BizAnalyst Network

Question: What problems do marketing operations present to compliance efforts?
Saiya: With regard to Sarbanes-Oxley compliance, the first thing everyone talks about is the audit process. When auditors come into a company, the first thing they do is to ask for an inventory of processes. That's fine when it comes to finance, manufacturing, human resources or sales. But marketing usually does not have processes. The term "marketing process" is an oxymoron. Without formal processes, the auditors can't examine them or suggest any changes. At the end of the auditing process, the auditors pronounce the company compliant, without having examined a significant component of the company, i.e. marketing. The rest of the company, such as payroll or raw materials, has well defined expenses. In marketing, 80 percent to 90 percent [of expenses] are ad hoc and there are no standard pricing or procurement processes.

Question: How large of a problem could this be?
Saiya: In Global 2000 companies, the marketing budget can vary from around 10 percent of expenses to about 40 percent of expenses in areas like pharmaceuticals. The way marketing operations are managed, companies have no idea of the marketing costs accrued in a given month. There is a likely variance of 20 percent and, when you look at the overall expenses of a corporation, this can result in a 3 percent to 8 percent variance in the accuracy of overall financial results. So you have CEOs and CFOs signing in blood that the financial results are accurate. But shareholders and stakeholders may sue them when they have to restate their financial statements. A 5 percent variance can easily gobble up the net profits of many a corporation.
     I know of one case in which the CFO was examining the results of a Sarbanes-Oxley audit and noticed there were no suggested changes at marketing. He asked the auditors, "Does this mean they're doing a great job?" The response was that the auditors didn't even look at marketing because they had no processes to review. Meanwhile, the company had to rush to get compliant and start putting systems in place because they were about to make a secondary stock offering.

Question: What's the solution to this problem?
Saiya: The first step is to mandate that marketing is not an ad hoc, creative activity but is a form of corporate activity that needs institutionalized processes in terms of how you plan, how you budget, how you expense and how you execute marketing programs. Once you set up those processes, you need to put systems in place to manage those processes. Just as accounting uses ERP systems and human resources has its systems, marketing needs marketing operations management systems that implement processes, integrate with the rest of the enterprise and provide a more accurate picture of forecasts, activities, liabilities and spends. Besides helping with compliance issues, these systems can help streamline marketing operations, dramatically reduce error rates, and promote efficiency by eliminating duplication and spreading marketing campaigns out in a proper fashion.
     By having plans and budgets in the system, you can calculate the ROI for different marketing campaigns and determine whether or not to repeat such a campaign in the future. Having well-defined marketing processes allows for the automation of those processes. Marketing information can be aggregated in one place and an audit trail can be established. This is important from a compliance point of view but can also provide information by which course corrections can be effected. It also expedites the pace at which can you do things and enables more effective marketing campaigns.