Exhibit 2 managers. As their role developed, Brand manager as hub, 1950s–60s they became responsible for working g with the R&D, manufacturing, rin Pu tu rc c a ha f and sales functions – as the “hub of u sin an g M the wheel” – to bring products to Brand market and maximize market share g manager Marke t re se ountin c c and profits (Exhibit 2). /a a e rch inanc es

Sal

u trib Dis

F

tio n

Brand management system

Favorable environment

Dedicated brand people

Stable, simple operations base

Independence/ competition Cross-functional coordination

44

Market/channel growth

Expansion of TV penetration and use Low trade promotion

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 oƒferings was the key to growth. Thus,

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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 staƒf model, common in industries like airlines, hotels, banking, and consumer electronics, relegated marketers to a staƒf function, where they were specialists responsible for such areas as consumer information (which they oƒten guarded jealously) and advertising/promoConsumers increasingly tion support services. This model worked trust only their own ability well in fast-growing and oƒten heavily reguto seek value lated 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. But the “real work” of these companies was typically done outside the marketing department – by the credit oƒficer who made the loan, the salesman who carried the bag, or the engineer who came up with the innovation.

A new landscape Neither of these models has shown itself equal to the challenges of the 1990s, when the very terrain of marketing is being reshaped by a combination of slower growth, deregulation, and powerful trends such as: Sophisticated, demanding, and micro-segmented consumers. No longer willing automatically to place their confidence in premium-priced brands, consumers increasingly trust only their own ability to seek value. This means that marketers will have to deliver sharply articulated value to an ever more cynical set of consumers at the same time that fragmenting demographics and user needs multiply the range of market segments within even the most homogenous of product categories. Multimedia technologies. Although the world of fully interactive multimedia is still several years away, multiple-channel media and sophisticated direct marketing programs have already enhanced the ability of marketers to communicate eƒficiently with smaller and smaller segments of the population.* As information processing costs continue to fall and new decision-support systems become available, this ability will grow – but at the cost of increasingly complicated decision-making processes. New distribution channels. Providers of packaged goods, apparel, durables, and financial services are all experiencing a proliferation of available ≠ See Christiana Smith Shi and Andrew M. Salesky, “Building a strategy for electronic home shopping,” pp. 77–95.

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channels. In many cases, these channels are dominated by large, powerful, and professionally managed firms, which adds still further to the complexity of the marketing task. Exhibit 3

Dissatisfaction with brand management Quantitative Dissatisfaction levels of senior executives with marketing skills of brand managers

Overall effectiveness

Satisfied

48

Dissatisfied

60

Strategic skills 92 Innovation 48 Risk profile 56 Speed Qualitative “Most decisions these days are too big to be taken by brand managers.” “The brand management structure doesn’t seem to generate the level of new products we require.” “I sometimes wonder if we expect too much of brand managers by expecting them to manage costs and profit as well as volume.”

The brand management system is just not up to this kind of challenge. As CEOs have recognized for years, brand managers are not really mini general managers at all. They are usually too junior, too inexperienced, and too narrowly centered on marketing to provide the cross-functional leadership and strategic thinking required to navigate through today’s complex marketing landscape (Exhibit 3). They are also too far removed from the sources of value-added (which are no longer just advertising based), too overwhelmed with day-to-day tasks (like developing trade promotions in packaged goods or staying on stock plan and taking markdowns in retailing), and too focused on implementing quick-fix solutions that will get them promoted in 18 months.

“It’s not clear to me that brand managers understand their consumers as thoroughly as they ought.”

If anything, the staƒf model is even less well equipped to deal with the new environment. “We need our branch managers to take risks – but they’re just concerned with keeping their In companies that follow it, literally no one noses clean and getting up the next rung of below the CEO possesses an integrated the ladder.” consumer-driven perspective. No one is responsible for understanding how to extract profits from a complete industry chain. No one provides cross-functional leadership. And no one is fully accountable for anticipating consumer needs, responding quickly, and targeting eƒfectively. There is, of course, no magic solution that will fix all these problems or make sense for every company. But two key principles of organization are beginning to emerge. First, successful companies will rely primarily on – and organize themselves around – integrators and functional specialists. The former will be responsible for serving each distinct consumer, channel, or product segment superbly; the latter will create competitive advantage by helping the company build world-class skills in the two or three most important functional areas of marketing. And second, in a fundamental departure from traditional organizational thinking, successful companies will link these integrators and specialists together through teams and processes, rather than functional or business unit structures.

