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Toyotas distinct business beliefs and methods have origins in the five principles laid down in 1935 by thefounder, Sakichi Toyoda, though not formally documented until 2001, when the company recognized thatthe growing number of Toyota employees outside Japan needed to be trained in its use.

PILLAR I

ChallengeWe form long-term vision, meeting challenges with courage and creativity to realize ourdreams.

Kaizen:Continuous improvementWe improve our business operations continuously, always drivingfor innovation and evolution.

Genchi Genbutsu:Go and see for yourselfWe go to the source to find the facts to make correctdecisions, build consensus, and achieve our goals.

PILLAR II

RespectWe respect others, make every effort to understand each other, take responsibility, and do ourbest to build mutual trust.

TeamworkWe stimulate personal and professional growth, share the opportunities for development,and maximize individual and team performance.

Everything Matters Exponentially

In 2007, Toyota launched a far-reaching initiative called EM2Everything Matters Exponentially in theUnited States. EM2is a total re-examination of product planning, customer service, sales and marketing,and involves retraining all U.S. factory workers. The key is a relentless reinforcement of a culture thatavoids the big companydisease of complacency, and lets bad habits set in.

Organizing for Market-Driven Strategy

Trends in organizational strategy provide the context for examining the organizational conditionsfavorable to market-driven strategy. We consider the link between strategic marketing and organizationstructure, moves to enhance the alignment of organizations with their markets, the role of marketing as anorganizational process owner as well as a functional specialization, and particularly the cross-functionalrole of marketing in achieving internal partnerships and integration of company resources aroundcustomer value.

Strategic Marketing and Organization Structure

As strategies change and evolve in a company, it is increasingly important to examine organizationalissues in the implementation of marketing strategy. Across many business sectors, several factors leadcompanies to rethink how they organize for effective marketingto counter performance shortfalls bybetter integration; to globalize products and brands effectively; to bring sales and marketing closertogether; to focus on brands and products.

Importantly, organizational change may be more easily achieved also when there are major strategic shiftsto respond to weakening business performance. The radical reshaping of the Cadbury Schweppes


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confectionery and beverages business is illustrative. Reducing organization costs is a major part ofrecovering competitiveness. The Cadbury organization strategy is described in theMetrics Application.

Metrics Application

Organization Costs and Change at Cadbury

Organizational change is a continuing process in many companies. We have described the trend awayfrom vertical structures toward flat horizontal structures with greater emphasis on managing processes(for example, new product development) and less emphasis on functional specialization. Theseobservations are highly relevant to implementing market-driven strategy effectively.

Aligning the Organization With the Market17

Organizations are evolving toward closer alignment with their markets as a result of new marketingstrategies and increasingly assertive customers demanding more accountability and responsiveness.Market change is reinforcing the customer dimension of organization, and companies are structuring

operations around customer groups. Research suggests three stages of evolution: (1) improving alignmentthrough informal lateral integration, (2) using integrating mechanisms such as key account or segmentmanagers, and (3) full customer alignment with customer-based units at the front of the organization ormatrix structures around segments. Many organizations will stop short of the third phase.

In stage 1, the functional or product organization is retained, but sales or product management takesinformal steps to cross silos and solve customer problems. Stage 2 gains partial alignment with customersthrough integrating functions like global account coordinators and market segment specialists breakingaway from a focus on products. The third stage involves comprehensive approaches to get full structuralalignment with the market, using customer-based front-end units or matrix structures with segmentchampions. The customer-based front-end unit structure is illustrated inExhibit 14.3.

Exhibit 14.3 Customer-Based Front-End Organization Source: Adapted from George S. Day,Aligning

Market alignment by matrix structures is illustrated by Sony in the U.S. consumer electronics market.With five products divisions operating largely independently, Sony overlaid a market segment structureonto the existing product structure. The head of each product business unit was given added responsibilityfor one of the market segmentsthe head of digital imaging products became the champion for thedouble income, no kids segment and the head of personal mobile products was champion for thegeneration Y consumer segment. The dual focus for these executives was supported through the rewardsystem.

