Improving Marketing-Operations Cross-Functional ...

Professor Niall Piercy, PhD. Swansea, United Kingdom Web: www.niallpiercy.com Email: [email protected]

Improving Marketing-Operations Cross-Functional Relationships Published in: Journal of Strategic Marketing

Full citation: Piercy, N. 2010. Improving marketing-operations cross-functional relationships. Journal of Strategic Marketing. 18, 4, 337-356. DOI: 10.1080/09652541003768095. Open access full text: http://tinyurl.com/oswbv47. Publisher link: http://tinyurl.com/pqy8535

This paper is released under the UK Open Access Framework. There may be very minor differences between this document and the published journal version due to changes and corrections at the print-proofing stage. All copyright for the material within this paper rests with the publishing journal.

Other papers by the same author that you may be interested in are listed below. Free, open access full text of most papers is available from the links given with publication/post-press copies available from the journals in question subject to payment. Marketing-operations cross-functional relationships   

Piercy, N. and Ellinger, A. 2015 Demand- and supply-side cross-functional relationships: an application of disconfirmation theory. Journal of Strategic Marketing 23, 1, 49-71. DOI:10.1080/0965254X.2014.914067. Open access full text: http://tinyurl.com/putxgv6. Publisher link: http://tinyurl.com/og7aeao

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Piercy, N. 2011. Marketing and Operations Relationships: Why can’t we all just get along? Business and Marketing 6, 13, 64-66

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Piercy, N. 2010. Improving marketing-operations cross-functional relationships. Journal of Strategic Marketing. 18, 4, 337-356. DOI: 10.1080/09652541003768095. Open access full text: http://tinyurl.com/oswbv47. Publisher link: http://tinyurl.com/pqy8535

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Piercy, N. 2010. Improving the Marketing-Operations Relationship: Case Evidence from an Internet Small-Medium-Enterprise. The Marketing Review. 10, 4 333-351. DOI: 10.1362/146934710X541311. Open access full text: http://tinyurl.com/p4ep83q. Publisher link: http://tinyurl.com/nodzenm Piercy, N. 2009. Positive management of marketing-operations relations. Journal of Marketing Management, 25, 5/6, pp551-570. DOI: 10.1362/026725709X461858. Open access full text: http://tinyurl.com/pk8ec4m. Publisher link: http://tinyurl.com/p6ur3sz Piercy, N. 2007. Framing the Problematic Relationship between the Marketing and Operations Functions. Journal of Strategic Marketing, 15, 2/3, 173-195. DOI: 10.1080/09652540701319037. Open access full text: http://tinyurl.com/oyg64z4. Publisher link: http://tinyurl.com/pck8tbw Piercy, N. and Rich, N. 2004. Strategic Marketing and Operations Relationships: The Case of the Lean Enterprise. Journal of Strategic Marketing, 12, 3, 145-161. DOI: 10.1080/0965254042000262896. Open access full text: http://tinyurl.com/pqlovcu. Publisher link: http://tinyurl.com/nzw294h

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Lean and general operations management                     

Piercy, N. and Rich, N. 2015 The Relationship Between Lean Operations and Sustainable Operations. International Journal of Operations and Product Management. 35, 2, 282-315. DOI:10.1108/IJOPM-03-2014-0143. Open access full text: http://tinyurl.com/pefpr6p. Publisher link: http://tinyurl.com/pwogwog Piercy, N. and Rich, N. 2009. Lean Transformation in the Call Service Centre. International Journal of Operations and Production Management. 29, 1, 54-76. DOI: 10.1108/01443570910925361. Open access full text: http://tinyurl.com/qxsur3n. Publisher link: http://tinyurl.com/nqt44c7 Piercy, N. and Rich, N. 2009. The Implications of Lean Operations for Sales Strategy: From Sales-Force to Marketing-Force. Journal of Strategic Marketing, 17, 3-4, 237-253. DOI: 10.1080/09652540903064738. Open access full text: http://tinyurl.com/onkdlr9. Publisher link: http://tinyurl.com/ovum4z8 Piercy, N. and Rich, N. 2009. High Quality and Low Cost: The Lean Service Centre. European Journal of Marketing. 43, 11/12, pp1477-1497 DOI: 10.1108/03090560910989993. Open access full text: http://tinyurl.com/n9wyf8h. Publisher link: http://tinyurl.com/ohk2dbz Piercy, N., Caldwell, N. and Rich, N. 2009. Considering Connectivity in Operations Management. International Journal of Productivity and Performance Management. 58, 7, 607-632. DOI: 10.1108/17410400910989449. Open access full text: http://tinyurl.com/o2cja9t. Publisher link: http://tinyurl.com/ohlrp3k Lin, S., Piercy, N and Campbell, C. 2013. Beyond the make-or-buy dichotomy: outsourcing creativity in the fashion sector. Production Planning and Control 24, 4/5, 294-307. DOI: 10.1080/09537287.2011.648542. Open access full text: http://tinyurl.com/q7ucy3q. Publisher link: http://tinyurl.com/otbbelr Piercy, N. 2012. The Role of History in Operations Management. Business History. 54, 2, 154-178. DOI: 10.1080/00076791.2011.631121. Open access full text: http://tinyurl.com/q6b6h7x. Publisher link: http://tinyurl.com/pf2cwjx

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Public sector operations management         

Lewis, M., Piercy, N., Phillips, W. and Palmer, J. (2015). Towards a Model of the Intervention Process. Policy & Politics, 43, 2, 255-271. DOI: 10.1332/030557312X655927. Open access full text: http://tinyurl.com/punuocp. Publisher link: http://tinyurl.com/ps6l9ks Piercy, N., Phillips, W. and Lewis, M. 2013. Change management in the public sector: The use of cross-functional teams in the Public Sector. Production Planning and Control , 24, 10-11, 976-987. DOI: 10.1080/09537287.2012.666913. Open access full text: http://tinyurl.com/p4tzwbz. Publisher link: http://tinyurl.com/qcf2y5c Rich, N. and Piercy, N. 2013. Losing patients. A systems view on healthcare improvement. Production Planning and Control. 24, 10-11, 962-975. DOI: 10.1080/09537287.2012.666911. Open access full text: http://tinyurl.com/qaey6c4. Publisher link: http://tinyurl.com/pu8gnle

ResearchGate.net will continually be updated with new papers and links – if the paper you are interested in is not available above, check on http://www.researchgate.net/profile/Niall_Piercy for updates.

