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Smart Thinking blog

Insights and expert advice on the key issues facing today’s pharma marketer

Evolution or Revolution?

It is five years since the IPA's Magic and Logic white paper expressed ideas on how the triumvirate of marketing, procurement and agencies could play nicer with each other in the same sand box. Has anything changed?

The short answer is "yes".  Charles Darwin was already alluding to the reasons for this change right back in 1859 when he first published The Origin of Species. I am not talking about survival of the fittest and the theory of natural selection, but more about everything surrounding that tenet. This is about ecological interrelatedness, and the complex interdependencies that exist between in that case animal and plant life, but in this instance between marketing, procurement and agencies.

Sit through any procurement presentation today and you will hear things like "value contribution", "strategic imperatives", "business centricity", and similar. Not so long ago the phrases were "cost-savings", "category management", "spend analysis", and "opportunity assessment".

So has marketing procurement evolved significantly to play a more substantial and value-adding role in the marketing space? Or have they simply changed the words they are using? The answer is both!   

The first part of this question is certainly true. Marketing procurement has certainly evolved; with the change in terminology simply a function of that maturity and evolution.  

The buying model
One major criticism of marketing procurement previously was that it applied the same rules and techniques to procuring marketing services as it did buying paper and staples. In addition, the people doing the procurement often knew nothing about marketing and even less about the business objectives that the marketing teams were supporting.  

The early marketing procurement professional evolved from the DNA of the more traditional direct materials buyer, or at least the more atypical commodity-based buyer. The natural inclination therefore was to exhibit the same characteristics as his ancestors: isolating their agencies from one another, often providing them with asymmetric information and subjecting them to ritualistic and inappropriate rounds of test where the criteria and selection decisions were misaligned with the business drivers and not relevant to marketing as a function.  This did two things: it alienated procurement from marketing, and it alienated procurement from the agencies.

Phil Bartlett, general manager of Torre Lazur McCann London, recounts his first experience with procurement: "Personally, my first experience felt like being beaten up. We'd been working with a client for a couple of years with no increase in retainer. Our client was really supportive of our work and we were totally integrated with their brand team. We all agreed we needed to increase the retainer. Our client said we'd need to talk it through with their procurement people.I thought it was a formality…

"The meeting involved me, my client and the head of procurement, who started by saying that firstly we were paid the most of any agency, that we weren't getting any more money, and that if we couldn't continue to offer the same service for the same money we would need to work out what we would need to remove from our service, and if this affected the working relationship with the brand team then they would probably put the brand up for pitch. Simple."

This sort of autocratic and formulaic approach from procurement professionals possibly forms the foundation of the struggle procurement has faced in getting traction and credence in the marketing category, and on the evidence presented is well justified.   

What triggered the change?
So what changed in the ecosystem of the marketing procurement professional? What drove the evolutionary change that allowed some procurement departments to become more aligned with the business objectives of the marketing teams?

As with any evolutionary timeline, it's easy to see, with the luxury of hindsight, the mistakes that an early incarnation of that species makes, and the rudimentary tools and techniques it uses to get the job done when that's all it has at the time to work with.

It's only once a species has actually undergone that evolutionary change that one can look back at the origins and be astounded by the development. 

Even so, Darwin has taught us that a species will not evolve without cause or reason. There must be some external influencing factor in the ecosystem that necessitates and drives the desire and need to change in order to survive. So what was the trigger? 

The answer is 'marketing'. The marketing departments demanded a more savvy and connected procurement professional. The demand wasn't just for someone to be able to exist in the ecosystem in which he lived, but for someone who could positively influence that ecosystem. Marketers only wanted someone who could positively contribute to solving their challenges. Simple existence wouldn't be tolerated. Times were lean, the job demanding and a non-value-adding function wasn't welcome.