Structural alignment around markets is likely to be disruptive and add organizational costs, andexecutives should consider the imperatives to

Have a strategic rationale for realignment, such as providing better solutions to customers orgaining deeper knowledge of their needs.

Keep everyone focused on the customer experience, with clear accountabilities for the quality ofrelationships with major customers, integration, and tracking lost customers.

Adjust the pace of alignment to allow for anticipated obstacles and ways to overcome them. Keep realigning in response to market change and advances in technology.
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Marketing Functions Versus Marketing Processes

While the existence of conventional marketing functions or departments remains important to achieveefficiency in carrying out operational marketing tasks, there is increasing evidence that when consideringmarketing strategy, marketing should be seen as a set of processes that work across the organization andits partners to shape and implement strategy.18Indeed, some of the most admired firms in the world

underline the strategic importance of marketing processes. At GE, marketing was a lost function underJack Welch, while CEO Jeff Immelt has revitalized the marketing organization as a driver of growthrather than a support function.19At Microsoft, Steve Balmer emphasizes the marketing organizationslead role in making Microsoft value propositions shine through for customers. At Intel the transition isfrom an engineering mind-set of relentlessly increasing microprocessor speed to a marketing-led approachof designing microprocessors for specific customer end-use applications like mobility andentertainment.20A process perspective underlines the cross-functional role of marketing.

Marketing as Cross-Functional Process

In providing leadership in market-driven strategy, marketing is increasingly seen as a cross-functionalactivity working across traditional organizational boundaries to develop and implement strategy.Challenges of internal partnership between functional specialists and achieving integration oforganizational capabilities around customer value creation are highly relevant.

Marketing executives are challenged to span the silos represented by traditional functions, productorganizations, and geographic divisions to create cooperation, synergy, and appropriate resourceallocation across business units. At companies like IBM, McDonalds, and Sony, silo spanning effortsare linked to rejuvenation of their organizations. This may represent one of the most important challengesfor chief marketing officers.21

Integration Challenges

There have been several problems related to integration between marketing and other activities incompanies. Effectiveness depends on developing strong linkages between marketing and other functionalunits. This may involve a variety of approaches.

Many traditional approaches to organization have hindered the ability of companies to coordinate andintegrate activities around customer needs. In some organizations, there are major barriers to effectivecommunication between marketing and other units, leading to misunderstanding and conflict, such aspoor use of market information by R&D departments for reasons of rivalry and political behavior.22Additionally, the integration problem may be exacerbated by ownership of key activities by otherfunctions: (1) customer relationship management systems span departments and systems to integrate

customer knowledge; (2) critical new product pipelines may place priority on leveraging R&Dcapabilities faster than the competitor; (3) the implementation of digital commerce may leave traditional

marketing behind; and (4) many of the people and processes that impact on customer value are outside thecontrol of the marketing area.23

Linking Marketing to Other Functional Units

Increasingly, marketing and sales professionals must display superior skills in coordinating andintegrating their activities with other functional areas of the business. Priorities will depend on the


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situation faced and the strategy in question, but illustrative examples of critical cross-functionalrelationships include:

Marketing and Finance/AccountingViewing customers as assets that impact on shareholdervalue provides a shared basis for avoiding traditional conflicts dialogue on marketing resourceallocation, and lining internal system up with customer value imperatives.

Marketing and OperationsThe challenge is matching internal capabilities in operations andsupply chain management, for example, in speed, flexibility, quality management, operational

systemswith market opportunities.

Marketing and SalesIn many situations the salesforce represents the ability of the company toimplement marketing strategy, which is constrained by lack of buy-in, and traditional sales

management practices that do not support strategic change. Marketing and R&DThe challenge is building structures to link innovation and research

capabilities with market opportunities.

Marketing and Customer ServiceCustomer service operations may represent the mostimportant point of contact between a customer and the company and impact directly on customer

perceptions of value, mandating alignment with strategic initiatives.