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Integrators In tomorrow’s marketing organizations, integrators will play the critical role of guiding activities across an industry’s entire value chain to ensure that a company is maximizing its long-term profitability. They will be charged with tearing down the walls that divide function from function, product manager from product manager, and supplier from retailer. And they will be expected to bring all the resources of their organization to bear – seamlessly, quickly, and eƒficiently – on serving each consumer and business chain customer better than the competition can. In practice, these integrators will: • Understand the real drivers of profitability throughout an industry’s chain in order to identify which market segments to compete in and which economic levers to pull to maximize a company’s share of scarce industry profits. • Work across the value chain to develop genuinely consumer-focused strategies. • Lead cross-functional teams responsible for executing these strategies day by day. Integration, in short, is the opposite of the functionalism that has all too oƒten stood in the way of serving consumers superbly. It was eƒfective when high growth, unsophisticated consumer demands, and weak distribution channels meant that each function could make real progress by itself toward Integration is the opposite of improved consumer satisfaction and greater the functionalism that has all profitability. On its own, manufacturing too oƒten stood in the way of could cut costs and boost quality; marketing serving consumers superbly could develop better ads; and sales could improve call patterns and enhance customer presentations. In most industries, however, the opportunities to make progress against such narrowly defined functional criteria have about run their course.

Limitations of the traditional models Today’s products and services have to oƒfer simultaneous improvements on multiple dimensions: greater benefits, improved quality, greater customization, more focused marketing communications, and lower prices. Moreover, increasingly powerful, sophisticated, and fragmented distribution channels are demanding unique products, marketing strategies, and selling techniques. A club store, for instance, makes completely diƒferent demands on the functions of a packaged goods manufacturer from a supermarket. In the mutual funds industry, the demands of the discount

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brokerage channel diƒfer from those of the telemarketing and full service brokerage channels. Integration has become essential. To be sure, consumer marketing companies have long understood the need for integration. Indeed, in the classic product management model, cross-functional coordination was a key responsibility of product Tomorrow’s integrators will be managers in their mini general fundamentally diƒferent from manager role. But these junior and today’s brand managers oƒten inexperienced brand managers are not capable of achieving the unprecedented level of integration now required. Put simply, tomorrow’s integrators will be fundamentally diƒferent from today’s brand managers, who, for the most part: • Pursue a narrowly defined marketing agenda (advertising, promotion, pricing), with few links to the supply chain or other key functions. (Integrators pursue a truly cross-functional agenda, aligning all the resources of a company against the consumer’s needs.) • Are conservative and incremental by nature and training. They see the world only in terms of protecting their brand franchise against incursions from unruly customers, consumers, or functional agendas. (Integrators have a broader perspective and a greater willingness to take risks – whether that means linking up with other brands to pursue more eƒfective joint promotions, partnering with a major customer in a new business approach, or working with operations to explore more eƒficient supply chain options.) • Are relatively junior, far down in the organization. (Integrators are senior line managers.) • Have a few years of marketing experience behind them. (Integrators usually have several years of sales, product supply, R&D, or finance experience to complement their marketing skills.) • Are aligned with products or brands. (Integrators are aligned with consumer needs. They are as likely to be organized by consumer segment or account as they are by product.) Kraƒt, the US packaged goods company, found that it could not keep up with the fast-growing Hispanic market under its traditional brand management system. Developing Hispanic programs was always the fiƒteenth marketing priority of every brand manager, as well as the first area to get cut when budgets were in trouble. So, when Kraƒt finally decided to

