What have managers who have launched initiatives

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1 Organizing for digital marketing Andrew J. Parsons, Michael Zeisser, and Robert Waitman What have managers who have launched initiatives on the Web learned about how to organize for digital marketing? In order to find out, we studied twelve Fortune 500 consumer goods and services companies with a presence in interactive media. Our research revealed that businesses tend to pass through four stages of development as their marketing goes online. The lessons learned by the pioneers suggest ways for other marketers to decide how best to organize themselves to reach the digital consumer. Four stages of development Most companies are only now beginning to learn how to set up their marketing organizations to take advantage of the unique characteristics of network-based environments. They are engaged in a learning process that will typically go through four stages (Exhibit 1): Stages in the digital marketing organization Exhibit 1 Ad hoc activity Focusing the effort Formalization Institutionalizing capability Activities of digital marketing group Establish a basic online presence Rally internal interest/skills Create policies to focus and unify efforts Track what works and what doesn t Build the digital business Develop/gather appropriate skills Deliver against value proposition Manage organizational interdependencies Structure and reporting No formal structure in place Low visibility Steering committee established Temporary reporting relationship Organizational structure emerges Formal home established for digital group Distinct units in place within group Linkages to core business People involved A few, often self-selected Part time Fewer than 5 10 people Full time full-time people Heavy support from one or two sources (eg, agency) More than 30 full-time staff Web of external support sources Skills in place No institutional expertise or specialization Few experts with little specialization Experts emerging Dedicated experts and skills in place Funding Little or none Corporate or ad hoc By business or functional units By business units Andrew Parsons is a director and Michael Zeisser and Robert Waitman are consultants in McKinsey s New York office. Copyright 1996 McKinsey & Company. All rights reserved. Ad hoc activity. As companies establish a basic online presence, their eƒfort is led by self-selected individuals. There is no formal organization dedicated to digital marketing, nor are there dedicated skills in place. At one major commercial bank, a group of 20 employees mainly from technical areas, but also from marketing and C U R R E N T R E S E A R C H THE McKINSEY QUARTERLY 1996 NUMBER 4 185

2 C U R R E N T R E S E A R C H Ad hoc activity Example: Commercial bank Legal Branches Consumer Direct access Future needs CEO Research Internet interest group A Transactions B Exhibit 2 C representatives from all core business Ad hoc group Occasional meetings Few resources, little power corporate aƒfairs began meeting every few weeks on a voluntary basis, seeking to exchange ideas and to set up and maintain a Web site (Exhibit 2). Believing that if we build it, customers will come, the group s first attempt at a site was no more than a repackaging of standard marketing brochures. But it quickly realized that customers wanted much more account information, loan applications, investment rates, and so on and saw that such a service would require much greater investment and senior-level leadership. As the group grew, its eƒfectiveness waned. Meetings now attracted as many as 50 too large a number for open, democratic discussions. A single dissenter could block productivity. All the same, the group succeeded in generating wide interest at the bank, and in identifying potential senior leadership and ownership for the eƒfort. Having achieved this, it stopped meeting and became more of a distribution list for updates and information about online activities. Focusing the eƒfort. In this second stage, the organization recognizes it is conducting an experiment. Typically, a crossfunctional steering committee led by a senior executive develops a set of policies for going digital. Limited resources perhaps five to ten people are then dedicated to the eƒfort, although its reporting structure is still considered temporary. At one packaged goods company, the steering committee defined corporate guidelines deciding which online activities the company would pursue, who could initiate them, and how brands would be used online. It also oversaw a small full-time technical staƒf responsible for establishing and maintaining the Internet site. Members of the committee included marketing representatives from each of the company s major brands, as well as legal and IT experts (Exhibit 3). Lacking a clear vision of the benefits it could derive from digital marketing, the committee wanted to experiment until it found a successful approach. It pursued a number of initiatives including soliciting customer feedback on company products, setting up online competitions, creating a virtual city (with brand marketing) for Web surfers to tour, and establishing the Internet as a distribution channel for 186 THE McKINSEY QUARTERLY 1996 NUMBER 4