Marketing and Human Resource ManagementThe key issue may be building competitiveadvantage through the quality of the people in the company, with major implications for aligning

processes of recruitment, selection, training, development, evaluation, and reward with businessstrategy requirements.24

Effective cross-functional working is the key to many of the examples we have discussed. Manysuccessful companies display characteristics of cross-functional effectiveness; Costco, Zara, and Toyotaare illustrative. This capability may be a key attribute of the market-led company of the future. The movetoward process-based organizations further underlines this requirement.

Approaches to Achieving Effective Integration

Organizational mechanisms for enhancing the quality of marketings links with other functional unitsinclude effective cross-functional teams, shared goals, superior internal communications, high levels oftop management support, and attention to resolving internal disputes and conflicts.25Several approachesto building effective integration may be considered as part of organization design. Formal mechanisms forintegration include:

Relocation and design of facilities to encourage communication and exchange of information. Personnel movement using joint training and job rotation to facilitate managers understanding

of other functions.

Reward systems that prioritize higher levels goals (e.g., company profits from a cross-functionalproject) not just functional objectives.

Formal procedures, for example requiring coordinated input from marketing, finance,operations, and IT to complete project documentation.

Social orientation facilitating nonwork interaction between personnel from different functions. Project budgeting to centralize control over financial resources so they are channeled, for

example, to a project or process team not to a functional department.26

Evidence relating to the effectiveness of these approaches is mixed. Nonetheless, the initiativesemphasize the need to examine more than simple structural choices in designing the effective market-driven organization. Interestingly, several routes to enhanced integrationfor example, increasedpersonal communication, spatial proximity, and social interactionwill become progressively more


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difficult in the intranet-based, hollow organization. In such cases, integration issues may become a highpriority for management attention. Building the customer-engaged organization may be one of the mostformidable challenges facing marketing executives.27

These challenges may also be integrated with other corporate initiatives, such as corporate socialresponsibility (seeChapter 4). The greening of strategy at German engineering giant Siemens, as part of

its intense rivalry with GE, is illustrative. Siemens faced damage from ethics violations and recessionarymarkets, but has restructured as an environmentally-focused infrastructure provider. This innovatoryorganizational shift is described in theEthics Application.

Marketing Departments

Marketing capabilities and competencies in an organization are important resources that create value in a

company. One topical issue is whether those resources should be grouped into a formal marketing

function and where this should be located in the organization. The existence of a marketing department

does not necessarily indicate that a company displays high levels of market orientation. Nor does the

absence of a formal marketing department indicate that a company is not market oriented.

Conventionally, we expect that a market-driven company will have some formal marketing organization,

but there are some indications that forward-thinking companies are revisiting this issue. P&G, for

example, has moved from conventional marketing departments to its customer business development

structure to focus marketing and selling resources on major retailer customers.

Important organization design choices relate to the centralization or decentralization of marketing

tasks and activities, the integration or diffusion of marketing responsibilities, organizing contingencies,

and the role to be played by marketing in the organization.28

Centralization Versus Decentralization

Companies with two or more business units may have corporate marketing organizations as well as

business unit marketing organizations. Corporate involvement may range from a coordinating role to one

in which the corporate staff has considerable influence on business unit marketing operations. Also, the

chief marketing executive and staff may participate in varying degrees in strategic planning for the

enterprise and the business unit.

While many of the goals of organizational realignment for new market realities are compatible with

higher degrees of decentralization, there may also be attractions in more centralized structures. Consider

the different organizational strategies pursued at BP and ExxonMobil, described in theSTRATEGY

APPLICATION.There are strengths and weaknesses in both approaches, which require careful

evaluation.Strategy Application
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Organizational Strategy Differences at BP and ExxonMobil

The corporate role of marketing is influenced by top managements approach to organizing the

corporation, as well as the nature and complexity of business operations. Marketing strategy decisions are

typically centered at the business-unit and product-market levels. Even so, it is very important for the top

management team to include strategic marketing professionals. The market-driven nature of business

strategy requires the active participation of marketing professionals.