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get serious about serving this important segment, it made one of its senior marketing managers responsible for developing integrated programs to serve Hispanics in each local market. Kraƒt is now creating special product formulations to appeal to this segment, including a lime-based version of mayonnaise. It is also pursuing integrated marketing campaigns that jointly promote several brands that enjoy strong Hispanic usage. And it is conducting targeted local promotions with key retailers. Early results from the program have been impressive. More to the point, they would have been impossible to achieve without genuine integration across brands, R&D, manufacturing, and sales. To reach these levels of integration, companies that organize around the marketing staƒf model have to make even bigger changes than do those based on brand management. Although they probably need them the most, these For Kraƒt, eveloping Hispanic companies usually lack integrators with a programs was always the marketing mindset, since the marketing fiƒteenth marketing priority, as department has little or no responsibility well as the first area to get cut for aligning organizational resources with when budgets were in trouble customer needs. In a hotel, for instance, literally hundreds of services that create value are produced and delivered anew with each customer’s stay. This is not a corporate staƒf function. All these services – from a doorman’s courteous greeting to a prompt check-in, a clean room, and speedy room service – are delivered at the front line. Local, on-the-spot integration is the key. Take Wal-Mart, for example. Critical to its success are its local store managers. Wal-Mart has done something quite remarkable with these people. Despite the company’s 2,000 locations and $80 billion in sales, despite its powerful centralized buying staƒf and massive integrated databases, its local managers feel personally responsible for serving their neighborhood customers superbly. Product mix, shelf layout, pricing, inventory management, customer service – these are not dealt with exclusively by HQ. On the contrary, store managers have the authority to make decisions about how their stores can best meet local consumer needs and respond to competitive threats. And Wal-Mart backs them up with sophisticated assortment planning tools, state-of-the-art replenishment systems, generous financial rewards, and old-fashioned cheerleading.

Making integration work In the future, companies will design their marketing activities around three diƒferent types of integrators:

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The consumer integrator (such as the Wal-Mart store manager and Kraƒt’s Hispanic marketing manager) will be responsible for meeting the needs of distinct end-user segments. Chemical Bank, for example, has reorganized its retail marketing function around income-based consumer segments in an attempt to do away with the product silos that have long prevented it from eƒfectively cross-selling products that appeal to the same markets. Consumer integrators are now responsible for managing both the product oƒferings and the service delivery options for their end-user segments. The customer integrator will serve companies that do not sell directly to end users. Business customers are oƒten more demanding, more powerful, and more fragmented in their needs than are consumers. The top superCompanies have been replacing market accounts of many food salespeople with knowledgeable companies are now demanding – account managers who can help and getting – tailored products and plan their customers’ businesses services that meet their unique requirements. As a result, these food companies have been replacing salespeople who push products, take orders, and are rewarded by sales volume by knowledgeable account managers who can help plan their customers’ businesses. Successful marketers will go well beyond this important first step and convert their sales managers into general managers. They will reward them for customer profitability, make them responsible for leading crossfunctional teams dedicated to major customers, and ensure that they are capable of making substantive decisions about how the company will meet its customers’ demands. A recent McKinsey survey of developments in consumer products salesforces confirms this trend: leading companies are building alliances with their customers, pushing functions and resources into the field (Exhibit 4), and managing their salesforces on profitability, not just revenues (Exhibit 5). Exhibit 4

Customer-focused integration

Exhibit 5

Monitoring account-specific profit data

Consumer goods companies establishing alliances with customers

Sample size: 33 companies

Percent of companies (100% = 33 companies) No Yes

Alliances 51

49

Companies’ expectations of change Less More

Alliances

49

6

12 track account profitability 6 include profit information in account plans

11 make profit data available to account managers

Less More

Functions

42

0 Shared Dedicated

Resources

50

24

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Leading 6 do all three

REINVENTING THE MARKETING ORGANIZATION

Exhibit 6

Developing customer integrators at P&G Typical grocery team structure under new organization

Operations manager Retail, shelving, and merchandising

Finance manager Customer and sector P&L management

Customer business development leader

Total P&G responsibility at customer

Technical analyst

Product supply manager

Business trends/analyses

Logistics Systems-related cost reductions

Sector account managers Representation of sector needs/priorities

P&G, for instance, is establishing cross-functional teams to serve each major account. Replacing the old divisional salesforces, these teams represent all P&G divisions and have significant analytic and operational capabilities. They are led by senior customer team leaders who are former district managers. Moreover, the organizational layers between these customer integrators and HQ have been stripped away (Exhibit 6).

