The rise of marketing procurement is well documented. But now advertising and media agencies themselves are beginning to recognise the value of having a senior procurement professional involved in pitches and client negotiations.
MDC Partners is a holding company to over 50 creative communications agencies with a plethora of specialties, including advertising, crisis management and PR, based across North America and Western Europe. It has just hired its first CPO in a client-facing role to work across agencies and guide them in best practice procurement.
Brett Colbert has sat “on all sides of the table” with a career spanning traditional and advertising agencies, before he began a procurement role in earnest with Warner Bros Entertainment Inc, Nestlé and brewery Anheuser-Busch InBev. Citing WPP and Omnicom among its competitors, MDC Partners is one of the first holding companies in the advertising sector to have a CPO in a client-facing role. His specific goal is making sure pitches and negotiations change their focus, from cost savings to value.
Colbert explains how he plans to go about achieving that. What was your first procurement role?
I got into procurement by accident. I had worked at both traditional and media agencies and was leading global business on the agency side for Disney. I got a call from one of Disney’s competitors [Warner Bros, now Time Warner], who wanted me to do the same kind of work for it. I said: “Well, I love these studio environments, but the role says ‘procurement’ and I am not exactly sure what that is.”
Clearly, we were speaking different languages. Within media buying there is a currency called CPM – cost per thousand. In US procurement, the certified purchasing manager is also CPM. I had to educate them on what the cost currency was when we were buying, but by the same token I naively questioned what CPM stood for.
But I think it was the fact that I didn’t go in there and talk about best practices and benchmarks and the seven-step process that allowed them to think this candidate might be different. At the time, the procurement department needed an expert in the marketing procurement category that could be bi-lingual – who could speak marketing, but also understood that the practice could be done both effectively and efficiently.
People working in advertising or marketing communication agencies have been doing the role of procurement their entire careers. They just didn’t realise it was called procurement. Agencies invest clients’ dollars in communication and they will pool to buy services from sub-contractors or production companies. So they have always been incredibly skilled experts in the art of negotiation and how to take a look at a total cost of ownership model – they just haven’t necessarily had the audience to communicate the result to.
We talk about procurement either on the direct side or something commodity driven. People wouldn’t necessarily consider media to be a commodity, but it is probably one of the largest global commodities and it’s purchased through trading desks, and everything is now based on engagement or performance-based metrics.
What is your remit as MDC Partners’ first CPO?
My remit is to focus on top-line growth. That is a bit of a contradiction for a CPO, who is typically focused on bottom-line spend. But rather than focus on cost reduction, I need to consider spend maximisation, so that we can allow management to track our spend against the value that has been created.
There is a business need to focus on the bottom line as well, but in our industry what we procure primarily is human capital. We procure talent. We wouldn’t want a cheaper version of ourselves.
The whole business of marketing communications has changed. MDC is very nimble and is delivering global solutions for global clients, but clients are trying to do more with less and agencies are having a hard time establishing profits. We share a lot of the same clients with our competitors [including WPP, IPG and Omnicom], so we need to have a speciality or a level of expertise.
We also need to communicate to all of our clients and all of the vendors we work with what our differentiator, our competitive advantage is. MDC Partners wants to grow and find new partners by increasing working capital.
But we also need to manage processes, so we can improve metrics. Marketing is a process that, historically, has rarely been reviewed or optimised, except when there are financial incentives for both parties. So there may have been a huge spend from marketing in an organisation, but there was little or no coverage on the category because there weren’t the people to go in and objectively focus on the return of that spend.
So at MDC we are trying to cultivate ‘owners’ within the agencies who, while certainly not having a mandate, have an assumed accountability, and take into consideration procurement, measurement and metrics, so that we are all delivering on the same goals.
That is why MDC has brought in a CPO: to act as a conduit to help deliver against those multiple agendas.
How is procurement structured at MDC partners and what prominence is it given?
It is a centralised resource, which partners with over 50 ‘partner’ COOs and CFOs. Like most holding companies, we have been decentralised in nature and it has primarily been the agencies’ CFOs dealing with client side procurement. So there was a huge demand for procurement because it has provided the opportunity to have a discussion about centralisation and demonstrate what the benefits could be of a disciplined procurement process.