  • Procurement IS redefining its function, to varying degrees and at varying speeds, with the traditional direct materials buyer being superseded by a more marketing-savvy professional
  • Business models are evolving within pharma that create a constructive interrelatedness between procurement, marketing and agency
  • 'Value' is the key driver of change – both in terms of what procurement can bring to the process and in defining ways to contribute value to a brand
  • 'Partnering' with agencies and understanding the issues and opportunities for both parties is the way forward

When asked for her view on the drivers for procurements' evolution, Jane Kidd, vice-president within Janssen's strategic marketing group offered the following:
"The procurement function in most businesses started out focusing on reducing costs and achieving more for the money spent. I believe that in order to be successful in the future this needs to evolve beyond a singular focus on cost-reduction, as this is not sustainable for either party. 

"In the work we do with our stakeholders we want to show value in what we deliver and how we deliver it. For example this is value above and beyond being the manufacturer of a medicine. It's about understanding the environment our audience operates in, their issues and needs. It is also about thinking more holistically about healthcare – and that a medicine is only one part of the solution.

"This same approach is what we want from our supplier partners: knowledgeable people, who understand our environment and who can add value in helping us address our needs beyond a specific project brief.  This value is worth paying for and a focus on cost reduction does not allow this to be realised. The procurement function is in a position to facilitate this discussion, identify suppliers who we can partner with and move the discussion beyond the project brief via creative approaches to partnering."

Review of the processes
So marketers began to demand a more savvy procurement partner who understood the fundamentals of marketing. Someone who understood the wider objectives of the organisation, and could make the right connections both internally and externally to help drive growth, not only focus on cost containment.

At the same time agencies were becoming more aware of their changing role in the ecosystem and improved their understanding of the value that the procurement function could bring through better connections with other parts of the business and connections with other external partners. The really forward-thinking agencies treated their time with procurement as an investment and an opportunity to integrate better with multiple functions in the business, rather than just an obstacle to new business opportunities. All of this has influenced and contributed to the development of these functions.

Phil Bartlett comments: "Being asked by clients about processes rather than creative awards was a major shift, and it made agencies think more carefully about how they organised themselves. If the financial checks were going to be tighter, then the way we worked needed to be tighter too. Efficiency became key and that meant reviewing all our internal and external processes. 

"Client and creative briefs had to be clear and concise, because sloppy briefing meant inaccurate work and that cost money and money was tight. Profitability of different pieces of business started to drive internal planning and discussions, to the extent that certain pharmaceutical companies got a reputation for being impossible to make money out of."

Procurement version 3.0
So is this the new improved version, procurement 3.0, the final chapter? Phil Bartlett believes the changes are significant: "Procurement isn't the same animal we first met. It's got a tough hide but it's not all-over body armour any more, and that's because of one word: 'value'. There is an appreciation that strong agencies drive strong marketing, which drives strong brands. And brands have value. 

"Coke is just sugary water but put the brand behind it and it becomes a part of millions of peoples' lives across the globe. Even the most hard-nosed accountant would never doubt the value of the Coke brand, and it's transposing that into pharmaceuticals that has been the key to success. There is also more of an appreciation that to get the best out of people, you need to treat them as partners rather than suppliers. Keep this under your hat, but agencies work hardest for clients who appreciate our hard work.  Paying good money for good work is good business for everyone, and the best procurement people realised that a while ago."

Myself, I believe that we are not all there yet – some procurement professionals are a long way behind, but if Darwin's theory was right, everyone will have to get closer to the 3.0 mark if they are to survive. I leave the final words to Jane Kidd, who summarises nicely where I think all marketing procurement professionals should be heading.
Jane Kidd says: "In my mind the future of our business ecosystem is one that is fully aligned with regard to achieving the business goals for both us as a healthcare company and also for our supplier partners.

"We need to think and act as one team throughout the development and commercialisation process, and ideally see the partnership as a long-term relationship that is based upon success for all parties. This means we need to have a different mindset about sharing and collaboration, and also how we partner. It's about how we move away from a pitch, project and hourly-rate-based approach to one of joint reward and return based upon long-term outcomes – performance based remuneration." 

Jane adds: "I also believe that we will be more successful if we share and collaborate to achieve both organisations' goals above and beyond delivering specific brand or business projects. Only by understanding one another's issues and opportunities in a more holistic way can we achieve this."

Article by
David McKimm

works in procurement as marketing services manager with the EMEA commercial services team for Janssen
He can be contacted at dmckimm@its.jnj.com

14th September 2011

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