What are Marketing Audits? (and why every audit committee should insist upon them)
A spate of big-name retailers has recently fallen into administration, the case of Best Jet failing recently, and the habitual turnover of “once-were-successful” companies and brands, are all multiple examples of inadequate corporate governance… demonstrative of what happens when Boards are denied the right information.
Fashion businesses like Napoleon Perdis, Roger David and the local arm of Laura Ashley, confident in a Board full of operational experts, have been caught with their pants down, so to speak.
There is no justification for Godfrey’s to have folded except faulty executive decision making – devoid of (or resistant to) their sources of business information.
Yes, they know the businesses they have run up until now, but change requires knowing how to cope with new scenarios, how to turn threats into opportunities, how to shine despite weaknesses and capitalise on inimitable strengths.
Corporate leaders and Governors Must have the Right information
Only limited benefit can come from focusing on sales reports, profit trends, production efficiencies, staffing costs, etc. The root cause of successes and failures needs to be known and understood, not assumed.
When Sun Tzu, the great Chinese war strategist said, “Know your enemy AND yourself, and you need not fear the outcome of 1000 battles” he said it in the context of also understanding the lay of the land and the availability of resources.
My own four and a half decades of corporate governance experience testify that the universal reason for businesses failing has always been due to the unwillingness of C-level management to step back for a wider perspective, to see change and respond by preparing for it….
… with inevitable (and predictable) outcomes when they have been unwilling to collect and consider the “bigger picture”.
Ignore the Bigger Picture to Attract Big Problems
In every case of corporate failure that I can recall, from FAI and Ansett, Nokia and the Digital Corporation, Franklins to Healthlands and more, there are only two connected, root causes:
1. Warren Buffet’s ABCs of “Corporate Cancer” (Arrogance, Bureaucracy & Complacency), and
2. The absence of a routine, comprehensive professional Marketing Audit
Failure to conduct a Marketing Audit is an indicator of Disaster
For any organisation, failure to conduct a Marketing Audit is an invitation for disaster… Insisting upon a full marketing audit, and sharing it internally, is a vital part of management and an important aspect of leadership, stewardship and governance.
What Exactly is a Marketing Audit?
But, just as many people misunderstand “marketing” to be just “marketing communications, promotion & advertising”, many people dismiss a Marketing Audit as a review of promotional activities and advertising ROI: Important, but only a minor component…
Many ALSO misunderstand the “marketing audit” to be limited to a “market audit”, assuming it’s a market research survey of some kind.
While a market audit is a start, and market research is a mandatory component of a Marketing Audit, these are also only individual components that, alone, fall far short of the insights and key direction delivered by a full marketing audit.
Every Reason (Excuse) for Failure comes from an Absence of Marketing Audits
When CEOs declare…
- “The industry has just become too competitive”
- “The market has changed”
- “We did everything right but still failed”
- “Costs made us uncompetitive”
- “No one could have predicted…”
- “Falling customer foot traffic”
- “Rising costs”
…. They are ALL waving red flags that mean, “We didn’t undertake the correct corporate governance… We didn’t demand good, routine marketing audits, so we didn’t see it coming!”
Compliance Isn’t Enough
Corporate governance that focuses on compliance is a precursor to trouble. Even Australia’s most successful financial institutions, with their compliance-based philosophies, protected industry and oligopoly-protected dominance, have hit a rocky road and found themselves wanting… with a damning royal commission into practices that threaten their highest-ranking officials.
And, once administrators are called in, it is too late to get busy. Yes, it is legally responsible to call in administrators (who don’t restructure but just trim and sell a business) but any business with initial success has potential for immortality and MUST have been inadequately governed at some stage because PROPER governance is knowing trouble is afoot and avoiding it BEFORE it reaches critical level.
Ethically, professionally, and morally, there is an argument that a marketing audit is just as essential as a financial audit and it SHOULD be considered just as irresponsible for CEOs and Boards to avoid marketing audits to save money as it would be to abandon financial audits.
Business failure of once successful organisations is a sure sign of faulty management/leadership/governance and an overt absence of adequate corporate governance.