A major organizational design issue is whether marketing tasks and activities should be centralized

(at the corporate level) or decentralized (at the business unit level) in a multibusiness organization.

Research suggests that when marketing tasks across business units are highly related, the marketing

function tends to be centralized at the corporate level.29Nonetheless, there are also signs that

organizations are increasingly structuring marketing activities around customer-centric arrangement, such

as key account teams and segment managers in a less centralized format.

30

Influenced by the general trendin organizations toward decentralized management approaches, many corporations are moving marketing

functions away from the corporate level to the business unit level. Decentralization is a better way to cope

with growing product and market complexity, and to enhance speed of response to market changes.31The

available evidence suggests that there is no one best way to structure marketing activities, and that

managers should consider strategic requirements as well as the capabilities and cultural requirements for

the two approaches.32

Integration or Diffusion

A further major issue concerns whether marketing tasks and activities should be diffused (performed by

people in different departments/functions) or focused (performed by individuals belonging to the

marketing department/function). Research suggests that in practice there are signs that in many

organizations marketing activities are moving from the marketing function to cross-functional teams and

other functions (such as R&D or sales).33The integration of marketing functions associated with adopting

the marketing concept, may be followed by the disintegration of marketing functions to achieve greater

cross-functional effectiveness in delivering superior value to customers. The diffusion of marketing

activities across multiple functions is more common in market-oriented businesses serving business

customers, and operating in uncertain markets with uncertain technologies.34

There are attractions in achieving a customer mind-set among all employees in a firm, not just

marketing employees, suggesting that marketing tasks and activities should be the responsibility of

multiple functions, not just the marketing department.35


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Contingencies for Organizing

The formalization of marketing as an organizational function and the centralization/decentralization and

diffusion/focused possibilities underline the need to consider organizational and market contingencies to

guide decisions. For example, a classic view of four organizing concepts is shown inExhibit 14.4.Note

the usage context and performance characteristics of each structure. Since strategy implementation may

involve a usage context that combines two of the structures, trade-offs are involved. The adopted

organization structure may facilitate the implementation of certain activities and tasks. For example, the

bureaucratic form should facilitate the implementation of repetitive activities such as telephone

processing of air travel reservations and ticketing. Once management analyzes the task(s) to be performed

and the environment in which they will be done, it must determine its priorities. For example, is the

objective performance and short-run efficiency or adaptability and longer-term effectiveness?Exhibit 14.4Four Archetypical Marketing Organizational Forms

Activities in different categories should be structured differently whenever feasible. Some firms appear to

be moving in this direction, as shown by reports of cuts in corporate staff departments, the shifting of

more planning and decision-making authority to individual business unit and product-market managers,

and the increased use of ad hoc task forces to deal with specific markets or problemsall of which

indicate a shift toward more decentralized and flexible structures.36

Corporate culture may also have an important influence on implementation. For example, implementing

new strategies may be more difficult in highly structured, bureaucratic organizations. General Motors

difficulty in responding to the global competitive pressures during the last decade is illustrative.

Management should consider its own management style, accepted practices, specific performance of

executives, and other unique characteristics in deciding how to design the organization.

Evaluating Organization Designs

The design of the marketing organization is influenced by several contingencies: market and

environmental factors, the characteristics and capabilities of the organization, and the marketing strategy

followed by the firm. In evaluating the adequacy of an organizations design, the following factors provide

guidelines: The organization should correspond to the strategic marketing plan. For example, if the plan is structured

around markets or products, then the marketing organizational structure should reflect this same

emphasis.
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Coordination of activities is essential to successful implementation of plans, both within the marketingfunction and with other company and business unit functions. The more highly specialized that marketing

functions become, the more likely coordination and communications will be hampered.

Specialization of marketing activities leads to greater efficiency in performing the functions. As anillustration, a central advertising department may be more cost-efficient than establishing an advertising

unit for each product category. Specialization can also provide technical depth. For example, product or

application specialization in a field sales force will enable salespeople to provide consultative-type

assistance to customers.