We identified that procurement is a tremendous resource to have that could really drive the strategy. So it’s less tactical – instead, it’s highly strategic.
MDC is the only holding company that has brought in this dedicated role. Our chairman and CEO, Miles Nadal, wanted to pre-empt what was happening in the industry and create better partnerships with our clients, so that agency side procurement can collaborate with client-side procurement.
But we would still want our agencies to own the relationship – we are there to help with the task.
Too often when you engage client-side marketing procurement with the marketers the lines can unfortunately become blurred. We don’t want to have an impact on a relationship with strategic and creative resources and talent.
Why are agencies increasingly looking to hire procurement professionals? Is it so those lines don’t get blurred?
Yes, and also to put a little bit more rigour into the process.
Most important, however, is to help agencies understand how the client is measuring marketing procurement. What is unique about marketing procurement is that so many of the savings are classified as cost avoidance, or clients want to focus only on savings that can be applied to the bottom line.
Our industry is suffering from an obsession with cost and balancing this with value. But value has always been more important than price. And hourly rates are not a measure of value. Client-side procurement is driving down pricing to prove its value to the organisation, and a lot of agencies are just saying “yes” to remain in the game. That defines a new benchmark.
When did this shift from marketing as an investment to marketing as a cost become okay? If marketing simply remains a cost we have to question why clients continue to spend increasing amounts of money on marketing and communication.
But what the agencies are doing today is not at all what they were doing yesterday. So the baselines are not similar. Now there is more than one stakeholder in the room – a client marketer and a client marketing procurement person.
What MDC Partners hopes to do as an organisation is discuss the measures that truly matter and what is used to define success. Because not all metrics are about saving targets and procurement doesn’t always have to be a cannibal to what that marketing objective is.
How common are CPOs in the agency sector?
You almost never see them. I strongly feel my role is unique. Many companies have tried to do something similar historically, but until you understand how the creative person you are talking to is measured and motivated, and you understand what the metrics are that really matter, it is very difficult to establish and build that relationship.
I am very thankful that I have been on many sides of the table in this process because when you are having a dis- cussion with an agency and a client you want to maintain that relationship, you want to ensure there are not many opportunities for it to become contentious or adversarial.
But a lot of clients don’t realise perhaps that the investment they are making with their agencies is more than just a cost.
But one thing that I do remind everyone is that in the end we all want the same thing, and that is to generate additional business through communication.
MDC Partners is starting to take this approach as a way to develop the relationship and position itself as a useful partner. You have been quoted as saying: “The big opportunity is to say to the agencies: ‘It’s not a negotiation if you don’t say no.’” How can you encourage agencies to make sure their client discussions are not centred on driving prices down and ensure that conversations between agency and client are fruitful?
The people that are actually managing and leading negotiations don’t necessarily own the budget or the scope of work. They are negotiating on behalf of a stakeholder or an internal client, and have a mandate to implement a cost reduction target. So when they do this they are having an impact on someone else’s delivery.
When this becomes a mandate and the agency doesn’t have the ability to ask why, this is no longer a negotiation.
Items such as payment terms can, in some cases, cause agencies to finance their clients. When you have a global brand and it looks good on paper, you have got to weigh up whether it’s a smart business decision to invest or ostensibly to have to pay your client.
What are the main challenges you currently face in your job?
Really, it is about acceptance: from the organisation and more so from the industry. Marketing procurement has been considered to be both the bad and the ugly of the good, the bad and the ugly equation.
When I was on the other side of the desk, in marketing procurement, we were building what we call a procurement task force to generate positive awareness of what procurement can bring to a company.
A lot of people in this sector can identify how to develop and optimise relationships, strategically source partnerships and deliver efficiencies based on that.
I have had a lot of conversations with agencies where the first thing they say when they hear “procurement” is: “We’re having a hard time getting along with procurement.”
There is a feeling among them that procurement doesn’t understand what they do. So we are taking the time to educate them on not only what we do, but also how we can help them.
When you have two parties that are negotiating, one party hardly ever asks the other: “Help me
understand how you are being measured.”
If an agency better understands the metrics that a client is working to, they can help deliver results.
These negotiations don’t have to be contentious discussions. It’s about better alignment to objectives and goals and improving the value from both parties.
Is managing procurement across multiple organisations a challenge?
