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Formerly CPO Agenda

Three into one will go

The relationship between procurement, marketing and advertising agencies has historically been one of mutual suspicion and conflict. But it can be improved – and procurement may well be the best-placed function to take the lead on this

October 2010


By David Meikle


Marketing, procurement and advertising professionals know there is a reservoir of untapped value in their relationships. Indeed, they have recognised this for some years. An attempt by their respective trade bodies – CIPS, ISBA and the IPA – in 2006 to find more productive ways of working produced a book on best practice by Marilyn Baxter called Magic and Logic. But the move appears to have inspired little change. Why is this?

Marketers don’t feel they are getting optimal value from their agencies – they don’t want to buy by the hour, but in the absence of an acceptable alternative, they feel they have little choice. Meanwhile, procurement still hasn’t achieved the grasp on marketing that it would like. When procurement teams do get involved, they adopt aggressive buying strategies with agencies, because saving money can be their only means by which to add value to their business. And lastly, agencies are struggling for profits on a par with other professional service industries – a process that is stifling investment and growth.

The solution that all these functions seek is a new way of working that provides greater value to the marketer, savings for procurement, and more profit for the agency. How can this be achieved? There is a way forward for all parties, but they need to do the following:


1. Acknowledge complexity

The situation is intricate, so the three functions need to embrace complexity. Over the past 20 years, as agency remuneration has shifted from commission to hourly fees, the power base of this transactional relationship has moved from seller to buyer. This shift has been strengthened by the arrival of procurement departments.

Marketing, procurement and advertising each have their own talents, skill-sets, needs and motivations. Many of these are not aligned with each other. Because the three groups have conflicting objectives – greater value for the marketer, savings for procurement, and increased profit for the agency – they should acknowledge that any solution will be complex. They must choose whether to embrace complexity and change by design, or continue to resist in the belief that things will improve by default.


2. Review and change behaviours

The deadlock that has been created, and that is blocking untapped value, results from the behaviours of all three groups. In his book On Organizational Learning, Chris Argyris describes two different kinds of learning – “single-loop” and “double-loop”. These categories may help in examining the problems of the three-way relationship. Argyris defines single-loop learning as outward-looking problem-solving. He suggests that for a potential solution to a problem, people also need the capacity to look inward and reflect critically on their own behaviour – double-loop learning.

All three of our stakeholder groups need to adopt some double-loop learning. Best value is not achieved by the way procurement negotiates prices, or the way marketers use agency resources, or the way agencies trade in time and make money from inefficient development processes. To find a mutually satisfactory way forward, the groups need to review all these behaviours.

However, even undertaking just one of these changes will not achieve results. Agency proposals are almost universally met with suspicion, procurement people are still the pariahs of most agencies and marketing departments alike, and marketers appear not to trust either of the other two. To broker a way forward, a multilateral solution is required – one that satisfies the needs of all groups.


3. Put in place genuine “win-win” deals

Although two of these parties’ objectives – making savings and improving profits – might appear diametrically opposed, they are reconcilable if there is a willingness to change.

The latest ISBA Paying for Advertising report revealed record levels of client dissatisfaction with agencies over costs and transparency, and a belief that agencies are making too great a profit from their business. Strangely, this sits alongside a downward trend in the average rates paid to agencies. Had the report said that clients were up in arms about the diminished value they were getting from agencies, it would be a different story.

If marketers want to forge win-win relationships, they need to stop looking at costs and start looking at value. Engaging strategic or creative services is about buying services to solve problems that have infinite solutions. As such, a client driving down price might be given less priority in their agency’s portfolio – thereby being allocated just mediocre talent, and not benefiting from as much discretionary effort. Most advertisers ask their agencies for campaigns on a par with the Cadbury Gorilla or comparethemeerkat.com – yet these rarely emerge from leverage-buying behaviours.

When clients get it right and buy hugely effective campaigns, they spend more time managing their growth and calculating market share increase than poring over their agencies’ timesheets and overhead calculations. When you’re buying services that can bring about unlimited value, outputs are far more important than inputs. And if the outputs aren’t up to scratch, there are other options.


4. Address stakeholders’ motivation

Paying agencies well – or, perhaps, just paying less attention to their profits –satisfies only one of the three stakeholders’ objectives. To effect lasting change, each party has to be sufficiently motivated. But the motivation and urgency to change is not the same for each group.

Advertising agencies urgently need to change the way they are remunerated, not just because of marketers’ protests but also to survive. Procurement has at least a strong desire to get further involved in the complexities of marketing. Marketers have the least compulsion to change – the profession may be feeling the effects of the recession, but not enough to spark widespread, or even small-scale, measurable change.


So agencies, which are the suppliers in the transaction, have the least power and the greatest need for change; procurement has a desire for change but with no credibility with the other groups can’t get support; and marketers, which have the greatest power, seem to have the least motivation of all (see diagram).


To break this cycle, the industry needs change-agents with the self-awareness and humility to embrace a solution to a problem in which they themselves are complicit. Such change-agents will be on the buyer-side of the transaction.

So marketers should motivate themselves to find new ways of working with their agencies – and new ways of working themselves – that will involve much more efficient use of agency resources; a willingness to see their agencies’ businesses succeed; and a willingness to open their doors and minds to the discipline of procurement.

Procurement could take the initiative to lead this change. Because of the usually limited role that marketing concedes to procurement, most agencies have experienced only a leverage-buying strategy. Yet, as a business discipline, procurement uses many buying strategies, is familiar with complexity, and manages multi-faceted and difficult supplier relationships in plenty of other categories. With greater support, procurement may soon be able to buy marketing services better than its marketing departments, particularly if it is procurement itself that forms and leads truly symbiotic relationships with its marketing services supplier base.

Any advertiser and its marketing services suppliers can establish a way of working that is more productive for marketers, less expensive for procurement and more profitable for agencies. But, the question remains: “Which stakeholder has the self-awareness, the willingness and the power to be the necessary change-agent?” My money is on procurement.


David Meikle (dmeikle@saltpartners.co.uk) is founder of Salt Value Management, a marketing communication procurement consultancy

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