Product integrators will also be needed in some companies. They will provide cross-functional leadership for specific products, ensuring that each organizational unit is delivering value to the consumer and maximizing the surplus generated by each of its product categories. Admittedly, companies following the product management model have been organized along product lines for years. But the diƒference here is that these product integrators will need to display much greater cross-functional leadership. They will be fewer in number, more senior in the organization, and have more experience of diƒferent functions than today’s brand managers. In fact, they may not even come from the marketing department. In a commodity food business, for instance, the product integrator might be a product supply chain manager since the supply chain is where most of the value is created. Companies that have followed the marketing staƒf model rather than the product management model will again need to make bigger changes. Goodyear, for example, has recently created “tactical business units” organized around product segments such as agricultural tires. These units are led by integrators responsible for guiding dedicated cross-functional product teams. The product integrators will not always play the senior role. In a bank, for example, they may be relatively junior and operationally focused, while consumer integrators provide senior strategic leadership. Determining how to organize integrators along consumer, customer, or product lines will be one of the most diƒficult challenges facing tomorrow’s marketers. The right answer will naturally vary by company, and there may even be several right answers for each company.

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On the basis of experience to date, however, we can oƒfer a few guidelines: • The choice of integrator depends largely on the strategic skills, needs, and opportunities of the business in question. Will the greatest benefit come from better serving distinct consumer or business customer segments, or from developing superior products and services? • Integrators can – and usually will – be organized along more than one axis. A bank, for example, may have both product integrators (responsible for developing superior cash management, trust, and credit products) and customer integrators (responsible for serving specific business segments). Similarly, a consumer products company may have both product integrators (responsible for soap or detergents) and customer The key to “dual integrator” integrators (responsible for Walstructures is maintaining clear Mart or Safeway).

and distinct responsibilities and accountabilities

The key to these “dual integrator” structures is maintaining clear and distinct responsibilities and accountabilities. Even if, say, product integrators retain full responsibility for consumer advertising and promotions and are measured on the bottom-line P&L of that product, customer integrators can be held responsible for trade promotion spending and be assessed on the P&L of their customers. • Alignment between axes will necessarily vary over time as needs change. P&G only recently established customer integrators, both to reflect the growing size, power, and sophistication of its customers, and to execute its strategy of building superior supply chain links with the trade. Because replacing today’s brand managers or marketing staƒf with tomorrow’s integrators is likely to be a disruptive process, it is best to strive for evolutionary rather than revolutionary change. Companies making this transition have learned the importance of: Deciding from where in the organization integrators are most likely to come. Can today’s sales reps evolve into customer integrators, or are new people and new skills required? Will product integrators come from brand management, operations, R&D, or some other function? For products where most of the value-added is in advertising and promotion, brand management may provide the best source. For products dominated by private label or value brands, where trade relations are key, integrators may instead come from sales. For basic replenishable merchandise in a department store, the integrator may be a distribution or replenishment manager rather than a buyer.

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Gradually building the skills of prospective integrators by changing hiring criteria, by establishing management development programs, by giving integrators more complete real-time information on segment performance, and by developing genuinely cross-functional career paths to broaden their understanding and exposure. Empowering integrators, as they develop the necessary skills, to take on more responsibility and accountability for bottom-line results by stripping away unnecessary management layers above them.

