Are finance and marketing getting closer? The evidence is promising, but at many companies, the two sides still don't communicate well, a new survey of financial executives finds.

HemCon Medical Technologies Inc. in Portland, Ore., is a maker of medical products for the military, especially battlefield wound dressings. Its challenge is to move more into the commercial market and reduce the reliance on military contracts. Mike Williams, vice president of finance, says the company received 90 percent of its revenue from the U.S. military last year and plans to reduce that to 70 percent this year.

To do that, it needs to spread the word about its product lines. Williams, an FEI member, says the commercial marketing effort began only last fall, and the marketing department has just two people. But HemCon has started to market at trade shows, and did a "door knocker" dropoff at a show that included a reply postcard.

"These things are not inexpensive," Williams says, adding that he has asked the marketing vice president there to try to assess the response on the postcards and whether they resulted in any orders. The company's targets include hospital emergency room trauma units, EMT and EMS services, oral surgeons and police and fire departments.

"There's a real push to get [marketing] data, which we're not really set up to do," he adds. "We've looked at some CRM (customer relationship marketing) software, and using some outside providers."

While good lines of communication between finance and marketing are important, Williams says, "I've worn a hat as a doubting Thomas, I'll say to the marketing people, 'Show me some examples'" of how marketing has worked. He calls marketing a "black box" that often asks for a lot of cash, but "you don't really know what you're getting."

Unfortunately, that's a common scenario at many, many companies, large or small--and the frustration for finance executives, accustomed to making decisions based on numbers and metrics, can be considerable.

Financial executives' uncertainty about the return on marketing dollars isn't new, but it remains strong. In fact, that's one of the key findings in a new survey done to assess corporate attitudes toward marketing return on investment (ROI). Financial Executive joined with Marketing Management Analytics (MMA), a consulting firm in Wilton, Conn., which developed an email survey that was sent to FEI members; MMA collected and tabulated the responses.

MMA found that 36 percent of FEI respondents could be categorized as "metric-averse." This group reported very low levels of success and satisfaction in terms of assessing ROI, and they tended to view marketing as an expense, not an investment.

Ed See, chief operating officer of MMA, says, "The measurements they have in place would never pass a sniff test for metrics; they can't tell how much sales are being driven by spending." He adds that this metric-averse sample runs across all company sizes.

Another 39 percent of respondents, MMA said, were in a group it deemed "small and agile." This ground tended to be smaller in size and had fewer marketing resources, but also had the largest percentage of non-traditional marketing spending. While they were pleased at their ability to measure the effectiveness of marketing at driving sales, they had only average satisfaction on assessing marketing accountability. Moreover, 30 percent of this group said they had "no formal effort" aimed at judging marketing accountability.

At the top of the pyramid are the 25 percent whom MMA designates "marketing moguls." This group maintained the largest revenue totals and the largest marketing budgets; they also reported the best relationships between marketing and finance. These organizations employ a variety of metrics and are highly satisfied with their marketing accountability efforts, and finance views marketing as an investment at the majority of these organizations, MMA found.

MMA compared the FEI data with that from a similar survey it has been doing with the Association of National Advertisers (ANA) for the past three years. (ANA members are marketing executives employed by companies, often very large ones.)

In general, the ANA group was consistently more confident about the value and the accountability of spending, across the board, than finance executives. For instance, while only 7 percent of the financial executives said they were satisfied with their company's ability to measure marketing ROI, 23 percent of the ANA group said they were satisfied (see table for other results).

See said in an interview that of the ANA members--some of whom operate at Fortune 50 companies with huge advertising budgets--"it's often the smaller companies that are doing better. They have fewer moving parts, but they're also more savvy about getting the most out of their dollar--they're more willing to use newer tactics. They're more nimble."

See does believe the accountability picture is improving. "We've seen the marketing community respond to demands for accountability. It's sometimes slow, but they are doing a better job. We're also seeing financial executives change, in thinking from the ROI on a piece of advertising to the financial executive saying, 'I understand my supply cost, but my 'demand pipe' needs to be managed more tightly.'"

Cognos Inc., a major business analytics software firm, goes as far as to call marketing "an investment advisor." It says that "marketing must define 1) the overall investment strategy--what is sold, where and to whom; 2) the strategic path for maximizing return on the company's assets; and 3) the cost justification for the operational path required to get there (in other words, support of return on investment numbers for scarce marketing dollars)."

Donald McLean, president of CPR Global, a consulting company in Boulder, Colo., that aims to help companies achieve greater organizational and financial health, is a former CFO for a university-supporting foundation. An FEI member, he believes that "most organizations still only care about what the bottom line is, not necessarily the marketing ROI, allocated operations cost, etc. Also, the classic tension that exists between marketing and finance is alive and well in the nonprofit sector.

"The issue in nonprofit is 'cost to raise a dollar.' It would take discipline and focus to get past the political tangle to truly clarify these numbers," he adds.

Despite the clear gaps in their collective sense about ROI, marketing executives are making progress in tackling metrics and allocating money to them, See says. "We're seeing a lot of marketing groups bandying about words like 'transformation.' There are budgets being set aside to establish accountability and measurement," he says. "For many companies, [marketing] is the largest non-capital spend that they do. Unless they set aside a separate controls budget, how are they going to manage that?"

At mid-sized and larger companies, in particular, he sees more dialogue between finance and marketing, just as there has been evolving dialogue between finance and information technology (IT). In the best cases, "they're able to speak a common language. They speak the language of finance, and share the same data." Simulations are frequently involved, using software or working together on cross-functional teams, See adds.

Indeed, the best-practice companies, the "marketing moguls," share data between finance and marketing. The trend over time, See says, is toward "less apprehension on the part of finance. It may be the last under-managed area in corporate spend, and I think it will tighten up. Just like in IT, we're seeing more strong operating executives in CMO (chief marketing officer) roles," not necessarily an advertising person.

McLean agrees, saying that "as CFOs have more responsibility placed at their doorstep, the finance function will push more accountability into areas of organizations where it had been lax."

RELATED ARTICLE: TAKE AWAYS

* Financial executives' uncertainty about the return on marketing dollars isn't new, but it remains strong, according to a new survey of FEI members.

* More than a third of respondents were deemed to be "metric-averse," and report low levels of understanding or satisfaction about the impact of marketing on returns.

* However, leading companies are tying together finance and marketing, and consultants say the trend is for better communication and better accountability.

* Helping improve accountability on spending is the presence of more operating executives in marketing, not just people from advertising backgrounds.

How Finance and Marketing View ROI Differently

                                                      Finance  Marketing

Have "full cooperation" and open dialogue on metrics  <20%      28.4%
  and methodologies
Could forecast impact of 10 percent marketing budget   16%     <33%
  cut
Confident in forecasts of marketing impact on sales    10%      25%
Satisfied with company's ability to measure             7%      23%
  marketing ROI
Dissatisfied with ability to understand sales impact   45%      23%
  of each marketing campaign

Source: Marketing Management Analytics surveys of FEI and ANA members

FEI Demographics: Company Size (revs.)

Less than $25M  15.6%
$25M to $99M    28.6%
$100 to $500M   28.6%
$500M to $1B     5.2%
$1B to $5B      12.3%
$5B to $10B      2.6%
Over $10B        5.8%

Source: MMAIFE survey

FEI Demographics: Marketing Budgets

Less than $5M     61%
$5M to $15M     13.6%
$15M to $30M     4.5%
$30M to $50M     3.2%
$50M to $100M    7.1%
$100M to $200M   2.6%
$200M to $500M   3.2%
$500M or more    3.2%
Don't know       1.3%

Source: MMAIFE survey