3 Focusing the effort Exhibit 3 Example: Packaged goods company Corporate Finance Legal/PR Information technology unit A unit B Sales Operators Brand A Brand B services Steering committee Interactive Interactive group has 3 5 full-time equivalents (technical and nontechnical) Steering committee consists of senior personnel and has power to act hard-to-get products. Aware of the need to sell the eƒfort internally, the committee felt it vital to justify these experiments by obtaining value from them for instance, by using an online focus group to save consumer research costs. Formalization. At this stage, the digital marketing organization has found a permanent home within the business, and its focus shiƒts to improving its eƒforts. Having grown to between 10 and 30 people, it begins to develop its own structure, typically separating technology-related from marketing-related activities. One leading newspaper created a separate online edition that mirrored the structure of its conventional print editions (Exhibit 4). Not just an adjunct, the online edition was Formalization Exhibit 4 Example: Newspaper Managing editor Online managing editor Print edition A B C Editorial Technology Editorial Production Newsroom Ads Operations Systems Editors Editors Online edition has own dedicated organization structure, processes, and resources C U R R E N T R E S E A R C H THE McKINSEY QUARTERLY 1996 NUMBER 4 187

4 C U R R E N T R E S E A R C H designed to succeed as a stand-alone business with its own subscriptions, advertising, and staƒf. As with the print edition, the online managing editor carries overall responsibility and manages dedicated editorial, business, and technical staƒf. The online editorial department works closely with the print editors and performs exactly the same tasks in gathering, editing, and publishing news and pictures. Finding the right people to staƒf the online eƒfort was a major challenge, since many of the jobs required publishing skills as well as technical expertise. A key step was getting a senior-level veteran of the newspaper to head the unit; this conferred credibility on the new business and and helped to get things done within the organization. Institutionalizing capability. This stage is characterized by the development of dedicated experts and skills, and the creation of formal links between digital marketing and a company s core activities. One consumer services company, an early experimenter with network-based media for consumer marketing, made important changes at this stage (Exhibit 5). In an attempt to Institutionalizing capability Exhibit 5 Example: Consumer services company CEO unit A unit B Information technologies Product A Product B Product C Digital marketing services Traditional IS Interactive product Interactive product Online services /platform management Product development Internet /platform management Product development Dial-up /platform management General managers for interactive applications manage key alliances/ partnerships Design creative Develop promotion Service user Product development Build systems infrastructure Develop applications Test and integrate make digital marketing an integral part of its capabilities, it created new positions and processes both within the digital marketing organization and in the company as a whole. At the former, resources were formally dedicated to the management of external partnerships a new step for the company. Systems development activities were 188 THE McKINSEY QUARTERLY 1996 NUMBER 4

5 organized around the various technology platforms (the World Wide Web, online services, dial-up services), in recognition of the diƒferent types of expertise required to achieve best-in-class performance. Finally, for each initiative, the company created general manager positions, charged with linking digital marketing activities to the core business. These general managers liaise with a team of managers (also newly created) from each core business unit. As a result, digital marketing is closely integrated with existing marketing programs, and will remain so. Lessons learned The experience of these early pioneers yields down-toearth lessons about what has worked and what hasn t in the organization of digital marketing eƒforts. The top five lessons are: Getting it started is more important than making it perfect. Successful digital marketing is the outcome of much thoughtful experimentation. In the digital world, pre-launch research and analysis rapidly reach diminishing returns, and can easily exhaust an organization s interest. For several pioneers, actually launching a digital marketing service was the most powerful way to build excitement in their organizations. Though it would be unwise to compromise standards, a marketer s eƒforts should be focused on relentlessly improving a digital marketing service aƒter it is launched, not before. Get senior management involved early on. The below the radar approach, while sometimes appropriate in the preliminary stages of development, quickly outlives its usefulness. Senior management involvement is essential in giving a digital marketing initiative the legitimacy it needs to secure resources and win credibility with the rest of the organization. Top-level input is also needed in setting policies for going digital for instance, how to use core brands in a digital environment, and what type of content to develop. Manage conflicts with the rest of the organization. All the pioneers have experienced some kind of organizational conflict in launching their initiatives, whether between functional units (marketing versus IT), between business units (digital group versus core business), or with external intermediaries (distributors and retailers). In tackling these conflicts, it is essential to recognize the interdependencies between digital marketing and the rest of an organization. Some companies have focused on extracting business value C U R R E N T R E S E A R C H THE McKINSEY QUARTERLY 1996 NUMBER 4 189