Specialists In addition to developing integrator roles, many leading marketers are beginning to cultivate the specific specialist capabilities, especially in analytical and technical marketing skills, that will enable them to move faster, target their eƒforts more accurately, and anticipate consumer demands in ways that were simply not possible before. Although integrators will be responsible for leading this process, it will be the specialists who provide these capabilities in such core disciplines as integrated marketing intelligence, pricing Marketers are cultivating strategy, promotion eƒfectiveness, adverspecialist capabilities to allow tising, and direct marketing.

them to move faster, target more accurately, and anticipate demand in ways that were simply not possible before

One area where specialized skills are becoming increasingly critical is in the tailoring of marketing programs to consumer segments and even individual consumers. The best companies are now using specialists to develop, interpret, and communicate the results of models that predict likely consumer behavior on the basis of past purchases. Parallel computer processing systems have given a few companies a substantial competitive advantage in target marketing. Wal-Mart, for instance, has developed an advanced information system that enables it to tailor merchandise store by store. Wal-Mart’s “traiting” system indexes each store on about 3,000 traits. Using this data, store managers – our “integrators” – can select products that reflect the unique features of their stores. (A store near fresh water, for instance, will receive diƒferent fishing poles from one near salt water.) More recently, Wal-Mart has developed a complementary system called “cafeteriaing,” which allows its store managers to allocate shelf space on the basis of local needs, backed up by detailed inventory and sales data. For retailing and other industries, Ogilvy & Mather’s Dataconsult organization is using consumer sales data to model, from as few as three or four

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transactions, the expected lifetime value of a loyal customer. Dataconsult then adjusts both the nature and the frequency of its client’s communications to match that value. This approach, which was initially developed for targeted business-to-business marketers, can be combined with customized research data so that consumer marketers can enjoy similar benefits.

Promotions decisions no longer rely purely on “gut feel,” but are both account specific and statistically sound

The goal is flexibility – and focus. Better targeting allows Fingerhut, a leading direct mail firm, to model consumer usage on the basis of 1,400 pieces of data – including whether a document is signed with pen or pencil – to predict credit risk and potential profitability. Rapid responses to changing customer demand enable Sainsbury, the UK grocer to change the prices on 25,000 items in each of its stores every day, and 7-Eleven, the convenience retailer in Japan, to change its prices hourly. In much the same vein, several US packaged goods firms are equipping their account managers with predictive models that help them estimate the likely profitability of a promotion by modeling its specific attributes against historical results for comparable programs. As a result, promotions decisions no longer rely purely on “gut feel,” but are both account specific and statistically sound.

As marketers try to anticipate consumer needs, they are moving beyond transaction-based models that merely extrapolate from the past to ones that forecast potential demand. Kraƒt, for example, has designed an approach to micromarket planning called Geo-targeting that combines The most important challenge information from a number of in developing these skills discrete databases, including A. C. is setting the performance Nielsen point-of-sale and panel bar high enough statistics, customer research, and grocery store profiles. Geo-targeting allows Kraƒt to predict the potential sales of each of its products by store (on the basis of the size of each demographic/lifestyle segment in the neighborhood), rather than having to rely solely on historical purchasing patterns. The most important challenge in developing these three types of skills is setting the performance bar high enough. The gap between “pretty good” and “top-notch” is steadily growing. Because many of these specialties will be provided by outside suppliers, which can develop expertise in depth, traditional boundaries between a company and its suppliers will fade. As a result, marketing organizations will increasingly look like a confederation of specialists who join together to meet consumers’ needs more eƒfectively.

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Pulling integrators and specialists together If the building-blocks of tomorrow’s marketing organizations are highly qualified integrators and specialists, the mortar that will hold them together will be provided by processes and teams rather than the traditional functions or business units. Teams will be organized around key crossfunctional business processes like building consumer brand equity and ensuring superior customer service; their role will be to manage across the functional and business unit silos that get in the way of serving consumers superbly. Consider, for example, the organizational development of a large, diversified electronics company. During the past 30 years, the company has evolved from a highly decentralized organization, where each business unit operated independently, to Exhibit 7 a highly centralized orga- Functions versus business units nization, then back to a Organizing Advantages Disadvantages principle decentralized structure, and Organize Economies of Lack of Functional finally to a structure based functionally to scale responsiveness integration on functionalized “centers achieve cost and • Distribution to local skill advantages • Advertising requirements of excellence.” of scale • Infrastructure Difficult to Builds functional develop general skill superiority managers

Each stage of this process Lack of scale Business unit Organize around Focus/clear reflects a changing tradeoƒf multiple profit accountability integration Duplication of centers to gain between centralizing around effort Close to advantages of customer/ functions and decentralizing No critical mass focus responsiveness of skills around business units. This Builds teams/ identities company is not alone. Many others get caught up in an endless oscillation between centralizing to increase control, ensure functional expertise, and reduce costs, and decentralizing to sharpen focus, improve responsiveness, and encourage entrepreneuralism (Exhibit 7). This tradeoƒf is no longer acceptable. In today’s competitive environment, companies must make simultaneous improvements in both directions – increasing functional expertise and economics and improving focus and agility at the business unit level.

