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Tuesday, December 9, 2014

Procurement Has Become The Bane Of The Ad Agency Business



I was startled recently, to learn that Procter and Gamble made news by posting on NASA’s web site that they were looking for ways to cut production costs and they would take ideas from anywhere, hence NASA.   A P&G spokesperson said that the entire production process had not changed in fifty years. He is, of course, correct. Clearly, P&G is desperate to find ways of cutting the cost of  print, television, video and content production. 

Procurement has now invaded all aspects of the advertising agency world.  Certainly, they have become involved with staffing, time and profitability. Now they are very much into the creative process.  I can’t help but think that while cost control has become a central part of every kind of business, it is particularly onerous in the advertising business - which should be about intellectual property and creativity.   

Unfortunately, ad agencies must share some of the blame for procurement becoming involved with creative and production.

In my advertising career, as an account guy I was helpless to prevent my various agencies from using the most expensive production suppliers. It was one area where account people really had no say in most agencies, even the most account driven shops.  Controlling costs was not part of an account person’s job.  When estimates appeared to be too high, occasionally if an account person was trusted by his or her creatives, he or she could negotiate for lower costs, but this was rare.  Creative directors, for the most part, insisted on using suppliers they knew, usually the most expensive photographers, directors and other production suppliers, all in the name of creativity and quality.  Clients, however, did exert some control and often pushed back when confronted with estimates that they thought were high.  This process still exists today.

I have written that we are seeing more and more of the advertising process being outsourced by clients or even brought in-house.  Today, clients are starting to outsource production to save money.  WPP, smartly, has Hogarth as its production shop. And while there is some push-back by the WPP creative agencies, more and more of WPP’s clients are mandating the use of Hogarth.  And Hogarth is also being used by non-WPP clients as well, because they believe that they are doing a good job of maintaining quality, while lowering costs.  The other holding companies are attempting to do the same thing.

P&G is correct in that the process has not changed in decades.  It is time that agencies take a leadership position.  My fear is that if they do not get ahead of the trend, it will get worse and ad agencies will lose complete control of the creative process.

21 comments:

  1. Paul, we are seeing this more and more...especially when it comes to an RFP or, worse, the dreaded, reverse auction. What makes matters worse, is procurement is going to the lowest cost providers, regardless. And still, we find procurement is buying baking ingredients one week, glass for bottles, the next or fabric for clothing, before turning their attention to production, creative or media services.

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  2. Paul, if you sell a commodity to large buyers, you are going to get treated that way. We refuse to sell a commodity. We don't do time sheets - never have. We don't bill hours. We sell outcomes not time. We work for clients who see us as a unique solution for them and are willing to engage and pay us that way. We do not work for clients who would force us through processes that demonstrate the organization doesn't see us that way, whatever excuses they may present. We gladly take risk along side our clients and share in the rewards of market success. Our approach leads to a very high level of repeat business, from individuals as well as companies. The outcomes we help create and the experiences we deliver are our bulwark against commoditization. Quite simply, there is no solution other than a client who insists, "No, they are worth it."

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    1. Bravo, Mark. In August, 2013, I wrote a tribute to Ned Viseltear, my former agency partner. He had an expression which is very apt here: "If you don't do bad work, bad work won't get done." I wish more agencies did what you d and adhered to your principles.

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    2. That's a really great perspective Mark. It's been said a zillion times, "clients get the work they deserve."

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  3. Paul, your comments about being helpless to reduce production costs as an account guy took me back to my very first shoot as an AE, a print ad for Myers's Rum. The ad featured a model holding a drink garnished with one slice of orange. I was astonished that the creative team bought a full bushel of oranges for this shoot. Scale up that practice with more expensive props and there you go! Agency IDEAS, however, are a different story.

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    1. Ed, I understand. I have been there. The problem is that the agency probably paid for a prop/stylist (nothing wrong with them, the good ones are worth every penny - for complicated shoots) at hundreds of dollars a day. The stylist bought the bushel of oranges so that they could find the perfect orange and take the perfect slice from it. And then it was probably retouched.

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    2. Yeah, now they can just do the whole shoot digitally!

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  4. Is this dissimilar from how holding cos' and network agencies' CFOs and COOs have forbidden HR and hiring managers from using external recruiters to control costs? The lifeblood of agency assets pinched by "procurement" policies.

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  5. This is nothing new. Back in the '80s both Warner Lambert and American Home Products had external production consultants. They would review every line item of every production estimate looking for ways to cut the costs. They would then report those cuts as what they saved the client. The most frustrating was one instance where the Art Director estimated how many hours of retouching the print shot was going to need, and put that into the estimate. The consultant sliced it in half. Sure enough, the AD was correct and those "extra" hours ended up going out as an overage and the consultant claimed he saved the client money.

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    1. I know a recruiter who became a production consultant. Not the point. The point is the frustration of clients with agencies that waste money. Ed's orange story is a good example. The point is that once P&G makes a formal decision and pronouncement, it will become the industry standard.

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  6. I don’t get it. Client Procurement people have been at the forefront of the agency new biz scene for at least 20 years. Not to supplant the Marketing group, but to evaluate comparatively equal “goods and services” proffered relative to competitive agency/production company bids. And what wrong with that?

    If I’m going to buy a Mercedes or BMW, I’m going to shop around for the best retail dealer price. If I’m buying bananas at my local grocery, I’m buying the best - Dole or Chiquita. And whichever has the lower price at that exact moment, wins my business that day.