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Improving Marketing-Operations Cross-Functional Relationships Niall Piercy Full citation: Piercy, N. 2010. Improving marketing-operations cross-functional relationships. Journal of Strategic Marketing. 18, 4, 337-356. DOI: 10.1080/09652541003768095. Open access full text: http://tinyurl.com/oswbv47. Publisher link: http://tinyurl.com/pqy8535

ABSTRACT

Collaboration between marketing and operational areas is critical to business success. Despite this, in practice most companies suffer hostile and adversarial relationships between these functions. Existing research has not sufficiently addressed methods for improving this situation outside of the large corporation or manufacturing sector. This paper seeks to address this shortcoming, investigating mechanisms to support better cross-functional relationships in the small-medium-enterprise and in the service sector. Five case studies are presented of companies that displayed a-typically good relationships between marketing and operations groups. A cross-comparison is conducted to identify key themes and approaches that provide for and support good cross-functional relationships. Three key methods are presented and proposed as sources of positive marketing-operations relationships: (i) manipulation of pay/reward mechanisms; (ii) clear strategy and strategic leadership; and, (iii) an explicit focus on bringing people together.

Keywords Operations, Marketing, Cross-functional

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Improving Marketing-Operations Cross-Functional Relationships

Despite the small-medium-enterprise (SME) being structurally less complex than large organisations, bureaucratic organisational structures and traditional functional groupings (such as marketing, operations, human resources or finance) are equally present in the SME (Katz 1991, Gabrielsson 2007) In organisations small or large, linkages across marketing and operational areas are critical for successfully matching organisational capabilities to market requirements, and thus, customer satisfaction (Adler 1995, Hausman et al 2002). Despite this, in the majority of companies, relationships between marketing and operations functions are hostile and combative (Berry et al 1995). In the SME context where resources are scarce and there is little capacity to absorb waste, ensuring good relationships between functions to maximise resource utilisation will be even more important than in the large organisation. Collaboration across boundaries can provide a key source of competitive advantage for the SME by providing faster and more efficient new product development, greater innovation, less wasted resources and a more positive working environment (Tocher and Rutherford 2009, Hitt et al 1999, Tocher and Rutherford 2009, Hitt et al 1999). There has since been significant research that has highlighted the benefits of such cross-functional linkages, however, three key issues require further attention be paid to this topic: firstly, despite a wealth of research highlighting the importance of cross-functional linkages, there has been almost no empirical investigation of what improves relationships in practice (Ellinger 2000, Crittenden et al 1993). Relatively little is known about how to translate calls for organisational reconfiguration into practice (Malhotra and Sharma 2002). Secondly, the research that has been done has focused on the manufacturing sector rather than the new service economy, despite the equally important role for cross-functional coordination

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and collaboration in the service business (Nie and Young 1997). Thirdly the research that has been conducted has focused on large scale organisations and has not fully investigated the SME context despite the unique characteristics of this sector that make translating best practice from large companies problematic (Piercy 2009, Tocher and Rutherford 2009). This paper seeks to address these shortcomings in the existing management literature. In this paper, the importance of marketing-operations linkages is illustrated, proposals on improvement are brought together from the disparate literature on the subject, the adaptations needed and limitations of such approaches in the SME context are discussed and an investigation is conducted of five companies with positive cross-functional relationships to evaluate for improved marketing-operations relationships.

THE VALUE ADDING BUSINESS FUNCTIONS

In the modern company it is possible to identify two ‘value adding’ areas of the business – marketing and operations. All areas of the business (such as human resources or accounting) are required to support value creation, but only marketing and operations directly add value (Drucker 1954, Porter 1985, McIntosh 1986). They are primarily responsible for fulfilling organisational goals and strategies, forming the core activity of any organisation (Nie and Young 1997, Porter 1985, McIntosh 1986). Operations adds value through the transformation of input resources (materials, capital and human) into finished outputs (Ohno 1988, Shingo 1989). Marketing adds value through the identification of customer needs and demands, thus determining what processing of what product or service must be completed to best serve customer needs (Kohli and Jaworski 1990). In fulfilling customer demands, it is necessary to collect and disseminate market intelligence across the company (Kohli and Jaworski 1990; Jaworski and Kohli 1993). In

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designing operational production or service processes, operations is dependent on marketing to provide information on what will be demanded by the end user – marketing acts as the ‘gatekeeper’ between customers and operational areas of the company (Chopra et al 2004). Not knowing what the customer marketplace values, operations may produce out-dated or poorly conceived products or services or revert to dangerous production-orientated approaches to the marketplace (Hartley 2004, Sawhney and Piper 2002). Similarly, if marketing creates unrealistic or unreasonable expectations in customers (to generate sales), operational inability to deliver can lead to customer defection (Groonroos 1984, Zeithaml et al 1990, Kordupleski et al 1993, Zeithaml et al 1990, Brown and Swartz 1989). There is an interdependency between the marketing and operations areas – operations is dependent on marketing for information on the volume and variety of products and services to be delivered; equally marketing depends on operations for information on the pricing, development, introduction and fulfillment of product and services (Hutt and Speh 1984, St John and Rue 1991, Keener 1960). Cross-functional collaboration and two-way information sharing is critical for the correct alignment of market demands and operational capabilities (Kotler 1972, 1977). Despite being separated into functionally separate groups, co-operation and co-ordination across marketing-operations boundaries is vital for effective product or service delivery (Hill 2005, Hutt and Speh 1984, Womack et al 1990, Fitzsimmons et al 1991, Hausman et al 2002, St John and Rue 1991).