The role of teams At the electronics company just described, the centralized “functional excellence” model was not working: marketing communications were too far removed from the business units to have much of an eƒfect on their strategies or performance. Moreover, an army of accountants was needed to track the chargebacks from corporate center to business units. In fact, the company was struggling to break down the functional silos within marketing communications alone. Each department (exhibit marketing, media relations, and so on) jealously guarded its own budgets and programs.

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This was not a sustainable arrangement. The solution: a new team-based organization to bridge central functions and business units. Management cut back the central marketing function to a small “global strategic communications” core, responsible for overall communications strategy, agency relationships, professional development, and media purchasing. It then farmed out all business-specific marketing responsibilities to satellite communication centers aligned with each business unit. These satellite units are fully integrated, reporting along double solid lines to both the centralized function and the business units. The key to this “double solid line” structure is teams: the marketers in the satellite groups are members of two teams. The business unit team is responsible for developing and executing business strategy, which ensures tight links – The company even set up a and common objectives – between busi“virtual university,” complete nesses and marketing communications. The with a virtual dean and functional team, comprising marketing real professors peers (for example, in exhibit marketing) from each business unit, works on building an eƒfective professional marketing community, developing people, and sharing best practices. To support the building of superior functional skills, the company even set up a “virtual university,” complete with a virtual dean and real professors (borrowed from leading business schools) who teach an integrated marketing communications curriculum. This experiment in team organization has not been without glitches. One business unit team got a little carried away with its new-found freedom and started to establish its own brand – a marketing strategy that could not be economically justified. There have also been some tough human resources issues, as individuals learned to adjust to their new environment. Overall, however, early results are encouraging. As hoped, members of the business unit teams have a greater sense of shared purpose, and marketing communications is now much more closely aligned with the needs and objectives of each business. Although the company had been concerned that marketing synergies across the businesses might decline under the new structure, they have actually increased. Marketing professionals now better appreciate the value of the company’s brand for each business, and have become more aggressive about finding opportunities to leverage it.

A focus on process This experiment illustrates how leading companies are moving to escape the functional versus business unit trap. More and more, the real work of marketing is carried out in cross-functional teams that are aligned with key business processes, thus eliminating the need to take decisions up

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and down either functional or business unit ladders. To make these teams work, their leaders – the integrators – make consumer and competitor information available to all team members (not just the marketing experts.) More and more, the real This helps both to improve decision work of marketing is carried making and to instill a demanding out in cross-functional performance culture.

teams that are aligned with key business processes

The process focus here is key. A packaged goods manufacturer, for instance, might supplement or replace its formal R&D, manufacturing, logistics, sales, and marketing departments with teams responsible for key processes such as stimulating consumer demand, managing customers, or delivering products on time at the right price and quality. It would then organize a process such as consumer demand around multiple teams responsible for distinct consumer or product segments. Each of these teams would be led by a consumer or product integrator and be staƒfed with specialists in areas like

Exhibit 8

The process-focused company Traditional departments become pools of functional specialists Distribution

Team leaders

Manufacturing

Consumer integrators

Consumer equity process teams

Customer integrators

Customer service process teams

Product integrators

Product supply teams

R&D

Sales

Marketing

pricing, promotions, and database marketing (Exhibit 8). In such a case, the teams – not the functions – are the linchpin of the marketing organization, because their combination of skill, experience, and judgment inevitably achieves better results than would a collection of individuals operating within functional roles and responsibilities. Functional roles will, however, still be important for coordinating activities, handling personnel issues, developing specialized expertise, and achieving scale economies. But the day-to-day work will be done in the crossfunctional process teams. This team-based structure will enable – indeed