Absolutely. When you have a decentralised organisation and you want to make sure you are articulating the benefits by aligning to a process, or in many cases defining what the process is and what the returns will be, it is a challenge.
Agencies could be at risk of eating into their profit margins as running costs increase faster than fees. Clients hire agencies to deliver innovation. But not all of them are willing to pay for it. So we have to work harder to get them to take chances, but most importantly, to budget for it.
So we are working as hard as we can to capitalise on and fund innovation on behalf of our
clients, but it’s challenging that they are willing to pay us less. As a group of 50 companies, we have to really align on how we can best deliver cost values for our client and procurement plays a central role in that.
How have your previous roles informed what you are doing now?
It’s led to everything that I do now. I think that procurement needs to be exceptional at client service. Too often, procurement is being measured on its quantitative performance perhaps, rather than its qualitative performance.
Stakeholder value is incredibly important, but the performance of different stakeholders and how they are compensated is never taken into consideration. That is the irony.
If you have a stakeholder who feels that you provide tremendous value to their organisation, it doesn’t necessarily deliver to the CPO’s objectives. I have tried to change that before and we certainly want to change that at MDC Partners.
What is most important to us is that we are delivering value not only to our agencies, but also to our clients, not just being documented through efficiencies.
There is such a large focus on cost savings within the industry of procurement. Too often people don’t have the time to be strategic and identify innovation. So we criticise ourselves for not delivering innovation in our roles. But when these innovations come to life, that is when you truly feel like you have delivered value. With technologies and trends in the marketing world moving so fast, what is procurement’s role and what does it need to do to prove its worth?
Technology brings huge opportunity, in process alone. Specifically, clients are forming marketing technology teams, with an entirely new set of requirements. Newer stakeholders in organisations, such as the chief information officer and the chief technology officer, are coming into play.
One of our agencies has been awarded ‘Marketing Technology Agency of Record’, which is a brand new kind of deal. To further support the innovations that the agencies are delivering, they are going into new ventures and working on certain outputs that can be modified in unique and new ways, because of technology.
The important thing is that agencies are clear about the role they play in this. We are trying to find new ways to add value for our clients. So the proliferation of data and the increasing use of cloud-based marketing technology is having a major impact.
E-sourcing is also changing the dynamic of procurement, slowly, and using e-sourcing techniques can remove emotion out of negotiations. It is groundbreaking. So procurement professionals now need to be what I call “gamers” – they need to be competitive, strategic, collaborative and really want to win. More generally, what are the biggest current challenges for procurement and supply chain teams?
I’d assume everyone would say the biggest challenge is achieving sustainable savings and growth. Sustainability is huge. We want to make sure that we haven’t surpassed the point of diminishing returns. Asking for incremental 10 or 15 per cent savings year on year is no longer sustainable.
We also need to ask ourselves whether we are truly measuring the total cost of ownership. We know the cost of acquiring is far more excessive than the cost of retaining.
And if we are, effectively, putting our existing relationships in a compromising position where they can no longer work on our businesses, it may appear to be artificially less expensive to go with a lower cost partner, but we need to take into consideration the investment that needs to be made to get them up to speed, whether that is in hard dollars or intellectual property.
All about MDC Partners
Headquartered in New York, MDC Partners is a holding company for a network of 50 advertising, creative and media agencies behind some very high-profile work, such as Benetton’s UNHATE campaign and Gap Jeans’ Madonna and Missy Elliot TV commercial.
While 95 per cent of its operations are in North America, MDC’s clients are multinationals and it has a presence in Europe with the agencies CP + B Europe and Northstar UK. Its largest sector of operation is consumer products, which makes up 34 per cent of its output, followed by retail (16 per cent) and communications (15 per cent). The vast majority of its revenues (80 per cent) come from non-traditional marketing services.
MDC Partners’ offering focuses on providing services in digital and social media (which makes up 50 per cent of its revenues), PR, experiential marketing, data analytics and database marketing, and it’s ambitious and ongoing acquisitions strategy is driven by the desire to improve overall capabilities in these areas.
Operating with a ‘Strategic Resources Group’ that works across the 50 agencies – or ‘partners’ –
MDC provides resources and input into new business development, and aims to foster cross pollination of client relationships and overall strategy in all its areas of operation.