CROSS-FUNCTIONAL RELATIONSHIPS IN PRACTICE

In practice there is often fierce conflict between the groups (Crittenden 1992, Crittenden et al 1993, Nie and Young 1997). Research has described relationships as “troubled and strained or at best, ambivalent” (Hayes and Wheelwright 1984 p199); and “combative rather than

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cooperative” (St John and Rue p550) and “uncomfortable and frequently adversarial” (Hausman et al 2002 p243-4). Despite calls to improve the marketing-operations relationship there is little evidence of any change in practice (Berry et al 1995, Celikbas et al 1999, Crittenden et al 1993). Research has suggested some common causes of conflict: mutually exclusive reward systems, different backgrounds and experiences of personnel, the nature of functional separation and political game playing. Operational areas tend to be evaluated and rewarded based on their ability to save cost (with no metric to link cost-saving to the impact on customer service) while marketing is rewarded for sales growth (with no metric to link salesgrowth to increases in operational cost) (Shapiro 1977, Malhotra and Sharma 2002, Hausman et al 2002). The reward system is setting what are often mutually exclusive goals creating a major source of conflict (Crittenden 1992, Calantone et al 2002, Celikbas et al 1999, Hill 2005). The different backgrounds of people in each department also create difficulty. Without shared, common experiences or an understanding of the role of those in other functions, cross-functional working is unlikely (Lancaster 1995, Berry et al 1995, Calantone et al 2002, De Burca et al 2004). To work together, good inter-personal relationships, aligned reward systems and a common language for communication will all be necessary for good relationships (Swamidass et al 2001, Crittenden 1992, Ellinger 2000, Mohr and Spekman 1994). The legacy of functionalisation is to physically and metaphorically separate marketing and operations in the organisation. Working separately in functional structures, rewarded differently and with little common understanding, political game playing for position and prestige in the organisation will be inevitable (Robbins 1998, Fulup and Linstead 1999, Krietner et al 1999, Ruekert and Walker 1987, Ellinger 2000, Jaworski and Kohli 1993). The

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failure of management and academia to provide new coherent models of cross-functional working for marketing and operations, has prevented improvement in practice (Crittenden et al 1993, Lim and Ried 1992, Xie et al 1998, De Burca et al 2004, Walters 1999, Sweeney 1991, Berry et al 1991, Christopher 1998). Many conflicts occur when the above latent sources of disharmony are transformed into actual disagreements over specific issues in the company. For instance, to maximise sales, marketing may seek to offer increased customisation, whereas operations preference is for the reduced complexity or standardisation (Shapiro 1977, Crittenden et al 1993). Marketing desire for sales growth can lead to continual new production introduction and increases to product ranges leaving operations with the resultant costs of continual re-tooling and re-skilling workers (De Burca et al 2004, Hausman et al 2002, Hartley 2004, Lindsley et al 1991). Operations may seek to moderate high quality demands against the cost of production whereas marketing may overstate quality to customers to improve sales, leading to customer complaints (Shapiro et al 1987, Nie and Young 1997, Perreault and Ross 1976, De Burca et al 2004). Operations may seek to manage inventory levels against the cost of stock holding whereas marketing will always require stock-on-hand to avoid customer defection (Hill 2005, Celikbas et al 1999, Crittenden et al 1993, Skinner 1969).

CROSS-FUNCTIONAL IMPROVEMENT

A disparate literature exists regarding cross-functional integration spanning the management, organisational behaviour, operations management and marketing communities. Across these areas, certain key themes emerge:  strategy and strategic leadership,  communication and cross-functional working,

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 reward systems.

Strategy and Strategic Leadership

The strategy of an organisation is the guiding force for all organisational action (Schoemaker 1992, Oswald et al 1994, Burgelman 1983). A clear strategy can integrate the different agendas of different functions in the business, providing a focus on the overall aims of the company rather than just functional targets (Sweeney 1994, Shapiro 1977). Involving marketing and operational areas in strategy setting ensures that the strategy is feasible and realistic, based on the capabilities and constraints of each function, avoiding potential mismatches in this area (Lim and Reid 1992, Walters 1999, Ellinger et al 2000). Strategic vision set at the top of the company must be articulated and communicated down the organisation by the leader of the organisation. (Schoemaker 1992, Ulrich et al 2009). The best strategy is useless if no-one in the company is aware of it or supports it – leaders play a key role in ensuring that all members of the organisation support and are working towards the key strategic goals of the company (Littlefield 2004). The activities of leaders, going out to different levels of the organisation and through their innate personality inspiring people to follow, is highly important (Wolfson 2002, Ready 2004, Littlefield 2004). The leader plays a key role in creating and managing organisational norms and cultural artifacts that influence how employees behave (Martin et al 2009). Manipulation of these artifacts has been key in changing culture at large companies such as General Motors, 3M or Johnson and Johnson (O’Reilly 1989). The SME is often characterised by an absence of entrenched strategic planning and direction from the top of the company (Hills and LaForge 1992, Tocher and Rutherford 2009, File and Prince 1992, Calabrese et al 2005). A lack of expert knowledge in management is

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also common (Gilmore et al 1999, 2001, Calabrese et al 2005, Spillan and Parnell 2006). Research has found strategy setting and strategic planning are often seen as among the least important activities by SME company leaders (Fiegener et al 1996, Gabrielsson 2007). The combined effect of weak strategic direction setting and implementation has led to observations that SME’s tend to act reactively to opportunities rather than take a strategic approach to long-run thinking (Gilmore et al 1999, 2001). The lack of strategy and strategic leadership not only makes improvement problematic but could potentially worsen crossfunctional relationships as functions receive little or no guidance and each serves functional targets (of cost or sales growth) with no focus on business goals as a whole (as they simply may not exist).

