Journal of Market Focused Management, 2, 49–64 (1997) c  1997 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands. Driving Shareholder Value: The Role of Marketing in Reducing Vulnerability and Volatility of Cash Flows RAJENDRA K. SRIVASTAVA Senior Associate Dean, Jack R. Crosby Regent’s Chair in Business, Graduate School of Business, GSB 2.104, University of Texas at Austin, Austin, TX 78712 TASADDUQ A. SHERVANI Assistant Professor, Department of Marketing, CBA 7.202, University of Texas at Austin, Austin, TX 78712 LIAM FAHEY Adjunct Professor, Babson College and Cranfield University (U.K.), 115 Lincoln Street, Needham, MA 02192 Abstract Marketing professionals have historically found it difficult to measure and communicate to other disciplines and to top management the value created by marketing activities. All too often, justification of marketing and communication initiatives is restricted to their impact on revenue generation. But, marketers do create value in other ways. Marketing actions do lead to an acceleration of the market’s acceptance of new products, to enhanced customer retention/loyalty, to an improvement in the size and quality of customer bases, to price premiums and other desirable payoffs. Such financial outcomes suggest that marketing activities are often strategic investments, not tactical, intangible expenses. We suggest that the effectiveness of marketing initiatives should be evaluated on the basis of their impact on the basic drivers of shareholder value–cash flow acceleration, cash flow enhancement, reduction in volatility and vulnerability of cash flows, and growth in the long-term value of business). These shareholder value metrics provide a framework for communication of the contribution of marketing strategies to value creation. In particular, this paper focuses on the role of marketing in enhancing shareholder value by reducing the vulnerability and volatility (hence risks) associated with cash flows. This risk reduction (and shareholder value creation) role of marketing activities is examined within cross-functional processes for creating customer value such as design of new products and services, supply chain management and management of relationships with customers, channels and strategic partners. Keywords: shareholder value; managing risks; competitive vulnerability; cash flow analyses; value measurement Introduction Since the early days of the Wintel (Windows-Intel) alliance, the financial fortunes of Intel and Microsoft have run on parallel tracks. During much of 1996, Intel’s sales, profits and