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

T
HE PAST DECADE
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.

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.

THE McKINSEY QUARTERLY 1994 NUMBER 4 43

 REINVENTING THE MARKETING ORGANIZATION

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 Sales

Brand manager, Brand manager,

Ivory Camay

Responsibilities Develop annual marketing strategic

plan and budget
Implement marketing tactics
Monitor competitors
Manage creative strategy

The first has taken many forms – among them, brand managers in packaged
goods, buyers in retailing, and marketing managers in general merchan-
dise. As formulated by P&G in the 1930s (Exhibit 1), brand managers
were taught to be mini general
Exhibit 2

Brand manager as hub, 1950s–60s

managers. As their role developed,
they became responsible for working
g
rin with the R&D, manufacturing,
R&D

Pu
rc c tu
ha
sin ufa and sales functions – as the “hub of
g an
M the wheel” – to bring products to
Brand
g manager Marke
market and maximize market share
/a c c ountin t re se
a and profits (Exhibit 2).
e rch
inanc
F
es

Dis
Sal

trib

This model worked spectacularly

u
tio

well during the golden age of high

n

Brand management Favorable environment consumer trust, weak distribution

system Market/channel growth
Dedicated brand people
channels, growing prosperity, and
Stable, simple operations
Independence/ base homogenous demand. In such an
competition Expansion of TV environment, mass advertising of
Cross-functional penetration and use
coordination
relatively simple product oƒfer-
Low trade promotion
ings was the key to growth. Thus,

44 THE McKINSEY QUARTERLY 1994 NUMBER 4

 REINVENTING THE MARKETING ORGANIZATION

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/promo-
Consumers increasingly
tion support services. This model worked
trust only their own ability
well in fast-growing and oƒten heavily regu-
to 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 multi-

media 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.

THE McKINSEY QUARTERLY 1994 NUMBER 4 45

 REINVENTING THE MARKETING ORGANIZATION

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 The brand management system is just not

Dissatisfaction with brand management
up to this kind of challenge. As CEOs have
Quantitative recognized for years, brand managers are
Dissatisfaction levels of senior executives with marketing
skills of brand managers not really mini general managers at all. They
Satisfied 48 Dissatisfied
are usually too junior, too inexperienced,
Overall
effectiveness and too narrowly centered on marketing to
60
Strategic skills provide the cross-functional leadership
92 and strategic thinking required to navigate
Innovation
48
through today’s complex marketing land-
Risk profile scape (Exhibit 3). They are also too far
56 removed from the sources of value-added
Speed
(which are no longer just advertising based),
Qualitative too overwhelmed with day-to-day tasks (like
“Most decisions these days are too big to be
taken by brand managers.”
developing trade promotions in packaged
“The brand management structure doesn’t goods or staying on stock plan and taking
seem to generate the level of new products markdowns in retailing), and too focused on
we require.”
“I sometimes wonder if we expect too much implementing quick-fix solutions that will
of brand managers by expecting them to get them promoted in 18 months.
manage costs and profit as well as volume.”
“It’s not clear to me that brand managers
understand their consumers as thoroughly If anything, the staƒf model is even less well
as they ought.”
“We need our branch managers to take risks –
equipped to deal with the new environment.
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
the ladder.” below the CEO possesses an integrated
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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 REINVENTING THE MARKETING ORGANIZATION

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 distri-
bution 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

THE McKINSEY QUARTERLY 1994 NUMBER 4 47

REINVENTING THE MARKETING ORGANIZATION

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

48 THE McKINSEY QUARTERLY 1994 NUMBER 4

 REINVENTING THE MARKETING ORGANIZATION

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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REINVENTING THE MARKETING ORGANIZATION

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 super-
Companies 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 cross-
functional 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 Exhibit 5

Customer-focused integration Monitoring account-specific profit data

Consumer goods companies establishing Sample size: 33 companies
alliances with customers 12 track
Percent of companies (100% = 33 companies)
account
No Yes profitability
Alliances 51 49
6 include profit 11 make profit
Companies’ expectations of change information data available
Less More in account to account
Alliances 6 49 plans managers