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force – companies to strip out unnecessary layers, like that of the traditional Marketing VP, that raise costs, create extra work, slow decision making, and fragment activities. Using teams in this way can make managers nervous. It conjures up visions of committees, taskforces, and working groups that hold endless meetings, engage in meaningless debates, and struggle to achieve “lowest common denominator” answers. The fear is that team members will then go back to their “real“ jobs, and nothing will happen. Such concerns are legitimate, but the problem is usually not with the teams themselves, but with ineƒfective “working groups” masquerading as teams. Real teams share a number of characteristics that contribute to their eƒfectiveness. They have a common purpose, which sets their tone, aspirations, and performance goals. These goals, in turn, help them track progress Perhaps most important, and hold their members accountable. Real each member holds him- or teams also invest time in figuring out how herself fully accountable they will work together to achieve their for the accomplishments common purpose. They demonstrate a of the whole team robust mix of technical and functional knowledge, problem-solving and decisionmaking capabilities, and interpersonal skills. Perhaps most important, each member holds him- or herself fully accountable for the accomplishments of the whole team.* To make this new kind of organization work, senior managers must ensure that the right structures, roles, and leadership are in place to enable real teams to function. Building strong teams rather than strong functions becomes the critical senior management goal. In practice, this means oƒfering integrators new, cross-functional career paths and equally making long-term specialist careers attractive. Developing true specialist skills, aƒter all, takes more time than the typical 18-month brand manager rotation cycle allows.

Building teams at Kraƒt Kraƒt found itself confronted by the same challenges that many other food companies have faced during the past few years: declining real growth, limited pricing opportunities, escalating trade spending, and increasingly powerful and demanding customers. Its response: to reinvent itself in an eƒfort to drive profitable growth and contain costs. Although the process of reinvention has been evolutionary (there was no “grand design”), ≠ See Jon R. Katzenbach and Douglas K. Smith, The Wisdom of Teams, Boston, Harvard Business School Press, 1993. Also the excerpt “Why teams matter” in The McKinsey Quarterly, 1992 Number 3, pp. 3–27.

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Exhibit 9

Managing through teams at Kraft

Quality

Operations finance

Customer category managers

R&D

Engineering Process team leader

Materials manager

Category sales director

Marketing information

Customer business manager

Category business director Consumer promotion

Finance

Supply chain specialist

Category planner

Space management specialist

Retail sales manager

Plant manager

Brand manager

Sales information specialist

Process teams (dedicated to each product category)

Category teams (dedicated to each product category)

Customer teams (dedicated to each major customer)

the changes add up to a profound departure from the conventional brand management model. More specifically, Kraƒt has undertaken four broad sets of changes (Exhibit 9): 1. From brand managers to category business teams. Kraƒt has evolved from a classic brand management structure, where each brand competed for organizational resources and market share, to a model based on empowered category business directors (or product integrators), who lead strong crossfunctional teams. Underlying this process of evolution has been the development of several new structural approaches: • Related product brands are now grouped into common categories. That way, rather than compete with one another, they can work together to drive overall category growth at retail. Louis Rich and Oscar Mayer hot dogs, for instance, are now handled by the same category manager, where previously they had been handled separately under their respective trademarks. Similarly, the sandwich cheese category manager now oversees Category business directors are three brands of cheese slices: Kraƒt, also responsible for identifying Deluxe, and Velveeta.

opportunities to improve the eƒficiency of the supply chain

• The category managers leading these businesses have been elevated to category business directors, with broad responsibility – and bottom-line accountability. No longer viewed merely as marketers, they are as responsible for identifying opportunities to improve the eƒficiency of the supply chain as they are for developing the next ad. (The more traditional marketing tasks are, of course, still a critical part of their job.) In most cases, the Marketing VP layer between the category business director and

