Commentary

Averting The Coming Tragedy In Agency Procurement

Behind the recent wave of agency reviews is brand tragedy in the making. While predicated on lowering price, the procurement binge (let’s call it what it is) will actually decrease the impact of marketing spending. It will further accelerate both the re-procurement cycle and the current downward spiral in agency productivity. And the ultimate losers will be the brands themselves. 

To be fair, there is a real problem to address. Marketing has become an expensive bottleneck inside the world’s largest and otherwise most sophisticated brands. Virtually every other business function has innovated and integrated into the cross-enterprise value chain, and increased its contribution to corporate profitability. In this regard, Marketing has largely failed.  

But the process changes that will spur better innovation, integration and value, won’t come because procurement teams squeeze agencies on price. In commodity industries, price pressure can help find the lowest marginal cost, often the lowest capital cost. As the largely failed offshoring movement has shown, people often aren’t interchangeable and lowering price doesn’t lead to operational innovation. Instead, less skilled people produce lower quality results for a lower price. 

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Agency services differ from most professional services. For example, accountants deliver success by conforming to standards – essentially rote work – that in many ways make these services commodities. In agencies, success comes from inspiration and creativity, not conformity, and over the past 20 years rote work has increasingly been automated away. The product you are buying is the agency team’s unique ability to engage with your brands, get enthusiastic, and make some amazing, even inspired, decisions. 

Put enough price pressure on agencies, and three things happen that undermine the enterprise of marketing. 

First, agencies overpromise. Going for the win, the agency team loses sight of what is possible, even practical, with the time and money on the table. The client team revs over the big ideas that are convincingly presented, and neglects to carefully examine the team quality and fit of the agency. They fall for what behavioral scientists call false authority – logical sounding yet fallacious combinations of information and statistics to bolster an outlandish promise.  

Second, agencies let the B-Teams execute. They have to maintain revenues to keep key talent and sustain morale. So they focus their biggest jobs and A-Team talent on winning the next client’s heart, not delivering on quixotic promises made in the heat of the pitch. 

Third, agencies understaff. Even if the pitch is halfway sane, the tight budget forces cuts in schedule, time and talent. This makes it impossible to meet the agency’s hardest, most critical objective, which is flawless delivery. Procurement typically undervalues delivery, and agencies accept tight budgets with an optimism that is rarely justified by the results. Less time and money equals a weaker product, often delivered late. 

Breaking this cycle can only happen when the brand’s and the agency’s best people agree to focus on core improvements in the way the agency delivers work, and better models for integrating work into the client’s cross-discipline value chain. For true innovation in marketing depends on deeper integration into the enterprise and the modernization of nearly century-old business practices. 

Procurement pressure doesn’t initiate this collaboration. Clients can get to lower cost and higher return by creating more efficient, integrated business practices with their agencies. But they won’t accelerate those practices by lowering cost.

Until the focus returns to delivery value, we’re unlikely to see marketing operate at the speed of business. 

5 comments about "Averting The Coming Tragedy In Agency Procurement ".
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  1. Ed Papazian from Media Dynamics Inc, July 8, 2015 at 5:11 p.m.

    Exactly right, Jack. Sadly, I doubt that it will happen as too many advertisers want to "play client" and set up the agencies as adversaries, not true "partners". That way, the "client" can fire the agency, if anything goes wrong---even if it's the client's fault as well.

  2. Kevin Horne from Lairig Marketing, July 9, 2015 at 11:16 a.m.

    This analysis seems pretty one-sided as always, demanding that agencies "innovate." Yet everyday we read of new, innovative (mostly digital) campaigns - apps, mobile, DOOH, etc. - that were unthinkable just 5 years ago.

    Here is where you lost me: "...integrating work into the client's cross-discipline value chain." I have no idea what that means, or refers to. Client marketing departments are organized like a dog's breakfast. There is no "value chain" within marketing, let alone "cross discipline." (While the Manufacturing department solved this issue circa 1995...)

    Two sides on this street. Until they meet in the true middle, "low-cost" will be the only variable to "procure."

  3. Steve Baldwin from Didit, July 9, 2015 at 12:45 p.m.

    My understanding is that this wave of reviews is being excacerbated by a growing lack of trust caused by the rebate scandal. The only thing that's going to solve that is more transparency; right now that ball is in the agency court and hasn't come back across the net yet.

  4. Ed Papazian from Media Dynamics Inc, July 9, 2015 at 1:41 p.m.

    Jack, did I miss something? Which holding agency has been "caught" by what client pocketing secret and undisclosed "fees"? I'm not saying that this hasn't happened but all we have now is a lot of speculation. In my book, that's not a "scandal".

  5. Jack Skeels from AgencyAgile, Inc., July 9, 2015 at 4:39 p.m.

    @ kevin: Agreed that agencies innovate in their work product (mobile, etc.), but there is very little innovation in the business process of delivering that work.  Agency managerial and operations processes are largely pre-1960's in style and effectiveness.  

    Also, corporations/brands do have cross-discipline value chains, but marketing rarely is part of that, nor effectively integrated.  Big point of emphasis in Forrester analysis during the last few years, for example.

    @Ed -- was not citing any agencies being caught pocketing fees...maybe in the comments, the "rebate" scandal in Steve's comment?

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