Is the Absence of Marketing Audits an Absence of Understanding?
Since the discipline of “marketing” began… it has been an enigma.
Defining “Marketing” as meaning “promotion” or “advertising” can drop you into a whole world of pain. MANY people think it is simply “selling”, “promotion” or “advertising” and this definition is wildly wrong!
The conundrum is that true Marketing professionals don’t do a good job of differentiating themselves from the lay-folk who use the word incorrectly.
Misunderstanding of “marketing” is exacerbated by sales-focused, snake-oil hawkers who employ aggressive and vocal barrow-pushing tactics to further their own selling, promotion or advertising services. Additionally, the digital transformation has suppressed decades of sophisticated knowledge and tried-and-tested methods, to create the illusion that the web is something more than a new medium of communication and offers an infinite number of new opportunities that don’t require tertiary knowledge and training to implement.
With only 20% of self-described Marketing Consultants possessing any type of qualification whatsoever, those who “know” are shouted down by those with “show”.
A New Mindset for Marketing Audits?
Thankfully, there is an escalating global sentiment for better corporate governance with a worldwide trend demanding broader scope and more responsible/ethical Board activity.
Helped along by continued, failed Corporate Governance disasters from 100’s of scandals, politicians are finding there are votes in legislating for tighter controls and more stringent penalties for negligence in Corporate Governance.
Ramifications of the profound effects of James Hardie & asbestos, of Union Carbide in India, the 2008 GFC, the British burger chain Byron, USA’s Deepwater Horizon, Volkswagen’s emissions scandal, Queensland’s Dreamworld tragedy, the overt unethical “law unto themselves” responses of the Australian Royal Commission into Financial Institutions… just to name a few, have awoken u=international need for controls that surpass national borders.
Harvard Business School tells us this global trend has nurtured a focus on improving corporate governance, increasing the complexity of challenges facing audit committees to manage the disparities between compliance and strategy. The new standard means going beyond legal compliance and calls for transparency, and accountability beyond a compliance mentality toward broader risk management and making “right” decisions.
A Perfect Springboard to Build a Case for Mandatory Marketing Audits?
Caught in the wake of this, thankfully, is a leaning towards embracing the reality expressed by David Packard, “Marketing is too important to be left to the Marketing Department”.
Inevitably, given it is becoming unacceptable to just be meeting compliance “rules” … with more expectations that Directors must function at a higher level than to opt to bet on their operational talent, Marketing Audits may find genuine status as a mandatory report.
In the meantime, those Boards that embrace Marketing Audits first are likely to find better traction and business buoyancy than those that resist the notion.
What EVERY Board Member Should Know – Knowledge honed from a Marketing Audit
At the very least, Directors (and Management) should have a solid understanding of the knowledge delivered from a Marketing Audit… without which decisions are guesswork.
Topics such as:
Customer Knowledge: Who are the biggest? The most profitable? (not necessarily the same). Which customers cost more than they make (some always do). Where the company should put its greatest effort.
Market Knowledge: Where the market is heading? What are competitors doing? Contingent threats as well as existing ones. Market segments and trending paths. Market penetration & attractiveness.
Macroeconomic Knowledge: The economic pressures, political issues, environmental factors, ethical concerns, socio-cultural indicators, technological issues, demographic changes, as well as the legal and compliance requirements.
Micro-economic Knowledge: Industry anomalies, supply and demand chain issues, protection and vulnerability dynamics, sources of competitive advantage, the potential for imitation, substitution, replacement, etc.
“Seek first to understand”.
It may be that any objection to audit marketing is fundamentally wrong. It is irrelevant if the reluctance to commission a marketing audit is due to unfamiliarity with the concept, lack of perceived need or fear of rocking the boat.
Responsible corporate governance would prefer to undertake a marketing audit than to stand accused as a director failed. Surely, when offered the lesser of two evils, Directors might be well advised to opt for complete understanding, presented objectively from the outside, looking in, rather than the subjective perspective of executive management on the inside, looking out.