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Yes, the Chief Marketing Officer does matter

It's often difficult to quantify the results of marketing campaigns, and chief marketing officers (CMOs) often struggle to prove their worth to their board and to preserve their budgets in times of spending cuts. A new study sheds light on the effect of CMO presence on firm performance and even shows which firms benefit most from having a CMO in their top management team.

Yes, the Chief Marketing Officer does matter by Peter Ebbes ©Fotolia

CMOs struggle to prove their relevance

“The Chief Marketing Officer is dead,” proclaimed Dominique Turpin, president of Swiss business school IMD, in a 2012 Forbes article. His obituary concerned the function, of course, not a particular person, but it was merciless. It described the CMO as “increasingly powerless and peripheral,” due to the powerful hold of CFOs (Chief Financial Officers) and the “fuzziness” of marketing, among other reasons. This article was just another nail in the coffin of marketing bosses, two-thirds of whom stated in a recent survey that they were experiencing pressure from their boards to prove the value of marketing. As a matter of fact, a number of firms do not even have a CMO position any more, and when they do have one, the average tenure is estimated to be two years, compared to five years for CEOs. Yet so far the academic literature has not conclusively answered the question of the CMO's worth, with evidence from some studies showing a positive correlation between CMO presence and sales growth, while others, such as Nath and Mahajan's much-talked about 2008 article reports neither a positive nor a negative impact. Some researchers even went so far as to say that “the CMO remain[ed] a rather enigmatic creature” and that “the scarcity of […] research [was] lamentable” (Boyd, Chandy and Cunha, 2010). Now a team of three researchers, HEC Paris’ Peter Ebbes, Frank Germann from the University of Notre Dame in Indiana, US, and Rajdeep Grewal from the University of North Carolina, also in the US, have just published a new paper in the Journal of Marketing, titled “The Chief Marketing Officer Matters!” in the hope of making progress on the subject, if not settling the debate for good. 


Firm performance was about 15% better for firms with a CMO than for those without one.


The modeling challenge

But how do you measure the impact of a single person's role within an organization, when so many different factors, from advertising spending to corporate culture, not to mention the global state of the economy, can influence firm performance? “That's the challenge,” admits Peter Ebbes, who had the tough task of creating models that could control for a number of different variables. The researchers decided to build upon Nath and Mahajan's previous work, but expanded it in three major directions. Firstly, they extended the time horizon of the sample to cover the 2000-2011 period, instead of 2000-2004. “Whether or not the CMO has an impact, it will take years to manifest itself,” comments Peter Ebbes. Secondly, they expanded the range of industries covered in order to test their models across a larger cross-section. Thirdly, they brought econometric corrections to the study to correct for endogeneity (roughly put, the effect of variables, here CMO presence itself, on other variables within the system) and filter out the actual effect of CMO presence. Also, rather than using accounting-based measures of firm performance such as sales growth or return on investment, as is often the case in academic marketing research, they turned to what is perceived as a somewhat more objective metric, a capital market-based measure known as Tobin's q: the ratio of a firm's market value to the current replacement cost of its assets. They confirmed their results with three additional market-based measures, which help capture both immediate and future firm performance. Altogether, the researchers carried out four different studies using seven different models and found a positive and significant CMO effect across all models but one. 

The significant effect of CMO presence

“Our findings suggest that firms can indeed expect to benefit financially from having a CMO at the strategy table.” Peter Ebbes expressed his satisfaction: “Given what a tough phenomenon it is to identify, given that the seven or so different models examined the issue from different angles, the fact that they all point to the same conclusion gives me confidence in the result.” More specifically, their data and analyses detailed in their paper suggested that firm performance (measured by Tobin's q) was about 15% better for firms with a CMO than for those without one. Digging a little deeper, the researchers found that performance seemed to be improved even more by CMO presence within the top management team for one batch of firms, those with robust sales growth. This is consistent with marketing literature, which views the CMO as the “direct stewart” of customers. “It makes sense, if the CMO represents the voice of the customers when shaping strategy,” says Peter Ebbes. On the other hand, the positive effect of CMO presence declines for companies where CEO tenure is longest, suggesting that, as Peter Ebbes puts it, “CMOs have less muscle” when CEOs gain power and influence as their time at the helm increases. Finally, the positive effect of CMO presence also weakens as the number of employees in a firm increases. “The bigger the firm, the bigger the top management team, so the action of a given individual on overall performance will be more diluted.” Still, the strong results obtained by Ebbes and his co-authors are enough to prove Dominique Turpin wrong: the CMO is not dead.


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So if CMO presence boosts corporate performance, should companies hoping to thrive go out and hire a chief marketing executive? The researchers warn that simply adding a seat to the top management team's table for a chief marking officer is not likely to perform magic. The positive effect the researchers observed in their study most likely reflects the importance of marketing within the firms. “There is no direct causality, just a correlation,” says Peter Ebbes, who also suggests that the marketing role is particularly relevant in companies where marketing is key, like Apple. From an academic point of view, the researchers also hope that their clear findings will encourage their readers to behave as statistical “engineers” rather than “mechanics”; in other words, to question systematically the underlying assumptions of models, especially when the results of different models point in opposite directions. “The idea is to start from a theory and build a relevant model, not run data through 20 or 30 models, then cherry-pick the best results,” says Peter Ebbes.


The researchers used the COMPUSTAT database to create several samples of 155 publicly traded firms with sales of at least $250 million covering the period 2000-2011. They completed their data with company websites, proxy statements and so on, and employed Tobin's q (ratio of a firm's market value to the replacement cost of its assets) as a performance measure. They then applied econometrics models in which they included control variables such as CEO tenure, differentiation and number of employees.
Based on an interview with Peter Ebbes and his paper “The Chief Marketing Officer Matters!" by  Frank Germann, Peter Ebbes, and Rajdeep Grewal published in Journal of Marketing (May 2015, Vol. 79, No. 3, pp. 1-22.).