    So, if a client advertiser or its agency search consultant always shops for “best-in-class”, what’s the deciding factor on a bid (whether for AOR or project work?) For procurement people it’s price/cost. For brand marketers it’s chemistry, job security, or bragging rights. Maybe the convenience of a local shop in Chicago or LA, or the pure fun of some guaranteed trips to NYC. Whatever the case, put it all together and you’ve got the rational and emotional “soup” we call Advertising (whether traditional or digital.)

    But enough about that … What I find most intriguing in this article is Mark DiMassimo’s comment that his agency never has and never will keep time sheets. Short of accounting to clients for the costs of the agency’s efforts, how does DIGO keep track of its internal cost accounting? Like which clients are actually profitable and worth keeping, and which ones aren’t?

    Because, just as top lawyers, doctors, dentists, and accountants know, TIME is the ultimate currency of any professional services trade, which includes the agency business! And, win or lose, it’s all based on estimated vs. actual manhours at any specific level of expertise. And not to forget that 90% of all advertising we actually see is ordinary at best - not to mention the 50% that actually stinks.

    Hence, Procurement People! Bill Crandall

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  7. Completely agree with Bill Crandall. First, it's not a new trend. Procurement have been heavily involved in vetting production suppliers for at least twenty years. I've worked with them for at least this long. And any agency who furnishes a bid that they can't live with should it be selected really isn't terribly clever. At Ogilvy, we generally had to provide three bids to the likes of Ford or American Express. They were all in more or less the same place, but inevitably, one was cheaper than the rest. Never mattered to us if they chose that bid, mainly as we wouldn't have put it forward if we were concerned they'd select it. The other thing is that value conversations take place with procurement all the time. A good brand manager can easily convince a procurement exec that going with a more costly bid means hiring a better director, securing a more premium print stock, and so on. They're not the enemy. Clients have every right to question what they're paying for.

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    1. @Unknown: I have no issue with what you are saying. Clients have every right to question costs. My point is that agencies, because of their profligate ways, are in danger of losing control. Under the three bid system you described, the agency was still in charge (as you pointed out, any of the three bids would have been okay, since the agency chose the bidders). What I read into the P&G thing is that they are trying to figure out how to change the entire system and that spells danger for ad agencies. When production agencies like Hogarth and now Craft (IPG) take over, the agency creative team loses control over the execution; that is nothing that any agency should condone.

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    2. Not sure you can automatically assume that. Depends on the specific piece of production. I don't see P&G turning over creative control to a production company for commercial shoots. The choice of directors or photographers, talent is unlikely to lie in the hands of the production company. What P&G may be interested in controlling are the other 100 line items on a production estimate, like location, catering, wardrobe and so on. I've not known procurement to interfere here, and most production companies don't want the risk associated with accountability for the end creative product.

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  8. @ Bill Crandall. The difference Bill is at the end of the day you'll buy a more affordable Mercedes. Procurement's job is to turn a Mercedes (idea) into a Volkswagen.

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  9. To Kieran Walsh ... If every agency creative "idea" were at least as good as a Volkswagen, we probably wouldn't be having this inane debate. LOL, BC

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    1. Then BC, why are you making this an inane debate?

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  10. And to Paul, who mentioned agency creative "control of execution" more than once in his article ... If it's a TV spot, the production company "Director" controls the shoot; for print, the Photographer. Even the best of agency creatives will tell you that. Then they huddle; see what they've got; agree on what goes to post-production; and there you have it! BC

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    1. Wow Bill, I have to jump in with another perspective. I don't know your background or what kind of people you've worked with, or how recently you've been on a shoot, but we've had vastly different experiences.

      I've had the privilege of working with the most amazing directors throughout my career (not to mention "the best of agency creatives" to use your own term) and a good 95% of the time the directors and photographers are collaborative, respectful, and work in strong partnership with the team, bringing a ton of value and vision while respecting the strategic and production boundaries of the job.

      In fact, some of my favorite projects with directors like (warning: namechecking) Jesse Peretz, Doug Liman, Lisa Rubisch, Paul Goldman, Danny Clinch, Brian Aldrich, Jonathan Notaro, Erick Ifergan, are those where we literally sat down together and collaborated before--and during--the process from the first calls through post.

      One of my favorite memories is writing new scripts together with Doug Pray in a bumpy van at 5AM on the way to a set in Aruba, so we could make use of a last-minute shoot location and talent who was a great improviser.

      That said, there are a few possibilities in your control scenario that I can see:
      1. The creative team simply was not that good or not that interested and handed control over. I've seen that before.
      2. The creative team simply was not that good or not that interested and so the director/ photographer took over out of necessity or lack of respect for the agency.
      3. The creative team did not pick up on cues in the initial calls with the production company that this was not a collaborative director/ photographer but made the recommendation anyway. Maybe they fell in love with the idea of a big name. It happens.
      4. A cost consultant bent on commoditizing the creative process forced the hand of the agency and chose not the most collaborative, best production company for the job, but someone who works cheaply. Cheap directors have a whole lot of incentive to get shit done, and fast. Can't really blame them.

      And then we've got the additional variable of giant global marketers who now mandate choices from pre-approved lists of directors and production companies, but that's a whole other issue that deserves its own post.

      I'll just say that on any shoot, the account and creative team must still function as agent for the client--that's why it's called the "agency," right? To simply hand over a shoot to a third party is grossly irresponsible to both the team who spent weeks or months developing the vision; but more so to your paying client whose name is, in the end, on that final ad.

      *sorry for the essay, Paul!

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  11. Same as films, movies, books, music, advertising, whatever. Because, in the end, the audience decides who's in "control". BC

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