Communication and Cross-Functional Working

Research has focused on knowledge exchange as the key antecedent of cross-functional harmony, improving the understanding within each function of the priorities and goals of the other as being key to collaboration (Lancaster 1995, Calantone et al 2002). Communication between different functional groups improves relationships (Crittenden et al 1993). Both formal exchanges and informal networking are important (De Burca et al 2004, Lim and Reid 1992). Communication can be improved by workshops, group sessions or developing formal procedures and approaches (Crittenden et al 1993). One such approach concerns physically bringing people together in the organisation (Shapiro 1977). This may include transferring people across function for limited times, the use of mixed career paths or cross-functional teams to overcome boundary issues (De Burca et al 2004, Crittenden et al 1993). The use of cross-functional team based models of working has become popular, with the majority of large organisations adopting them (Maxwell 2008,

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McNamara and Watson 2005). The majority of research on team based working has been related specifically to new product development in the manufacturing sector, rather than as related to specific goals of cross-functional integration (Kahn 2009, McNamara and Watson 2005). Job rotation has also been suggested as a meaningful way to improve knowledge sharing across functions with companies such as General Electric, New York Life and Eli Lilly and Company improving employee motivation, productivity, flexibility and change management with job rotation (Maxwell 2008). The practicalities of rotating staff or taking people out of function for team based working in small organisations that may have no spare capacity or time for the extra training required could prove problematic. Further, the reactive approach to human resource management noted in SMEs (Tocher and Rutherford 2009), could lead to such proactive integrative practices being overlooked.

Reward Systems

The use of performance-based rewards to motivate employees to increase efforts in absolute levels, or by better aligning their behaviour relative to organisational goals, is longestablished in the management literature (Williams and Luthans 1992, Turner 2006, Ulrich et al 2009). Rewards can include both direct financial reward and broader measures of esteem (Nelson 1999, O’Reilly 1989). Non-monetary rewards (such as public recognition in person, or in company newsletters) can be just as powerful in shaping behaviour as employees seek recognition and esteem from their jobs (Kovach 1995, Nelson 1999, Martin et al 2009, O’Reilly 1989). Amending systems to ensure each function have congruent goals and rewarding cross-functional working, could be useful for improving marketing-operations relationships (Shapiro 1977, Souder and Chakrobarti 1978, Crittenden et al 1993). In the SME

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context, limited resources could make the use of financial rewards problematic (Gilmore et al 1999, 2001, Calabrese et al 2005, Spillan and Parnell 2006) while the limited nature of human resource management decreases the likelihood of such proactive control of performance systems (Tocher and Rutherford 2009).

IMPROVEMENT IN PRACTICE

Despite the presence of research on the three topics identified, greater study is required for several reasons. Firstly, how these approaches are interrelated in practice, and how they can be used together to improve marketing-operations relationships has not been fully considered. Further, the continuing sub-optimal relationship between functions in practice necessitates greater study in this area (Berry et al 1995, Hill 2005, Celikbas et al 1999, Crittenden et al 1993). Greater investigation of how to improve relationships in practice has been identified as a key research priority (Ellinger 2000, Crittenden et al 1993, Malhotra and Sharma 2002). Secondly, work on cross-functional linkages has been dominated by research in the manufacturing context and predominantly focused on marketing-manufacturing linkages in new product development. Now accounting for three-quarters of GDP in developed nations, and dealing with different challenges, integration in the service sector has not been fully considered despite being just as important for matching customer requirements, market needs and organisational fulfillment systems (Fitzsimmons and Fitzsimmons 2004, Gronroos 2005, Van Looy et al 2003) Thirdly, across the three key themes identified, the majority of research has focused on large organisations (File and Prince 1992, Gilmore et al 1999, 2001, Gengatharen et al 2005, Keskin 2006). In the SME sector, better cross-functional integration has been identified as a key tool to improve performance (Hills and LaForge 1992), as has the need for far greater

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research into how to achieve this in the unique SME context (Katz 1991). The internal and external activities of the SME have been noted as fundamentally different to the large organisation (Gilmore et al 2001, Day 2000). The unique context of the SME organisations requires that such theories and approaches be tested for suitability in this context before application (Simpson et al 2006). In many cases such a process of evaluation is omitted in management theory and blind application pursued (Tocher and Rutherford 2009). Thus, two key research questions are addressed: ‘What mechanisms can be used to integrate marketing and operations in SME companies in the service sector?’; and, ‘to what extent do these practices reflect those used in larger companies in other sectors of the economy?’

RESEARCH METHODS

The lack of research on marketing-operations linkages in the SME context requires a research approach that seeks to understand (rather than measure) and explain phenomena (rather than predict), such that a qualitative approach is best suited to the context (Gilmore et al 2001). Further, the majority of management theory in this area (and as a result, quantitative research scales) have been developed based on the practices of the large organisation. Applying such tools in an unfamiliar context may provide uncertain results such that qualitative methods are often better suited for research in the SME arena (Tocher and Rutherford 2009). The use of the case-study as a research tool for exploratory investigation and to generate new understanding is well established within social science research (Yin 2004, Perry 1998, Voss et al 2002). The use of single or small numbers of case studies as knowledge building tools is increasing prevalent in the management literature (for instance: Chinander 2001, de Treville et al 2006).

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Five companies were selected for study to allow for cross-comparison and validation of results (Voss et al 2002, Perry 1998, Yin 2004). The criteria for selecting each company was driven by the research question rather than random sampling (Eisenhardt 1989, Yin 2004). The aim of the research was to investigate what supports good working relationships between marketing and operations functions, therefore it was necessary to select companies where positive relationships existed. Company characteristics are shown in table one. In each company, interviews were conducted in person and via telephone with four to six managers (respondents from marketing/operations departments and in ClothCo, ToolCo and SportCo the chief executive). Interviews varied from between twenty minutes to two hours in length.