The organization should be structured so that responsibility for results will correspond to a managersinfluence on results. While this objective is often difficult to fully achieve, it is an important consideration

in designing the marketing organization.

Finally, one of the real dangers in a highly structured and complex organization is the loss of flexibility.The organization should be adaptable to changing conditions. Consider the rationale for the venture

marketing organization described later in the chapter.

Since some of these characteristics conflict with others, organizational design requires looking at

priorities and balancing conflicting consequences.

Structuring Marketing Resources

Whether marketing activities are centralized or decentralized, and whether they involve a fully integrated

marketing department or a marketing unit with more limited responsibilities, structuring the array of

marketing resources in a formal organization design involves important management choices. We

consider several structuring issues, before discussing traditional organization designs available, and

several of the newer marketing roles being identified in some companies.

Structuring Issues

Functional specialization is often the first consideration in selecting an organizational design for

marketing resources. Specialist functions are attractive because they develop expertise, resources, and

skills in a particular activity. Emphasis on functions may be less appropriate when trying to direct

activities toward market targets, products, and customers. Market targets and product scope also influence

organizational design. When two or more targets and/or a mix of products are involved, companies often

depart from functional organizational designs that place advertising, selling, research, and other

supporting services into functional units. Similarly, distribution channels and sales force considerations


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may influence the organizational structure adopted by a firm. For example, the marketing of home

entertainment products targeted to business buyers of employee incentives and promotional gifts might be

placed in a unit separate from a unit marketing the same products to consumer end-users. Geographical

factors have a heavy influence on organization design because of the need to make the field supervisory

structure correspond to how the sales force is assigned to customers.

The major forms of marketing organizational designs arefunctional, product,

market,and matrixdesigns.

Functional Organizational Design

This design assigns departments, groups, or individuals, responsibility for specific activities, such as

advertising and sales promotion, pricing, sales, marketing research, and marketing planning and services.

Depending on the size and scope of its operations, the marketing organization may include some or all of

these activities. The functional approach is often used when a single product or a closely related line is

marketed to one market target.

Product-Focused Design

The product mix may require special consideration in the organizational design. New products often do

not receive the attention they need unless specific responsibility is assigned to the planning and

coordination of the new-product activities. This problem may also occur with existing products when a

business unit has several products and there are technical and/or application differences. We examine

several approaches to organizing using a product focus.

Product/Brand Management

The product or brand manager, sometimes assisted by one or a few additional people, is responsible for

planning and coordinating various business functions for the assigned products. Typically, the product

manager does not have authority over all product-planning activities but may coordinate various product-

related activities. The manager usually has background and experience in research and development,

engineering, or marketing and is normally assigned to one of these departments. Product managers titles

and responsibilities vary widely across companies.

Product management structures continue to be used in many organizations even though there is a

trend toward process designs.37The product management system assigns clear responsibility for product

performance, and the system encourages coordination across business functions. Nonetheless, the product


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focus may take emphasis away from the market. Also, there may be a short-term focus on financial

performance. An example of a product-focused structure is shown inExhibit 14.5.Exhibit 14.5Product-Focused StructureSource: Donald R

Category Management

Associated with the new approaches to efficient supply chain management (seeChapter 10), a

development in product-focused organization is the adoption of category management structures.

Categories are groups of products defined by consumer purchase behavior patterns. For example, Nestl

and Interbrew are working with retailers to develop categories structures within which their brands can be

developed, and restructuring their organizations around the categories.38

Venture Teams

The venture team requires the creation of an organizational unit to perform some or all of the new-product-planning functions. This unit may be a separate division or company created specifically for new-

product or new business ideas and initiatives. Venture teams offer several advantages, including

flexibility and quick response. They provide functional involvement and full-time commitment, and they

can be disbanded when appropriate. Team members may be motivated to participate on a project that

offers possible job advancement opportunities.