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the division general manager has been eliminated, streamlining decision making and focusing responsibility on the business director. • These category business directors are, in turn, supported by a crossfunctional team, including representatives from sales, operations, R&D, finance, market information, consumer promotions, and brand management. 2. From functionalized manufacturing to process teams. Kraƒt recently set up a series of process teams to complement its category business teams. The members of these process teams, who represent every step in the product supply Process teams are responsible for chain from procurement to conversion and working with category teams to distribution, are responsible for working deliver the right products, on with the category teams to deliver the right time, at the lowest possible cost products, on time, at the lowest possible cost. The teams incorporate such functions as purchasing, engineering, quality, operations, finance, materials management, and plant management. 3. From geographic selling to customer business teams. Kraƒt has also completed a major restructuring of its salesforce, replacing the traditional geographic approach (where account managers covered multiple retailers in their territories) with a customer- and category-based model. Now, each major customer is assigned to a dedicated customer business manager (a “customer integrator” in our terminology), who is responsible for maximizing Kraƒt’s total performance with that customer. This customer business manager is supported by a strong team including: • Category managers who develop long-term category trade plans and work with their customer to implement key customer business programs. • Planners responsible for translating national objectives and strategies into trade promotions tailored to each customer’s unique needs. • Sales information specialists who bring category management expertise to the team. • Supply chain specialists responsible for identifying opportunities to reduce supply chain costs for Kraƒt and the customer and developing tailored ordering and delivery programs. 4. From generals to specialists. Kraƒt is also investing in greater specialization and focus. In many businesses, it has replaced the traditional general brand manager with three focused brand managers: business managers,

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responsible for day-to-day trade tactics and business performance issues; equity managers, responsible for advertising and consumer promotions; and development managers, responsible for product and packaging innovation. This change has enabled Kraƒt both to strengthen its expertise and to keep brand managers from getting bogged down in putting out daily fires at the expense of building the business in the long term. Field and HQ personnel are supported by increasingly robust information capabilities. Kraƒt is developing various programs to measure the aggregate sales and profit impact of diƒferent combinations of marketing levers (consumer promotions, trade promotions, advertising); to model Keeping brand managers from pricing elasticities on the basis of getting bogged down putting out both absolute price and price gaps daily fires at the expense of relative to competitors; and to deterbuilding the business long term mine the optimal product mix and volume potential on a store-by-store basis, using neighborhood demographic and psychographic data. Although the company has made great progress in institutionalizing this new organization, managers acknowledge a number of remaining challenges: • The roles and responsibilities of each team member need to be more sharply defined for each key process. • Team members oƒten need to learn new skills. For instance, Kraƒt is now embarking on an extensive training program for field personnel to strengthen their category management capabilities. • Information systems need to be upgraded to ensure that all team members have access to the information they need to run their businesses. Investments in sales information systems are already beginning to pay oƒf in improved promotional eƒfectiveness. • Truly cross-functional career paths need to be developed for key positions such as category business director. Although positions like this have broad cross-functional responsibilities, they still tend to be filled by marketing veterans. • Accountabilities need to be tightly aligned within and across teams. Kraƒt has made progress in aligning the incentives of category business team members with bottom-line category profitability, but it is still working on the systems needed to reward field customer teams on profitability, rather than volume.

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Nevertheless, early results are encouraging. Kraƒt is enjoying strong sales and earnings performance, and employees appear to be settling into the new organization. Success stories abound – from the meat enhancers process team that averted a potentially disastrous shortage of barbecue sauce last May to a customer team that developed a “Fresh Idea” promotions program to drive profitable growth at a leading retailer.

CEOs must overcome enormous barriers as they reorganize their marketing

activities. The hardest challenge may be instilling a new marketing culture. Making the transition from a relatively simple structure to one in which process-based teams, dispersed throughout their organization, deliver value to consumers and customers will test the beliefs of even the best marketing companies. Those that meet the challenge, however, will enjoy an important competitive advantage – one that will translate into an increased share of market surplus for years to come.

Mike George is a principal in McKinsey’s Chicago oƒfice, Anthony Freeling is a principal in the London oƒfice, and David Court is a director in the Toronto oƒfice. Copyright © 1994 McKinsey and Company. All rights reserved.

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