[ Insert Table 1. Company Characteristics ]

In order to ascertain some degree of triangulation in the research (Easterby-Smith et al 2002), interviews were conducted with managers in both functions. This allowed for multiple insights on the same phenomenon, rather than collecting data solely from one functional perspective, adding to validity (Eisenhardt 1989, Voss et al 2002). Due to the exploratory nature of the research, unstructured interviews were conducted. The analysis of the data produced involved transcription of the interview data, screening by the researcher for themes that addressed either aspect of the research question within each respondents data and then across all respondents to identify common themes. The major, emergent topics form the basis of the topics reported within this paper.

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FINDINGS

Three key themes emerged as key to integrating marketing and operations functions. These reflected the tools and approaches discussed in previous literature, confirming the application of these methods in the SME, service context. The unique nature of this context did however require adaptation and modifications to each approach.

Strategy and Leadership

A coherent strategy, promoted by a strong leader and communicated to all members of the company provided a common focus for all staff rather than divisive and dividing functional goals. Role of the Leader: A shared sense of strategy across the entire organisation was found to support good cross-functional relationships. The leader of the company played in key role in achieving this. Each one of the case companies has a leader with a dominant personality and hands-on approach to management who is close to their senior management teams and staff. These leaders are passionate about the company and in driving forward the business. At ClothCo the chief executive was the founder of the company, in ToolCo and CompCo the chief executives had overseen periods of rapid expansion of the company size and turnover. In HealthCo a new managing director had been instrumental in pushing forward closer integration across the business while in SportCo the chief executive had been with the company for over a decade and was intimately acquainted with every area of the business. The close connection between all members of the organisation and the leader was important in making staff and directors feel part of a larger-whole rather than functional unit. This sense of shared destiny stands apart to the department-based culture seen in many organisations.

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Strategic Vision: Ensuring a strategic vision for the company based on its mission and purpose is key to avoiding a narrow focus on functional goals. Each company had a firm strategy that all members of the company clearly understood. The role of the strong leader in each company in communicating this to staff was very important. At CompCo the strategy of the company was established early on in its history by the senior management team and communicated to all staff: “We saw our task as building a credible online equivalent to the high street… making the internet a credible alternative in the same way Amazon.com is now mentioned in the same breather as the big high street bookstores”. Similarly, at ClothCo, the founder and chief executive was passionate about growing the company and challenging traditional high street retailers and conveyed this to all staff in regular meetings and discussions. ToolCo wanted to be the destination for supplying tools and hardware. The growth of the company had started to increase the distance between the chief executive and staff, losing the personal connections between leaders and staff seen in the other case companies, distancing those on the frontline from the strategic mission of the company. To counter this, all new employees go through a training process where the company’s strategy is a key part of the induction process. Senior managers regularly go out to departments to discuss the steps being taken to achieve this strategy and how each department has a key part in achieving it. Being able to unite behind a single purpose is important in bringing people together. The attitude, set by the directors, of a single company with a clear aim, rather than a company comprised of several departments (each with their own priorities) was very important. The role of a clear strategic vision, supported by the company’s leaders, has set clear precedent for the cultural shaping of the business. Strategy Formation: Involving the entire management team of the company in strategy setting is important in gaining buy-in from all areas of the business. Not only did

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each company have a firm strategy in place but it was one shaped by representatives of each function. At ToolCo, SportCo, ClothCo and CompCo, the close personal relationship between chief executive and directors meant they were not afraid to make substantive contributions to strategy and speak-up and voice concerns when problems occurred. At board meetings both marketing and operations directors were able to comment openly on strategy and how they felt it was being developed without fear of challenging the status quo or angering their functional counterparts. Translating overall company strategy into compatible functional goals is also important to ensure sales growth is not at the expense of operational cost. A distant relationship between marketing and operations could lead marketing to the creation of unrealistic expectations in customers to attract sales, resulting in customer complaints as well as arguments between functions over operational failures. To avoid this, CompCo sought to bring together marketing and operations at the director level, holding joint planning sessions with the chief executive to form a joint approach to ensure each functional strategy was congruent with the other and the organisational strategy of the company. Rather than advertising all items as ‘next day delivery’, which would be appealing from marketing perspectives, but could result in complaints from purchasers if items were not available, CompCo list all products as one to three day delivery, but aim to deliver in twenty-four hours. This has created an operational margin of error for delivery. Most customers do receive products in twenty-four hours while those who do not are not dissatisfied when products take slightly longer as this is what they were expecting. At ClothCo early problems revolved around the costs of holding large amounts of stock in the distribution centre. The operations department sought to reduce this cost by reducing the number of lines held. Rather than do this in isolation they worked with marketing to ensure that line-reduction did not affect sales. Operations and marketing directors formed a project team to identify the highest volume and profit lines, which when

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identified revealed a clear market segment. The company has now built its entire business model around serving this market. Without collaboration between people from different departments at the team level this market position would never have been revealed and the business would not have grown at the rate it has. Cutting product lines without consulting marketing would have resulted in major problems for the business as the company struggled to fulfill orders and antagonism between groups could have emerged under customer dissatisfaction and complaints. Risk Aversion: The lack of financial resources in the SME sector make uncertain decisions more dangerous as any single decision could close the business. The importance of each single decision for the SME can make any choice process a highly political and divisive process. Avoiding unnecessary risk, and therefore unnecessary political conflict, can help to support better working relationships. Despite serving a technologically advanced market (computer components retail), CompCo was late to transfer its business online. The company choose to wait and learn from the mistakes of other companies before opening an online store. ToolCo and SportCo both maintain their offline mail order businesses, regularly producing catalogues for offline customers to support this channel and are not seeking to remove offline purchase methods for fear of losing customers while HealthCo uses their website as a support tool to add-value to the traditional direct sales force, providing product information for customers and automating order processes. Avoiding risks can help a company to avoid potential political battles between the functional units within the organisation.

Reward and Assessment

The way in which staff are monitored, evaluated and rewarded (or conversely punished) in the corporate hierarchy was key to how they worked in the organisation.