6 C U R R E N T R E S E A R C H from digital activities early on for example, by using an interactive service to research a market, or to generate sales leads. Others have allowed their brand management groups to make final decisions on the design of digital marketing applications. Use external parties to bring in necessary skills. Don t try to do this at home is nowhere wiser than in digital marketing. According to the pioneers, it is vital to go outside the organization for specialized skills such as creative programming or audience creation. The challenge is to identify the right partners, who are oƒten quite diƒferent from traditional ones. Many emerging digital marketers have developed specific management processes to identify and manage external partnerships. Adapt to younger staƒf, and let them play. Digital marketers have learned that human talent is both critical and scarce. The right people are oƒten unlike traditional marketing managers: younger, more irreverent, less career minded. These diƒferences pose a challenge in attracting and retaining talent. One digital marketing agency discovered that giving its employees time to play to create proprietary Web applications in company time generated more loyalty and enthusiasm than traditional means such as financial incentives. What should you do? Setting up a digital marketing organization can be a challenge. For managers considering what to do and how to go about it, the following four sets of choices will act as a useful guide: Formal or informal? In other words, is digital marketing of suƒficient actual or potential importance to require a dedicated management focus and commitment of resources? This depends on whether the product or service is attractive for digital marketing,* the degree of internal readiness, and the level of competitive activity. A rule of thumb used by many consumer marketers is that a formal organization is needed as soon as anything (for instance, a World Wide Web page) is put in front of the consumer. The issues then become leadership, reporting relationships, and funding. Success in formalizing a digital marketing initiative is oƒten determined by the choice of a leader or a reporting relationship. * See Alexa Kierzkowski, Shayne McQuade, Robert Waitman, and Michael Zeisser, to the digital consumer, The McKinsey Quarterly, 1996 Number 3, pp Centralized or decentralized? This is a hard decision to make in multi-product or multi-unit businesses, where there are compelling arguments either way. Arguably, decentralizing digital marketing letting each product group or unit pursue its initiative independently allows more experimentation and justifies the redundancy costs of duplicating some activities across units. Centralizing eƒforts, on the other hand, may not only be more eƒficient, but also 190 THE McKINSEY QUARTERLY 1996 NUMBER 4

7 provide added benefits such as security. When digital marketing involves giving consumers access to data stored on a company s existing information systems, for instance, it raises issues of data integrity and protection which are oƒten better solved centrally. An important factor in this choice is the type of activities a company pursues in developing a service for consumers. If it sets up an inbound telephone customer service unit or a fulfillment operation, managers need to determine whether these are better centralized. Some businesses are adopting hybrid organizational models in which some functions, such as information management, are centralized, while others, such as application design and marketing, are decentralized. In-house or outsourced? The skills that digital marketing requires are oƒten unavailable in-house, costly, and in high demand. The choice of build versus buy depends on the strategic importance of digital marketing for a company, its company s time frame, and its aspirations. One automotive company chose to outsource all its digital marketing to its advertising agency. It had no relevant skills of its own, and wanted to gain experience quickly. Conversely, a packaged goods company decided to hire a few programmers and keep its digital marketing activities in house. It felt that it had the time and the interest to build its own capability, at least in the beginning. One financial services company found that outsourcing brought delays and headaches because the linkages with its own information systems were so complex. It ended up bringing many activities back in house. Another consumer company felt that its external partner was unable to respond satisfactorily to users questions and comments because it lacked suƒficient knowledge of the business. Deciding that its interactions with digital consumers were critical, this company decided to manage them internally. On balance, most marketers will get better value by outsourcing certain highly specialized activities, for instance, content creation. Such activities demand expert skills that are still emerging. Selecting a partner that has accumulated at least some experience about what works and what doesn t will prevent many mistakes. Function/product focused or customer focused? Should the new organization be build around functional areas (product management, systems development, sales, and so on), or specific customer groups (frequent travelers, small oƒfice and home oƒfice workers, remote-channel investors)? This decision may influence where digital marketing C U R R E N T R E S E A R C H THE McKINSEY QUARTERLY 1996 NUMBER 4 191

8 C U R R E N T R E S E A R C H activities will reside in the organization. A customer focus may mean that digital marketing is located within the broader marketing area so that its activities can be coordinated with other oƒf-line initiatives targeted at a particular customer group. One consumer company that organized around customers rather than service oƒferings targeted its digital marketing at its existing high-value users. Integrating marketing around customers Exhibit 6 CEO unit High value customer segment Digital marketing utility Product A Product B Product C Product design Relationship managers Platform A Platform B Interactive product Traditional Digital The trade-oƒf here depends on the complexity of the product oƒfering and the homogeneity of the targeted customer segments. In general, interactivity can best be exploited when digital marketing capability is embedded in customer-focused marketing groups. Exhibit 6 illustrates how a marketer could organize both traditional and digital marketing eƒforts around such groups. ~ ~ ~ In the past, the emergence of new media, new channels of distribution, or new technology has had a major impact on the organization of marketing activities in consumer companies. Over the next decade, the potential of digital marketing will start to be realized, and will bring about profound changes in traditional brand/product management organizations and marketing support functions. The combination of intranet and Internet information flows will also revolutionize the way that customer-related decisions are made. The experience of pioneer companies suggests it is important to think through these issues before an ad hoc process overwhelms your business. 192 THE McKINSEY QUARTERLY 1996 NUMBER 4