The Essence of Procurement
"Our end of year Expert Speak comes from Mark Ridler, CFO at CPM who captures the essence of Procurement. Mark trained and qualified in paper clip counting too many years ago to remember and since then has held various CFO and FD roles in the entertainment, marketing and communication industries. Most recently he has held positions at the centre within WPP and Omnicom negotiating local, regional and global client contracts focusing on terms and conditions and remuneration models specific to the clients’ engagement requirements. Mark is currently group CFO at CPM, Omnicom’s largest and best in class field sales and contact centre business’’.
Oh yep, it’s that time of year again.
From an outsider’s perspective, the yearly assault of increasingly glossy Christmas adverts must surely paint a picture of an industry on the rise. After all, with that many celebrities shoved into a 60-second spot, how can marketing budgets be anything but bulging?
The truth is, overspending during the festive season isn’t a bad habit reserved for overzealous gift-givers. Self-indulgent clients and self-congratulatory agencies can also be tempted to sprinkle a little magic during the cold dark days of December. The problem is, what happens for the other eleven months of the year?
After 10 years of austerity, it shouldn’t be surprising that marketing directors are increasingly unwilling to cut agencies a decent slice of a dwindling pie. And without a decent slice of the pie, it also shouldn’t be surprising that agencies are struggling to meet client expectations (which incidentally, never seem to dwindle).
But before you start placing the blame squarely on the shoulders of procurement, think again. A multitude of factors are at play here, and there are as many victims of budget decimation as there are villains. Every shareholder, CEO, CFO, consultant, and creditor has had a say in the matter. Add that to a volatile macroeconomic environment straining under the weight of red tape and legislation, and it soon becomes obvious that absolutely nobody has escaped unharmed, and that absolutely everybody is trying to do more for less.
Given the fact we’ve had over a decade to improve the situation, you’d think some progress would have been made. But in fact, the client-agency relationship seems to have remained paralysed, despite the clear paradigm shifts taking place in the background. Digital marketing has subsumed traditional advertising, fintech companies have broken apart established services industries, and big data has finally proved its capability to provide real-time, intelligent and predictive insights.
Yet these profound changes in the economic, commercial and product landscape seem to have had a disproportionately low effect on our business model. Agencies are not doing more for less, nor are they appearing ‘smarter’ to their clients. Relationships have not been forged based on trust and mutuality, interactions have failed to be open and transparent, and agencies have yet to become an indispensable part of the client DNA.
So how can we overcome this persisting desire to hold the agency relationship at arm’s length, and how can we start more effectively meeting client expectations?
Payment by Results seemed like a possibility, but to date it has failed to yield dividends for either party. And why would it? As a client, you want to see real value for what you pay for. That means if you pay a colossal day rate for a £500k creative director, you don’t expect to pay an additional bonus if he or she achieves the results their substantial salary would predict. As an agency, you don’t want to take the chance of achieving the same results with a far less experienced and inexpensive hire, since you can’t risk anything beyond the margin. Basically, everyone’s hands are tied, and neither party wants to stomach the unpredictability of the outcome. In summary: nice idea, but it’s never going to happen.
So what could happen?
Firstly, agencies could stop pining for that elusive 20% they are sure clients are hiding up their sleeves, and start acknowledging the reality of the situation. CFOs hand down budgets based on predicted business performance, and smart agencies should concentrate on ensuring that procurement doesn’t reduce that figure further. Basic logic.
Secondly, agencies could stop pretending they are experts at everything and start collaborating with partners or appropriate third parties when the project requires it. A little bravery and honesty can go a long way here: the goal of the channel-neutral agency is not to constantly showcase their excellence in all areas, but to help the marketing team achieve high quality and cost-effectiveness across the full scope of work. A win-win.
Thirdly, agencies could add in some nice to haves. Clients may not be hiding an extra 20% up their sleeves, but it never hurts to show them a few tempting possibilities that a more generous budget would allow. Worst-case scenario, these go straight into the procurement bin. A more optimistic scenario is that they decide to include some of these elements, but here comes the golden rule: if you add something in, don’t take something out that you’ll end up having to deliver for free anyway. Admittedly, this can be a hard conversation to engineer, but if you’re not brave and honest enough to have it, be prepared to wave goodbye to that agency margin.
Fourthly, agencies could spend far more time planning and preparing the ‘agreed’ scope of work and the inevitable procurement conversation. After all, a little work now can avoid a whole lot of pain later on. Don’t fool yourself into thinking that each and every line won’t be scrutinised by procurement: if you don’t have detailed and justified answers to their queries, that’s trust and transparency straight out the door. Put yourself in their shoes and crunch the figures – just how many hours, days or third party costs are truly needed to deliver the project? Why are there 30 days of account manager time down rather than 26 or 27? Be ready and willing to explain exactly what elements of the delivery will suffer if they cut out a cost: if they know the consequences, then they also must assume the risk.
Lastly, agencies could act savvier when it comes to ‘free’ work. It’s an unescapable part of the model, but that doesn’t mean it shouldn’t be shared and celebrated. Create precise logs of what the client has received in the past, and what they can expect to receive moving forward. It’s a safe bet that the value of these complementary services far exceeds that magical 20% both parties have been searching for. Now that’s a good measure for a good relationship.