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Shared Ownership and The Long Run Perspective: Each of the case companies had a small senior management team of between four and five members at the board level. Each director had a significant share holding in the company, providing a powerful encouragement for them to see beyond narrow functional goals and was a powerful motivating force to get them to work together behind the long run strategy of the company rather than pursue short term cost reductions or sales push. At ToolCo, CompCo and SportCo each director had some level of shared ownership of the company. At ClothCo the executive team had been in place since the company’s formation and had made significant personnel investments in ensuring its growth. Shared ownership also created a long term perspective in the management team – they are not solely concerned with achieving their year end functional targets but in supporting the long term goals of the company. For instance, ToolCo has positioned its marketing strategy around holding almost all items in stock for next day delivery with 99% availability of lines on their website. To achieve this the company incurred significant costs in forming a direct sourcing team that operates in the Far East and China sourcing their products. While it would have been cheaper in the short run to source domestically from wholesalers this would have created an additional layer of complexity in the supply chain and made the company dependent on the stocking decisions of a third party. In CompCo, considerable operational costs were incurred to realise the company’s fulfillment strategy which was to offer next day delivery on most items. Rather than opt for the cheaper option of using outsourced logistics, the company built their own distribution centre. By sharing information about customer purchase baskets and behaviour, marketing was able to highlight for operations the product bundles that customers required which demonstrated the operational need to coordinate multiple suppliers into a new distribution

20

centre, supporting a belief that the short run cost increase in building the centre would lead to greater long run customer satisfaction.

Functional Targets: Functional level targets and goals will always be necessary to monitor the efficiency of each functional department, whether it is operational cost reduction or marketing led sales growth. Despite interest in integrating measures of customer satisfaction into the evaluation of functional departments to promote good working relationships, this has proven problematic. Gathering customer satisfaction data even through online surveys has yielded very low returns when attempted by two of the companies (CompCo and ClothCo). At HealthCo, sales staff are reluctant to ‘pester’ customers about their satisfaction levels and are also fearful of any negative scoring. At ToolCo and CompCo there was also skepticism about the benefits in asking major clients or key accounts for feedback as the companies did not want to encroach on clients time. Despite these problems, customer satisfaction has been used as a way of rewarding staff and managers in each company. ToolCo, CompCo, ClothCo and SportCo have all won multiple industry awards for customer service and use these as a focal point for staff and managers, highlighting in internal communications the contribution each department has made. To try and encourage integrative thinking, HealthCo is seeking to recognise crossfunctional information exchange and sharing as part of its formal procedures. The company is rewriting staff contracts and amending annual performance reviews to include specific measures on cross-functional engagement and knowledge sharing. The process of how to identify quantify metrics is still underway but subjective evaluations are made through discussion with staff at appraisal time. This provides a reporting mechanism that enables senior staff to determine how well the groups are working together and what problems are

21

occurring as they are formally recorded during appraisal and fed up the chain of command for resolution.

Celebrating Success and Accepting Failure: One common theme across the case companies was a focus on rewarding the company as a whole for good performance rather than single departments. This helped avoid jealousy and political infighting. For most businesses, increased sales usually lead to rewards for marketing but not operations, despite operations having to make considerable effort to upscale production, resulting in resentment from operations. By recognising the efforts made by the entire company, for instance in email communications from the chief executive or in the company internal newsletter, all staff felt valued. Senior managers took a lead role in going to staff to highlight the contribution of different departments in light of internal and external performance measures (such as profitability or awards the companies received). When problems did occur, it is important to avoid negative blame behaviours and instead to bring teams together from both functions to think together about how to rectify them. Rather than ‘punish’ one functional group or sub-group for a negative outcome, involving them and members of the wider company in forming a plan to address the issue can be a superior approach. This mentality was plainly evident in each of the case companies. At CompCo for instance, a major issue was how to balance the need to cut the cost of advertising without losing business. Since the launch of the company’s internet store, the company had used large and costly advertisements in monthly and weekly computer magazines to attract new customers. By 2003 internet uptake was such that many in operations believed catalogue inserts should be cut to short advertisements. Testing this approach for a month led to a very large drop in sales. Open discussion of the issue at the board level meant it was possible for all in the company to see this result. The involvement of marketing staff before the decision

22

meant no one function was scapegoated and the company worked together to reinstate full promotions.

Communication and Cross-Functional Working: Bringing People Together

Bringing together members of the organisation, from front line staff to senior managers and directors was found to be a key feature of each of the case companies. Chief executives displayed a desire to create a friendly, almost familial atmosphere. The friendly culture this led to frequent interpersonal exchanges. In addition to this, formalised processes for information and personnel exchanges, as well as dedicated cross-functional teams were present to support cross-functional working.

The Personal Level: A friendly working relationship between senior managers and directors sent a powerful signal to staff that this is the way in which the company expects the functional groups to behave. Informal exchanges and social interactions supported this. At each case company there was a very friendly and collegial atmosphere both inside departments and when managers or directors spoke about colleagues. Part of supporting this process was the way in which the leader sets the tone of the organisation. At ClothCo, ToolCo, SportCo and CompCo, part of the reason for the close relationships between senior staff was that they had grown the business together (either from foundation or during a period of rapid growth). The chief executive, director of marketing and director of operations had all worked as a single unit, meeting and sharing information formally and informally on a daily basis. As the companies had grown and expanded, the regular communication between directors, outside of formal board meetings, in regular informal discussions has been maintained.

23

One of the challenges facing ToolCo is how to maintain the positive relationships they have enjoyed as the company is growing. The increased size of marketing and operations has led to each group becoming physically further apart and the informal communications and exchanges seen between staff have reduced as a result. Including information on company strategy and how the company expects employees to work together has been introduced in induction sessions to try and encourage collaboration. Conversely, at SportCo, the smallest of the case companies, marketing and operations departments are physically co-located and a significant amount of informal exchanges are made. The increased interaction between the two groups, in a small space, with very limited resources, can however lead to political arguments. The powerful personality of the chief executive has been key in resolving disputes when they occur between directors and senior managers.

