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Marketing Risk Management: Seeing Around the Corner for Improved Performance 

| Feb 4, 2010 1 Comment

Marketing organizations today face significant challenges when contemplating change to their strategies, execution processes, information and people. Operations, Logistics, Finance, Sales, Trade and Marketing Agency environments are increasingly more complex as they strive to position for changing consumer behavior, channel proliferation and the demands of innovation (just to name a few).

The infrastructure and resources required to manage this complexity gets more expansive and costly by the day. As a result, companies face a broad spectrum of obstacles or risks when change is contemplated that threaten their ‘go-to-market’ quality. The inability to manage risk stymies adoption of change initiatives reduces the scale of change that is initiated and many times leads to failure for those that are adopted.

Additionally, as companies seek answers for failed initiatives and/or lost opportunities, it leads to assignment of blame and costly changes. Many times this leads to replacing the advertising agency or reassigning responsibilities via organizational changes. A supporting organizational trend is a new position titled Chief Commercial Officer, where responsibility for driving top line revenue is assigned for complex operating environments. Typically, these are all too narrowly focused and many times lead to additional complications.

Progressive marketing organizations recognize that managing risk is the responsibility of the entire marketing organization. It is not compartmentalized within different functions or assigned to a single position but rather seen as a key practice for developing and executing the marketing plan. Until recently, this idea of end-to-end risk and performance management as a key activity in the marketing organization has been practically unheard of. But, increasingly, senior management is looking to marketing to enable, if not drive, short- and long-term business growth, all while improving accountability, transparency, and speed to market.

Risk management allows marketing to take on the myriad of go to market obstacles necessary to facilitate business growth within this complex environment. Properly configured and executed, it provides an opportunity to improve business return with greater quality, resilience, and predictability across the marketing enterprise

A Framework for Marketing Risk Management

Successful marketing initiatives require a disciplined approach that balances objectives with the management practices and tools to develop expectations, plan expenditures, and monitor key activities.

A multi-tiered platform of business objectives, performance indicators, risk factors, and control factors should be developed in concert with the traditional marketing process of strategy development, marketing planning, execution and evaluation.

This development platform should consist of the following factors:

  • Business Objectives: Executive goals for the company that feed the marketing Key Performance Indicators (KPI’s)
  • KPI’s: Marketing metrics that track how marketing delivers on their requirements for the business objectives. They are generally market based/focused and results oriented. These KPI’s feed the Key Risk Indicators (KRI’s)
  • KRI’s: They focus on the operations of the company and are generally informational (changes in customer preferences, behaviors and demand), strategic (poor strategy validation and prioritization) and operations (ineffective people, processes and technologies) based. They are the impediments to realizing good results on the marketing’s KPI’s. They forecast the hazards and permit the organization to decide on what is required to mitigate it. These generally feed the development of the Key Control Indicators (KCI’s).
  • KCI’s: They are governance related and help manage the processes to achieve the objectives. They are so companies don’t hit a risk indicator; they are the resources, controls and “mitigators” to manage the risk.

This platform connects the marketing strategy with the multi-functional execution within the company. The tiers of indicators reflect the cascading of top level management objectives with the day to day management of marketing programs and supporting operational activities.

Shift in Marketing Spend

For example, a credit card company seeking to shift their product based message to small business owners’ business needs required a measurable approach for their marketing spend to manage the risk of this significant change. They developed a scorecard of the key performance indicators (highly focused on operations) and complemented that with department level risk and control indicators to quickly assess and adjust key supporting practices.

Marketing spend was managed very closely using these indicators as increasing allocations only occurred as the measures indicated performance was improving. This company was able to shift 100 percent of spend to needs focused programs within a fifteen month time frame and improved their average return on marketing spend by 30 percent.

Repeatable Process

This framework is a continuous cycle where control, risk and performance indicators are dynamically reassessed and information, strategy, and operations are subsequently adjusted and improved. It is designed to handle the unique challenges of marketing resource allocation in a multi-functional environment where marketing has significant responsibility for delivering improved revenue and profitability but limited authority to make it happen.

The dynamics of marketing risk management requires a methodology and tool set that can facilitate rapid decision-making and improvement actions to lead to successful outcomes. Marketing management, however, must meet the demands of this approach with timely decisions and adjustments to marketing resource allocation.

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One Response to Marketing Risk Management: Seeing Around the Corner for Improved Performance

  1. Andrew Rudin February 18, 2010 at 10:37 am #

    I try not to comment on articles with which I emphatically agree, but I’ll break with convention. I emphatically agree!–not only with your points, but with how you’ve presented them. The approach you’ve outlined places risk within the context of change and change within the context of business strategy. The time is right to think about risk. If Opportunity X has a 50% chance of closing, there’s a 50% chance it won’t. Why? Just as important, what does that uncertainty mean for financial and business strategy?

    As a specialist in sales risk, I have seen the same management biases toward “controlling” problems by assigning blame, or by maintaining the position that sales and marketing risks are somehow siloed. They aren’t. I mentioned in an earlier blog,“The Hidden Risks of Social Networks,” sales and marketing risks are business risks.

    Thanks for tackling this topic. Strategies that ignore risks or are ill-prepared to capitalize on opportunities are likely to fail.

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