I traveled to a very sunny and warm Redwood City, California. It was time to catch up with my friends at EA. Lots have happened at EA since my last visit. Their CEO recently resigned and there are other changes in the management team. EA is reporting their annual results this week and there is lots of speculation that the numbers are not what EA might have hoped. I do a quarterly call review with them.
I had two different groups from the digital and global marketing teams in class. As usual there was lots of good discussion and good times had by all. There was a lot of discussion around inter-company allocations this time around. It turns out that most of the global marketing groups cost gets allocated to the major labels at EA. How those allocations are done can change a Profit and Loss (P & L) for a label and thus are often questioned. We talked a lot about the reason why we allocate and how to show value for the service provided by a corporate marketing group.
First, a business allocates to split an expense that is not delineated clearly between business units. In finance and accounting we allocate because we do not have good data to split many cost pools. If we had perfect data splits then we would not need to make these allocations. Since a lot of the costs are not tracked closely enough because it’s impractical or too costly, we have to make educated guesses on these costs. In finance we call them allocations because that sounds better than a guess.
The key message for a marketing group being allocated is to help connect their services with increased revenue and profits in a division or business unit. It also makes sense for this marketing group to work out ways with the finance team doing the allocations to find metrics that split their costs as fairly as possible. A good corporate costs center manager should also be a salesperson making sure that their operating partners see the value of their services allocated.
I really enjoyed my visit to EA this time around and just a little secret to any of you lucky enough to work with this group. The food in the cafeteria is great! No need to leave campus for lunch. I had a great turkey meatloaf plate and the afternoon snack of fresh made tortilla chips and hot salsa too it’s so good it’s dangerous…like I eat too much of it.