Formalising Interaction: Even where good relationships exist between departments, collaboration is not ensured. Time pressures may leave those wanting to collaborate as unable to share information while others may remain focused on their core job and maintain information in their own department. The most formalised processes for exchange were present in HealthCo. The appointment of a new managing director brought a renewed focus on cross-functional collaboration in the business. He has actively pushed for greater cross-connections to be made. Part of this process has been in briefing senior managers and going out to each department to sell the idea of collaboration as vital to the business. The company has established new, standardised procedures that marketing, sales and operations staff have to use. Sales staff are required to feedback orders and potential orders to operations to plan capacity and shipping. This had been informally practiced for several years, but part of the

24

recent refocusing of the company had been to standardise the informal procedures to ensure they happened in all instances, and were not dependent on the subjective actions of staff. Similarly, operations tracks the sourcing and delivery of products from China and when delays are expected, they immediately communicate this to the marketing team who note the information on the website and inform the direct sales teams so they can offer realistic delivery dates or alternative products to customers. Previously, supply and delivery information was kept within the operational area, leading to situations where sales orders would be taken and promised for unfeasible

deadlines, directly affecting customer

satisfaction. Creating a standardised work procedure to inform everyone in the company with priority emails has supported improved customer satisfaction and also helped to avoid negative consequences between the groups when operations was unable to meet orders which had caused arguments and problems and infighting.

Cross-Functional Staff Exchange: The exchange of staff at the director and manager level between marketing and operations was important in creating a good working relationship. In HealthCo and CompCo, the chief executives had taken an active role in supporting staff rotations and exchanges. Taking a member of staff or manager out of their traditional role for a few weeks rotation has proven very useful in sharing perspectives and understanding. This has created a greater understanding of the needs and demands of other areas of the business. At SportCo the smaller size of the staff base has not made this possible while at ToolCo and HealthCo, the specialised, technical product knowledge required has largely precluded such exchanges. In these companies, cross-functional teams have been used to integrate staff.

Cross-Functional Teams: The formation of cross-functional teams is a key tool for bringing people together across functional boundaries. With different backgrounds, these teams

25

understand the broad range of activities taking place across the organisation, generating new ideas and insights as well as supporting better cross-functional integration. At each company, organisational requirements were clearly stated at the start of each team to provide a focus for the group. Progress was monitored by senior management and successes publicly recognised. In ClothCo, marketing and sales demands for glossy catalogues and exotic locations to promote products could have been at odds with the operational costs involved. Such a cost versus quality argument underpins many of the conflicts between operations and marketing teams. To resolve the issue, the chief executive brought a cross-functional team together to consider new ideas, resulting in the extensive use of blue-screen technology to super-impose exotic locations behind photo-shoots that were setup in an area of the main office building in the United Kingdom. At CompCo, a problem concerned increasing operational costs of handling items returned to the company. Marketing had implemented a generous returns program for unwanted items. After discussion in the boardroom, a cross-functional team was established to generate what at the time was a new practice: re-listing returned items for sale at less-thannew prices, with further mark-downs every day until it was sold. This policy allowed the company to continue to offer a generous returns policy and offset the cost of returns by reselling items through their own website.

DISCUSSION

The research suggested three key areas for supporting good cross-functional relationships in practice: the role of strategy and leadership, the methods of reward and evaluation in the organisation and an explicit focus on bringing people together in the organisation. These reflected the key approaches suggested as useful in larger, manufacturing focused organisations. Thus, while it is possible to broadly apply the same approaches developed in

26

larger organisations, in the SME context, blind application without awareness of the constraints of this context will prove problematic. The organisational leader was the key force behind all integration efforts in each case company. At a personal and professional level their actions supported specific strategic integration goals and structural-cultural manipulations that supported better cross-functional relationships (see figure one). Each of the case companies placed great emphasis both on the formation of a unifying strategy and in communicating this down the hierarchy. This process was led in each instance by a charismatic and enthusiastic leader. By reaching out to every level of the organisation, the leader made explicit his expectations of each department and also in the need to coordinate across departments in strategy realisation. At each company directors are encouraged to work together in strategy formation and planning processes to ensure coordination and collaboration is present. Many of the actions taken were down to the innate qualities of the chief executive, all of whom displayed the strong leadership abilities and a clear focus on the role of strategy and strategic direction, that has been suggested as absent from the SME sector. Replicating this approach is contingent upon the ability of the organisational leader, however, it is possible for all companies to emulate certain aspects of their behaviour and approach (such as ensuring a firm strategy is in place, communicating this down the organisation, regularly going out to meet staff and bringing directors together to work on strategy formation). Improving the quality and increasing the role of strategic direction setting in SME’s will be important to improve cross-functional relationships in other organisations. In each company, evaluation systems were setup to reward cross-functional working (such as including metrics of this in appraisal systems) and using external, awards as foci of company-wide reward. While SME companies have less resources to invest in reward

27

systems, training or in gathering external customer satisfaction data, each company managed to amend existing systems to better support cross-functional integration. Reward systems were changed from solely departmentally based to include company-wide performance, thus no additional financial burden was incurred. The use of internal newsletters and meetings to recognise performance also carried minimal cost. At the top of each company, the shared ownership at the director level helped create a long term viewpoint and acceptance of shortterm losses for long term gains. Changing the ownership structures of businesses is complex and time consuming, however, the broader approaches to evaluation and reward in the case companies may be implemented with greater ease. While the directors of each of the case companies subjectively monitored cross-functional exchanges, HealthCo has extended the focus the furthest, seeking to formalise measures of cross-functional information sharing, communication and collaboration in the reward/evaluation systems of the company. Manipulation of organisational culture through communication and cross-functional exchanges, coupled with supportive reward systems and explicit strategic level support further improved relationships. Communication was very important to support good working relationships. The smaller case companies have left communication and exchanges at the staff level as an informal process while directors are able to communicate openly and freely in the board meetings. HealthCo has adopted specific policies to ensure valuable information (such as sales variation of supply shortages) is conveyed across the organisation. The positive and informal relationships at many of the case companies are based on a history of positive relationships. Lacking such a history, a company with traditionally bad cross-functional relationships may see staff interactions at the social or informal level that are problematic while the atmosphere of open-exchange at the board level would likely be replaced with a more hostile and political atmosphere where information was not freely shared. The adoption of formal procedures and standards for information sharing can however be adopted

