Powerful marketing departments enhance returns on total shareholder value.
Hui Feng, Neil A. Morgan, and Lopo L. Rego examine marketing department power and its relationship with firm performance across a multi-industry sample of U.S. firms from 1993-2008. Using multiple objective indicators, they find that marketing’s influence increased over the 16-year period. Further, econometric modeling offers strong evidence that marketing department power predicts short-term profitability and, beyond this effect, directly predicts longer-term shareholder value.
Their study suggests that senior managers should want a powerful marketing department because it contributes to a firm’s short-term profitability and longer-term shareholder value (even beyond its effect through marketing capabilities). This finding suggests that CEOs should actively try to ensure that marketers are represented in the firm’s top management team.
Managers should be particularly motivated to develop and enhance the firm’s ability to build and leverage market-based assets. However, because long-run market-based asset-building capability has a negative effect on short term ROA and a positive effect on longer-term total shareholder return (even when controlling for ROA), managers who are focused only on short-term profit maximization should be aware of the potential trade-offs in making their resource allocation decisions.
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Marketing Department Power and Firm Performance by Hui Feng, Neil A. Morgan, and Lopo L. Rego, Journal of Marketing (September 2015)