Years of corporate decentralization — with individual business units managing regional sales or a small portfolio of products — have allowed flexible organizations to emerge that can keep their collective ears close to markets and customers. But more recently, such silo-based companies are learning that this approach can be counterproductive. This is particularly true in marketing, says David Aaker, vice chairman of the strategy consulting firm Prophet and the author of Spanning Silos: The New CMO Imperative. Once easily pigeonholed brands and their marketing programs must now bridge product and country silos, and corporate marketing departments are struggling to create programs that scale these distances and respond efficiently to customer preferences around the world. The downside of siloed marketing schemes — inefficiency, waste, and brands with unclear identities — can no longer be borne, especially as the global economic downturn deepens.
Successful marketing in an era of globalization and the concomitant rise of large, multinational, multiproduct corporations requires that chief marketing officers “become more strategic, more connected to overall business strategy, as opposed to being tactical, the guy who merely generates sales leads or creates advertising or builds Web sites. As soon as you become strategic, you can start tearing down silos,” Aaker told strategy+business in a recent interview.
S+B: How has marketing changed over the past 20 years?
AAKER: There was a time when marketing departments in decentralized organizations could operate within their product and country silos successfully. Decentralization is a marvelous organizational concept that was first formulated almost a hundred years ago. People working in individual business units were close to their products and technology and to the market, and they were clearly accountable for their results. In short, decentralization made it feasible to manage larger organizations.
But these autonomous silos aren’t working anymore. Brands, customers, and media are spanning products and countries now. Whether it’s at Citicorp or Hewlett-Packard or Nestlé, brands are spanning silos, and companies that continue to manage products or service brands and marketing programs in individual silos are inviting nothing but confusion. Decentralized silos don’t talk to one another because they have no incentive to talk to one another. And they foster a culture in which the incentive is to maximize the performance of the silo rather than that of the organization.
When I go into organizations and talk to top executives about brand and marketing problems, they almost always start off by saying, “You know, you’ve got to understand, our company is different, we’re decentralized. And we have a culture that lets these people be autonomous.” It’s just pervasive.
S+B: Given these changes, how can companies improve their marketing and brand building?
AAKER: First of all, make sure the firm has the capability to develop and implement marketing programs that will scale. You can’t manage an Olympic sponsorship, for instance, at the silo level. Second, develop an objective resource allocation process that has the power to fund the products, countries, and programs that have merit and defund those that don’t. You can’t allocate resources effectively in a decentralized setting because the analysis is so complex and each silo is motivated to maximize resources for itself. Third, find ways to create silo-spanning offerings that are desirable to customers who respond to silo-spanning brands, not individual products. Finally, create a brand management system that ensures brands offer a coherent, consistent vision while still being adaptable enough to support the business strategies of individual silos.
S+B: Can you give me an example of the kinds of problems different companies face?
AAKER: Often, it depends on the sector the company operates in. In the consumer packaged goods industry, resource allocation has been a big problem. A key to the turnaround at Procter & Gamble Company was the ability for company executives to focus resources on the businesses of the future and the really large brands, rather than frittering away resources on small brands.