28

regardless of the nature of existing cross functional relationships in the company, although there would need to be careful monitoring to ensure staff were adhering to them. ClothCo, SportCo and CompCo have supported good working relationships through the personal relationships of directors and efforts of the chief executive, at HealthCo a more formalised procedure has been established. Measures to evaluate cross-functional engagement are being developed and integrated into contracts and evaluation systems. At ToolCo such measures are also being considered as a way to support the good relationships they have experienced on an informal level as the company grows to a stage where greater formalisation is required. The use of cross-functional teams was supported by all companies as a way to bring people together to contribute in planning and also in problem resolution. Little training was needed and the problems being addressed would previously have been worked on within functional groups so no additional staff-hours were required. The positive working relationships between marketing and operations supported meaningful engagement within these teams. In a company with a history of poor working relationships or political disagreement between functions, achieving buy-in from participants may be problematic. Setting clear direction from the board level and indicating the support the team has would support their activities. Many of the activities the case companies engaged in (informal interaction, crossfunctional working, linkages between strategy and functional goals) are supported by the history of good cross-functional working in the companies and would be problematic in organisations with bad relationships. The case companies benefitted from a virtuous circle where good relationships led to good exchanges which further supported good relationships. Breaking the vicious circle of bad-relationships, with bad exchanges, that are seen in many organisations will be dependent on the ability of the leader of the organisation to break this cycle, set in place a firm strategy and unify people behind it.

29

= = = Insert Figure 1. Marketing-Operations Integration = = =

CONCLUSION

Many companies are continuing to struggle with how to organise the operation of their businesses to ensure customer satisfaction and profitability. One key area is how the marketing and operations functions work together in the cross-functional process of product and service delivery (Nie and Young 1997, Porter 1985, McIntosh 1986, Hill 2005, Hutt and Speh 1984, Womack et al 1990). Research has suggested that marketing-operations relationships in many companies are hostile and difficult, negatively impacting on customer satisfaction and competitive importance (Nie and Young 1997, Hill 2005, Crittenden 1992, Crittenden et al 1993, Berry et al 1995). Given the increasingly competitive global marketplace, such a detrimental arrangement would seem counter-productive, however, evidence on how to better manage marketing-operations relationships is largely absent (Ruekert and Walker 1987, Wind and Robertson 1983, Swamidass et al 2001, Hausman et al 2002, Crittenden 1992). Improving marketing-operations relationships is very difficult – especially as so few firms have positive relationships that can therefore act as a template for others (Ellinger et al 2000). The positive relationships in each of the case companies have helped to support the rapid growth of each company, to maintain profitability and win awards for customer service success. Three key themes emerged in the research: the role of strategy and leadership, the reward and evaluation systems used and an explicit focus on bringing people together in the company.

30

For managers, several key issues are evident: the need to have a solid strategy to drive the business forward, to involve all areas of the business in strategy formation and to communicate this strategy down to all levels of the organisation. This improves staff understanding of their role in the organisation and provides a unifying focus that sits above individual functional goals and targets. Further, reward and evaluation systems must support integration rather than individual goals of cost reduction or sales growth. Recognising the achievements of all in the organisation when good performance is reported and linking individual goals to the strategy of the organisation was found to be important, while integrating measures of cross-functional collaboration into annual performance monitoring for staff sends a clear signal and requirement for better relationships between functions. The process of bringing people together informally and formally is also important for encouraging better understanding of the wider organisation. Staff-exchanges and use of cross-functional teams in planning and problem resolution can be powerful tools in sharing knowledge and bringing people together. Greater research is still needed on the relationships between marketing and operational areas of the business. This paper has reported on five companies with a history of good working relationships to identify areas of good practice. Similar research on organisations with bad relationships to identify problem areas would be valuable, as would research on how an organisation has transformed from bad to good cross-functional relationships. The focus of this paper has been on the SME. Even within this small group, differences in behaviour (such as formalisation) were noted by company size. Investigating how companies in different sectors and of different sizes have overcome cross-functional barriers would provide valuable insights into integrative mechanisms for organisations as a whole. The

suggested

triggers

for

improving

relationships

(pay/reward

systems,

strategy/strategic leadership and communication/cross-functional working) are all in practice

31

interrelated and the full potential only unlocked when they operationalised together - setting a strategy that is ignored is no use (Crittenden et al 1993) while forcing information exchange with no real communication can worsen a relationship (Ellinger et al 2000). Improvement maybe an incremental and long term journey with companies introducing limited measures at first – such as supporting informal communication then build this into formal mechanisms; starting to use cross-functional teams on low-controversy projects before attempting larger issues (Lim and Reid 1992). This paper has presented case evidence to serve as an example of good working relationships in practice and to identify key themes that support positive cross-functional relationships. The cases are context contingent, however, it is intended that the illustrations provided within this paper will serve as a valuable source of management practice and stimulate greater research in this area.

32

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Table 1. Company Characteristics

Company CompCo

Founded 1992

HealthCo

2002

ClothCo

2000

SportCo

1972

ToolCo

1979

Core Business Computing components retailer (internet only retailer) Medical supplements manufacturer/retailer (internet and direct sales) Clothing (internet only retailer) Sporting products retailer (internet and mail order) Tools and hardware retailer (internet and retail)

Staff 200

300

250 Undisclosed.

Undisclosed.

41

Figure 1. Marketing-Operations Integration

Integration Strategy

Organisational Leadership

Supportive Performance Management

Collaborative Culture

42