New-Product Teams

The new-product team is similar to a venture team in that it is comprised of functional specialists workingon a specific new-product development project. The product team has a high degree of autonomy with the

authority to select leaders, establish operating procedures, and resolve conflicts. The team is formed for a

specific project although it may be assigned subsequent projects. Successful innovation at 3M is based on

cross-functional new-product teams.39

Factors that often influence the choice of a product organization design are the kinds and scope of

products offered, the amount of new-product development, the extent of coordination necessary among

functional areas, and the management and technical problems previously encountered with new products

and existing products. For example, a firm with an existing functional organizational structure may create

a temporary team to manage and coordinate the development of a major new product. Before or soon after

commercial introduction, the firm will shift responsibility for the product to the functional organization.

The teams purpose is to allocate initial direction and effort to the new product so that it is properly

launched.
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Market-Focused Design

This approach is used when a business unit serves more than one market target (e.g., multiple market

segments) and customer considerations are an important factor in the design of the marketing

organization. For example, the customer base often affects the structuring of the field sales organization.

A key advantage of this design is its customer focus.40Greater use of organization designs that focus on

customer groups is predicted.41A potential conflict may exist if a company also has in place a product

management system. Some firms appoint market managers and have a field salesforce that is specialized

by type of customer. The market manager operates much like a product manager, with responsibility for

market planning, research, advertising, and salesforce coordination. Market-oriented field organizations

may be deployed according to industry, customer size, type of product application, or in other ways to

achieve specialization by to end-user groups. Conditions that suggest a market-oriented design are (1)

multiple market targets being served within a strategic business unit, (2) substantial differences in the

customer requirements in a given target market, and/or (3) each customer or prospect purchasing the

product in large volume or dollar amounts.

Matrix Design

This design utilizes a cross-classification approach to emphasize two different factors, such as products

and marketing functions (seeExhibit 14.6). Field sales coverage is determined by geography, whereas

product emphasis is obtained using product managers. In addition to working with salespeople, product

managers coordinate other marketing functions such as advertising and marketing research. Of course,other matrix schemes are possible. For example, within the sales regions shown inExhibit 14.6,

salespeople may be organized by product type or customer group. Also, marketing functions may be

broken down by product category, such as appointing an advertising supervisor for Product II.Exhibit 14.6A Matrix Marketing Organization Based on a

Combination approaches are effective in that they respond to important influences on the

organization and offer more flexibility than the other traditional approaches. A major difficulty with these

designs is establishing lines of responsibility and authority. Product and market managers frequently

complain that they lack control over all marketing functions even though they are held accountable for

results. Nevertheless, matrix approaches are popular, so their operational advantages must exceed their

limitations.

New Marketing Roles
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As we discussed early in the chapter, the use of self-managing employee teams, emphasis on business

processes rather than activities, and the application of information technology are creating major changes

in organization design. There are several new roles and organizing approaches relevant to structuring

marketing resources.

New Marketing Specializations

The identification of new specialist rolesin marketing processes raises the question of appropriate

location in the organization structure (within the marketing function or more broadly in the business unit).

Examples include the chief knowledge or information officer in marketing, and the possible role of the

chief relationship officer. Some companies have, for example, appointed a chief customer officer, whose

job focuses only on customer interactions and the customer experience. One possible structure for the

marketing organization of the future reflecting these concerns is illustrated inExhibit 14.7.Large

investment in CRM and its utilization in building relationship marketing strategy (seeChapter 4)may

lead to the division of marketing into activities associated with customer acquisition processes and those

focused on customer retention, since these are often very distinct and different processes.42The

introduction of such roles requires attention to organizational positioning, and the potential for new

coordination and communication requirements.Exhibit 14.7Illustration of a New Organization Structure for

A number of major organizations have also developedstrategic account managementstructures

(seeChapter 13). Customer-based organization designs of this kind are becoming more widely used.43In

the most advanced form, strategic account management involves a new collaborative relationship with

major accounts, focused on the customers strategy and sources of competitive advantage. The strategic

account manager in these cases has a strategic responsibility for managing all contact between the seller

and customer organization and planning jointly with the customer. Strategic key account management

positions are senior positions that may not fit easily into the conventional sales organization, and which

carry major marketing and cross-functional responsibilities.44

In many companies an additional issue is where and how to positionInternet-based channelsin the

marketing organization and the business unit. Early approaches isolated Internet channels from the rest of

the business, while the real challenge for most companies is how to integrate the Internet into the core

business.45Major bricks and clicks companies like Staples are rethinking the policy of separating their

dot.com operations from the rest of the business, and bringing them back into the main operation.46The

Web operations of successful retailers like Walgreens in the United States and Tesco in the U.K. are
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closely integrated with their retail stores. Several important organizational issues are involved in

achieving that integration.

