by Tim Williams, Ignition Consulting
“Buyer beware” might also be described as “sold as is” — a warning about deals that seem too good to be true. Given the power currently ceded to procurement professionals inside client organizations, “caveat emptor” applies to agency-client relationships more than ever before.
The rise of procurement can be traced to the relentless focus on “shareholder value” in public companies, which has produced the “financialization” of business across the globe. The CFO has steadily gained power at the expense of the CMO. Brands have forgotten or ignored the fact that inside most enterprises, it’s only the marketing function that creates value; everything else shows up on the balance sheet as an expense.
The evolution of procurement
Over the last few decades, the procurement function has transformed itself from “purchasing” to “strategic sourcing.” Some large consumer brand companies have a “marketing procurement” function. While this is arguably a better framework for hiring agencies than applying the same purchasing techniques used for buying industrial chemicals, “marketing procurement” is an oxymoron if there ever was one.
Viewed through the right lens, marketing is not really a “purchase;” it’s an investment. Imagine assigning procurement the task of investing the company’s assets, or “procuring” original art. This point is beautifully made in the book Buying Less for Less written by my friends Gerry Preece and Russel Wohlwerth, who argue that the criteria for buying marketing services are nothing like the “specifications” involved in procuring manufacturing materials.
While materials manufacturers can work to “spec,” knowledge workers — like agencies —are engaged for completely different reasons. Even the most talented procurement professional cannot write a relevant set of specs for a marketing program. Marketing is by nature variable and adaptable. Attempting to define it by simply listing desired inputs (hours or time of staff) is an incredibly incomplete and ineffective way to buy the talent and capabilities of marketing professionals. Even the laborers who work for raw materials suppliers are not held to a standard of hours worked; that would be irrelevant.
This idea is even less relevant in knowledge work.
No economies of scale in knowledge work
More to the point, knowledge work by definition is not scalable. There are no “economies of scale” in agency creative departments. Conceptual solutions don’t roll off an assembly line, and the idea of “cost efficiency” doesn’t apply to the business of ideas. But because today’s agencies have done a poor job of packaging and pricing the value they create, the professional buyers in client organizations continue to pursue the wholly-inadequate hourly rate or cost-plus system of “procuring” agency services.
To the majority procurement professionals, a “volume discount” is expected with every transaction, whether it be office supplies or truck fleets. But applying this concept to knowledge work is not only misguided; it simply doesn’t work. True, much of the production work done by agencies isn’t really “knowledge work” per se, and certain efficiencies can result from more volume. But when it comes to the primary value provided by agencies — game-changing ideas — it’s nonsensical to think that a group of strategists or creatives could somehow produce more and more ideas for less and less money every time a contract is renewed.
Talented knowledge workers cost money. The only thing that happens when a marketer pays an agency less money for the same work is the marketer will ultimately get less effective work done by less talented (and less expensive) people. It simply can’t work any other way.
What’s true when purchasing a used car is especially true when purchasing knowledge work.
You get what you pay for.