Less More
Functions 0 42

Shared Dedicated Leading 6

Resources 24 15 do all three

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 REINVENTING THE MARKETING ORGANIZATION

Exhibit 6

Developing customer integrators at P&G

Typical grocery team structure under new organization

Customer business Total P&G

development leader responsibility
at customer

Operations Finance Technical Product supply Sector account

manager manager analyst manager managers

Retail, Customer and Business Logistics Representation

shelving, and sector P&L trends/analyses Systems-related of sector
merchandising management cost reductions 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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REINVENTING THE MARKETING ORGANIZATION

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 Wal-
structures 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 tomor-

row’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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 REINVENTING THE MARKETING ORGANIZATION

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 begin-
ning 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, adver-
specialist capabilities to allow
tising, and direct marketing.
them to move faster, target
more accurately, and anticipate
One area where specialized skills are becom-
demand in ways that were
ing increasingly critical is in the tailoring of
simply not possible before
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 organi-
zation is using consumer sales data to model, from as few as three or four

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 REINVENTING THE MARKETING ORGANIZATION

transactions, the expected lifetime value of a loyal customer. Dataconsult

then adjusts both the nature and the frequency of its client’s communi-
cations 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,”
The goal is flexibility – and focus. Better
but are both account specific
targeting allows Fingerhut, a leading direct
and statistically sound
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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 REINVENTING THE MARKETING ORGANIZATION

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 cross-
functional 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
decentralized structure, and principle
finally to a structure based Functional Organize Economies of Lack of
integration functionally to scale responsiveness
on functionalized “centers achieve cost and • Distribution to local
skill advantages • Advertising requirements
of excellence.” of scale • Infrastructure Difficult to
Builds functional develop general
Each stage of this process skill superiority managers
Business unit Organize around Focus/clear Lack of scale
reflects a changing tradeoƒf integration multiple profit accountability Duplication of
between centralizing around centers to gain Close to effort
advantages of
functions and decentralizing focus
customer/ No critical mass
responsiveness of skills
around business units. This Builds teams/
company is not alone. Many identities

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 rela-
tions, and so on) jealously guarded its own budgets and programs.

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 REINVENTING THE MARKETING ORGANIZATION

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 com-
munications” 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

56 THE McKINSEY QUARTERLY 1994 NUMBER 4

 REINVENTING THE MARKETING ORGANIZATION

and down either functional or business unit ladders. To make these teams
work, their leaders – the integrators – make consumer and compet-
itor 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
Team Manufacturing Distribution R&D Sales Marketing
leaders

Consumer Consumer equity process teams

integrators

Customer Customer service process teams

integrators

Product Product supply teams

integrators

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 cross-
functional process teams. This team-based structure will enable – indeed

THE McKINSEY QUARTERLY 1994 NUMBER 4 57

 REINVENTING THE MARKETING ORGANIZATION

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 decision-
making 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.

58 THE McKINSEY QUARTERLY 1994 NUMBER 4

 REINVENTING THE MARKETING ORGANIZATION

Exhibit 9

Managing through teams at Kraft

Customer
Quality R&D category
managers
Category Supply
Operations Marketing Category
Engineering sales chain
finance information planner
director specialist
Process Category Customer
team business business
leader director manager
Space
Materials Consumer Retail sales
Finance management
manager promotion manager
specialist
Sales
Plant Brand
information
manager manager
specialist

Process teams Category teams Customer teams

(dedicated to each (dedicated to each (dedicated to each
product category) product category) 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 cross-
functional 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 respec-
tive 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

THE McKINSEY QUARTERLY 1994 NUMBER 4 59

 REINVENTING THE MARKETING ORGANIZATION

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 cross-

functional 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 manage-
ment, 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 special-

ization and focus. In many businesses, it has replaced the traditional general
brand manager with three focused brand managers: business managers,

60 THE McKINSEY QUARTERLY 1994 NUMBER 4

 REINVENTING THE MARKETING ORGANIZATION

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 infor-

mation 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 deter-
building 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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REINVENTING THE MARKETING ORGANIZATION

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.

62 THE McKINSEY QUARTERLY 1994 NUMBER 4