Venture Marketing Organizations

An interesting approach adopted by some companies extends the idea of venture teams, as a way of

responding to high priority opportunities faster than conventional organizational approaches allow. The

venture marketing organization (VMO) adopts the principles of venture capitalism: they aggressively seek

new opportunities, allocate resources to the best, but cut their losses as they go. The VMO has a number

of defining characteristics:

Fluidityto keep pace with the market, the VMO continually reconfigures, with little formal structure orfixed membership in opportunity teams

People are allocated roles not jobsthe issue is managing talent within the organization and applying it topromising opportunities

Fast decision making is made from the top Opportunity identification is everyonesjob

Resources are focused on the highest payback opportunities and losers are quickly pruned.47

The impressive impact of a VMO-style approach to new market opportunities at Starbucks is

described in theINNOVATION APPLICATION.Innovation Application

Venture Marketing Organization at Starbucks

Partnering with Other Organizations

Selecting or modifying marketing organization design should take into consideration the trade-offs

between performing marketing functions within the organization and having external organizations

perform the functions. For example, many organizations are outsourcing all or some of their sales

functions to third parties. In 1999, Intel broke with its tradition of employee salespeople, and committed a

segment of its market to outsourced sales organizations. By 2003, Intel was using 25 outsourcers to

generate $800 million in sales on four continents.48

The discussion of relationship strategies inChapter 7examines the use of partnering to perform

various business functions. Contractual arrangements are often made for advertising and sales promotion

services, marketing research, and telemarketing. Services are also available to perform marketing

functions in international markets. Outsourcing various business functions is an active initiative in many

companies due to cost-reduction pressures, availability of competent services, increased flexibility, and
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shared risk. There are various marketing functions that may be provided by independent suppliers.

Examples include telemarketing, database marketing, field sales, logistics, website design and

management, and information services.

Internal units provide more control of activities, easier access to other departments, and greater

familiarity with company operations. The commitment of the people to the organization is often higher

since they are part of the corporate culture. The limitations of internal units include difficulty in quickly

expanding or contracting size, lack of experience in other business environments, and limited skills in

specialized areas such as advertising, marketing research, Web design, and database management.

External organizations offer specialized skills, experience, and flexibility in adapting to changing

conditions. These firms may have lower costs than an organization that performs the function(s)

internally. Obtaining services outside the firm also has limitations, including loss of control, longer

execution time, greater coordination requirements, and lack of familiarity with the organizations products

and markets. Identifying core competencies, coordinating relationships, defining operating

responsibilities, establishing good communications, and monitoring and evaluating performance are

essential to gaining effective use of external organizations.

Networked Organizations

The marketing coalition company has been proposed as another new organization form for

marketing.49The marketing coalition company is an horizontally aligned organization acting as the

control center for organizing a network of specialist firms. The core of this organization is a functionally

specialized marketing capability that coordinates a network of independent functional units. They perform

such functions as product technology, engineering, and manufacturing. No pure forms of the marketing

coalition company are known to exist, although several Japanese companies have certain characteristics

of the coalition company.

The marketing coalition design is an example of a network organization. Networks are groups of

independent organizations that are linked together to achieve a common objective.50They are composed

of a network coordinator and several network members who typically are specialists. Network

organizations occur in new ventures and reformed traditional organizations. The underlying rationale for

network formation is leveraging the skills and resources of the participating organizations. Many of the

aspects of strategic alliances discussed inChapter 7are highly relevant to considering networked

organizations.
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