Organic growth: profiting from the union of finance and marketing; The CFO's role in M & A is well established, but acquisitions often destroy shareholder value for the acquirer. To boost internal growth, savvy finance executives are partnering with marketing colleagues to drive more consistently profitable results.

• Author: Jenkins, Michael
• Position: Cover Story

The domain of chief financial officers, long confined to budgets and balance sheets, today extends far into the inner workings of corporations. Most CFOs have long ago shed their "chief bean counter" image and appear regularly at key meetings on strategy, acquisitions, operations and technology. As Ishaat Hussain, CFO of India's giant Tata Group (an $18 billion industrial conglomerate), puts it, the CFO's role has shifted from "an objective and reliable provider of information" to "a shaper of strategy and an architect of change."

Bearing this out is the recent spate of "hot-button" issues--outsourcing, Sarbanes-Oxley and catastrophic risk management, to name a few--that have fallen into the CFO's lap.

Yet in most companies, the CFO's reach still ends abruptly at marketing's door. A senior sales and marketing executive at a large consumer goods retailer describes the relationship with his finance counterpart as "adversarial on a good day," with "spiraling requests to quantify the unknowable and measure the unimportant" on a bad day. Indeed, the old adage, "marketing spends the money and finance worries about it," continues to define the finance-marketing dynamic. The tension becomes particularly acute in the quest to find and fund profitable growth opportunities.

But this is not the case everywhere. In a small number of companies, an unusual level of collaboration between finance and marketing is helping to generate outsized returns. What's more, the earnings at industry leaders like Best Buy Co. Inc., Genentech Inc., Barclays PLC and Roche Holding AG--all stock market stars in recent years--have come largely from the best source of new revenue: organic growth. Companies in the top quartile of organic growth are 13 times more likely to be in the top quartile of shareholder returns than their low-growth counterparts, according to research by Marakon Associates, a strategy and management consultancy.

Forming a more perfect union of finance and marketing isn't easy. The CFO, chief marketing officer (CMO) and their direct reports often have to overcome significant cultural and sometimes structural barriers to working together: vast differences in thinking styles and perspectives, conflicting incentives and the occasional run-in. Still, the rewards of getting finance and marketing to collaborate are well worth the pain because the product of a healthy marriage--alignment on where and how to pursue profitable organic growth--is both rare and potent.

So how can these two "oil and water" functions be brought together to drive significant and sustainable growth? Consider these suggestions.

Different Perspectives, Different Relationships

The sources of friction between finance and marketing executives are not hard to find: Their backgrounds and mindsets are almost entirely antithetical. "Any personality test would place CMOs and CFOs on opposite ends of the spectrum," says Mike Murray, former finance director of Barclays' private client business. "Financial directors value the known, prefer stability and are comfortable with measurement; marketing directors are comfortable with the unknown and are rewarded for vision and creativity."

Beyond differences in temperament, a more fundamental cause of the bad marriage lies in the very different nature of the two functions' roles. The differences produce three tensions:

* Short-term vs. long-term perspective. Creative marketers produce a constant stream of attractive-looking growth ideas. But these often require significant initial investment before they yield any profits. According to Ivor MacLeod, CFO of Hoffmann-La Roche Inc. (the U.S. prescription drug unit of Switzerland's Roche), "I'm the one who's forced to fit growth investments within the short-term practicalities of performance expectations. In a perfect world, we'd fund all these things because they all look like bets worth taking. However, the practicality of the need for a balanced short-term performance doesn't allow us to do that."

* Narrow vs. broad perspective. Marketing directors are rightly focused on the organic growth initiatives that they champion, while CFOs see the entire company's financial picture. "How to trade off between IT expense and marketing expense is something finance directors know how to answer; to marketers, it's often not considered a question," notes Murray.

* Known vs. unknown. CFOs seek certainty in approving large capital outlays. Marketers understand that investments such as advertising that build valuable brand equity are vital but difficult to quantify. Darren Jackson, CFO of consumer electronics retailer Best Buy, concedes: "One of the highest levels of friction in the finance organization can be with the chief marketing officer and the advertising people because it's a hard business to get your arms around facts. I don't know who's cracked the code...