Centralization (For Marketers)

Oh, btw: I've been focusing for the last couple years on Organization Design for Marketing Orgs. There will be more of that in my posts to come, so, be warned? Or get stoked. Either way, just signaling. What follows below is a primer that I wrote for internal consumption at work, and figured it'd be good for here, too. It's a bit of a ramble, but hey. We're back to blogging, folks.

When we talk about things that are centralized or decentralized in an organization, we’re usually talking about capabilities.

Capabilities can and should be viewed at various different altitudes in an organization – at the senior-most level, there is a “Marketing” capability represented and led by the CMO. This level tends to be mostly synonymous with the term “Functions.” Below the CMO there are usually other capabilities, like Brand Marketing, Category Marketing, Media, Insights, Strategy, and the like. (Pace Layer: L.) This is what I'm referring to in this article, but capabilities could extend all the way down to the very granular, hour-by-hour level, with things like Ticketing or Prepping Mechanicals. (Pace Layer: A.)

A structural trend that we’re seeing in marketing teams is toward centralization of the various capabilities underneath the CMO. This means larger and more "powerful" marketing teams, with larger Marketing Leadership Teams (MLTs), more direct reports for the CMO to manage, and more coordination inside of the marketing team. In some cases, those teams get so powerful that the CMO ends up leading a Line of Business (LOB), and has responsibility for managing profit and loss. Whether it’s “Intelligent Cloud Services” or “Ice Creams,” issues relating to three out of the Four Ps of Marketing – Product, Price and Promotion – can be decided by people reporting into the CMO, leaving Place to partners in Commercial, Retail, or similar.

So when we talk about centralizing, what do we mean? What does it mean for the people in the department? Why might this be a good or a bad idea?

To “centralize” a capability means to bring people working on a particular topic – say for example, Media Buying – and put them together into a team that serves various other parts of the organization, or operates autonomously on their own.

In this example, centralization will mean that all the Media Buyers will report into one Media Lead, who is accountable to a Marketing Lead. This will typically mean that the Media Buyers will be assigned to various different brands, but their reviews, career paths, compensation, and usually working culture will be determined more by what goes on within the Media team, rather than within the Brand team. This is quite valuable for things where leaders want to see economies of scale (this is why Media Agencies exist!). It’s also good for career development and sometimes retention of subject-matter-experts, because those experts get to learn from and spend time with other experts. On the other hand, centralization can create groupthink among those experts, lead to bureaucracy and the hardening of siloes, and usually doesn’t create ideal conditions for disruptive innovation, because the experts will tend to be further from “the customer” and focused more on “doing the thing right” versus “doing the right thing.”

This gets even trickier and more nuanced now that we can truly work from wherever. It used to be that real centralization would only be possible by putting all of our experts in one physical location – either at the HQ or in some office that makes the most sense for the task (Media and Design teams in NYC, Innovation teams in Silicon Valley, etc.). But it’s more practical than ever to centralize a capability in terms of reporting (Media Buyers reporting to Media Leads, and so on) while putting those people “on location” in the Brand or Regional Office to which they’re assigned. This could be either the best of both worlds or the worst, depending on the individual and the culture of the team. After all, the consulting industry manages to pull off this “Centralized But On-Location” vibe pretty well.

And of course, there are various ways of working and operational details that can mitigate some of the downsides of centralization. A few that come up frequently:

1. Short-term incentives that are shared equally between one or more teams. For an example, take a Media person assigned to a LOB – 50% for their personal performance on the media team, 50% driven by the performance of the business to which they're assigned, or something like that – might push our centralized people toward a just-right balance between shared process and business results.
2. Slack channels, knowledge “stores,” and regular forums for spreading and sharing knowledge can break down the siloes that tend to form between centralized capabilities – especially those that have their own in-language, distinctive outputs and skills, and large economies of scale, where strong siloes seem to form naturally! – and lead to continuous improvement.
3. Documenting and committing to use job aids, project standards, scopes of work, team charters, meeting guidelines, and the like can make for easier connections between different centralized teams that aren’t naturally simpatico.

A few things are striking when we look across our clients’ experiences with centralization:

• Our client teams aren’t getting the benefits that they would want to get from centralizing capabilities under the CMO: they feel fragmented, at war with one another internally; they struggle to get on the same page without great effort.
• One “final form” of a centralized organization might look like a collection of In-Housed or “Captive” Professional Services Firms working for brand teams. Many companies refer to this as a Center of Excellence (COE) Model, but language is important here: COEs tend to emphasize getting very good at a particular capability rather than serving the customer or business; COEs expect to “be involved” instead of actively chasing new and interesting work; COEs maintain strong process instead of maintaining strong relationships. Of course, it’s not always like that, but there’s a strong tendency for managers of COEs to fall into this inward-facing trap.
• This trend is counter to the most exciting new developments in organization design. Advances in technology have made it more advantageous than ever to truly decentralize, to push capability toward the customer. Haier, a global appliance-maker with its headquarters in China, is organized into thousands of Micro Enterprises [MEs], each with a headcount of around 10. Some of these MEs are “In-House Agencies.” Some are R&D teams designing more energy-efficient condensers for laundry machines. Some are sales teams. No matter what, each of these MEs needs to create provable value for the organization. For further reading on the even more extreme form of this kind of decentralized organization, see the trend section of the Data & Technology pre-read.

So. Six questions to ask yourself as a marketing leader working on organization design:

1. Who is gaining when we centralize various marketing capabilities? Who is losing?
2. What was good about our previous approach; what do we want to preserve when we move toward a new model?
3. When capabilities are centralized, what aspects of work are easier? What aspects are harder?
4. What capabilities make the most sense to centralize? To decentralize?
5. What makes a COE distinct from an in-house agency? How can we tell them apart?
6. Generally Speaking, how well is the structure of the marketing department serving CMO priorities? How is it getting in the way?