Achieving buy-in

It was only when I started writing this piece that I realised the enormity of the task and the huge potential to alienate completely either my agency colleagues or a very important group at client companies. How to solve this almost insurmountable problem? Obviously I talked with a number of friends in both the procurement and the agency worlds. My agency friends advised me to withdraw from writing the article and suggest something a bit less controversial. On the procurement side, there was a general interest in the article as long as it was seen to be fair and not just a chance to have a rant. To me this sums up the current situation regarding the relationship between agencies and procurement.

There is an almost universal feeling agency-side that the advent of the procurement function in pharmaceutical companies has coincided with a drop in standards and a general commoditisation of the industry, and a general feeling of being wronged. On the procurement side, there is the feeling that agencies just don't get it, they have been 'getting away with it' for too long but now things have moved on and they just have to get used to the new status quo. And yet, in the middle, there remains a totally vital question: has the advent of procurement-led commissioning of creative services caused a decrease in the standard of output from creative agencies and where will it all end?

It's worth reminding ourselves that procurement in the pharmaceutical sector is a relatively new phenomenon when it comes to the purchasing of creative services. Certainly 10 years ago it was virtually unheard of. The practice flowed over from the FMCG and other sectors where use of the procurement function had become established if not accepted. The early pioneers in procurement in the pharma sector often used existing procurement personnel who were, it is fair to say, more used to buying bulk services like cleaning or transport – a world sometimes known as direct procurement.

For a while, the world of the communications agency with its flat fees, often intangible outputs and elusive ROI calculations was a hostile environment for traditional procurement methods which relied heavily on comparing like-for-like offerings and driving price based on the cheapest offering. Certainly at this time, it seemed to most agencies that the goal of procurement was simple cost reduction – and the 20 per cent discount figure was bandied about. In truth, the methods used by purchasing departments in those days were sometimes crude and often disliked by their own marketing colleagues who saw the arrival of procurement in the selection decision as unnecessary interference. Many agencies simply believed that with minor cost adjustments it would be business as usual.

What many agencies had failed to realise was that it was the beginning of a new trend that would completely change the way business was conducted. Instead, from the early days, entrenched attitudes on both sides were formed. Agencies saw procurement as a simple device to save costs and drive down fees and procurement departments saw agencies as slow to change; unwilling to be transparent; and sometimes unable to demonstrate the added value they provided over basic studio services that could be purchased at a fraction of the cost elsewhere. The lines were drawn for a long, drawn-out battle of attrition.

In the last five years, however, there has been a new influx of different procurement professionals to the pharma industry. These individuals are often drawn from the FMCG or consumer sectors and are used to working with creative agencies. They are more understanding of the role of the agency but less willing to be bamboozled by the vagaries of the creative process. They have also brought new tools – benchmarking (that previously appeared in a crude form) and formal appraisals for both agency teams and inhouse marketing teams. It is this newer environment that we should consider when looking at the issues of whether procurement of necessity is at odds with a true creative product, rather than the older procurement model.

When I asked procurement professionals what they are really looking for when purchasing agency services – they have almost unanimously responded that what they are seeking for their companies is value and efficiency. The uniformity of the responses might lead you to think that all procurement approaches are the same. However it is the very nature of the word 'value' that causes many of the issues between agencies and procurement.

Some agencies and procurement people see value as just another way of saying lower cost. Other procurers take a broader view – good service at a fair cost. All agencies understand the former approach but many are still suspicious of the latter; seeing it as merely a Trojan horse to lower cost. And lower cost is certainly a key objective whatever else is on the table. However, until it is measured as a 'value created' not 'costs incurred', it is a word that will continue to create much controversy.

Many of the current issues that arise between procurement and agencies have been brought on by fundamental problems on both sides. The agencies themselves have to shoulder a degree of blame. A surprisingly large number of agencies have concentrated their revenue streams on charging for the basics, a key visual out of which spin-printed collateral and other materials, which are of varying quality and easily commoditised. At the same time, many agencies have resisted seeking to charge higher rates or gain recognition for the clever thinking and strategic processes that really add something to the brand.

This historical pattern has encouraged some agencies to give up the fight for charging for what really matters ("they'll never pay for it anyway") and allowed procurement to assume that this added value should be seen as all part of the base price. Everything does have a price, but learning how to value great ideas that make a real commercial impact on a brand seems to be at the end of the line when it comes to many purchasing decisions. As recent experience with large procurement processes has amply demonstrated, many agencies themselves fail to value the 'clever-stuff' – so we cannot blame procurement if they follow suit.

On the procurement side there is a tendency for some teams to work in isolation without fully understanding what they are buying. In an attempt to turn the various elements of a proposal into a list of simple commodities to allow easy comparison, the nuances of the proposals, which are the real added value, can get lost. Marketing departments should be fully involved with the procurement process to ensure they get what they want – but there is a strong trend for marketing to leave the process solely to procurement, resulting in a lack of clarity about what the agency is actually going to deliver.

Here lies one of the key issues that faces the creative service procurement process. It is hard to criticise an agency for failing to provide added value or innovative services, when the cost system used fails to recognise or pay for those services. On the other hand, agencies themselves also need to recognise this value and be prepared to sacrifice the commodity business in order to protect what really matters to the success of the brand.

Given the tough current financial situation, which will only get worse due to the huge amount of public debt, the focus for both sides has to be how to deliver more for lower budgets. Some agencies and procurement professionals might interpret this as meaning that the agencies should do more for less. Procurement specialist Richard Woodford was recently quoted in Marketing magazine as saying: "They [agencies] need to stop bleating and get on with it". However some others are interpreting the need to get more value as looking at all ways to increase efficiency.

Procurement has a major role in helping both agency and marketing departments to achieve this, without seriously affecting agency profitability. There is no doubt that there are huge inefficiencies in the agency-client relationship. If ideas are generated then rejected by clients because they are not what was actually wanted this demotivates creative staff and costs the agency significant amounts of money in costs and time.

Procurement has a significant role to play in ensuring that the right decision makers are in the room at the right time, and that process on both sides is followed. Agencies would (or should) be happier to accept lower fees if they can be sure that they will recover all hours worked, or, if costing by project, they avoid endless unpaid iterations. Creatives will be happier if they work to a brief which they know has been agreed by both parties and will be used as the objective criteria on which to judge the output.

The biggest demotivator to any creative department is churning out ideas knowing that most of them will never be bought. Enlightened procurement recognises that there are many ways to keep the agency motivated, and money is not necessarily the only factor to consider. Most agencies enjoy working for clients who recognise and accept good ideas, and who have a clear vision of what they are looking for before it is produced. Procurement can have a very valuable role to play in this respect, but only if it works in total cooperation with the marketing efforts.

In terms of costs, procurement needs to recognise that there are limits to how an agency can continue to provide the best people to really add value to accounts. While agency hourly rates and fees per project have not risen in real terms in the last five years, staff costs for every agency have. The other fundamentals of agencies costs (accommodation, etc) have all either remained steady or risen, so that in real terms the true cost per hour for the agencies has risen considerably. The reductions that procurement demands from agencies have to be funded by increased efficiencies on both sides.

In addition to working with all sides to ensure that good process is followed, procurement can also save agencies money, and therefore have more money available for cost reductions by avoiding unnecessary pitches with too many participants. The cost of all pitches goes on to the agency overhead and has to be recovered somewhere. Ensuring that agencies only pitch where there is a realistic chance of winning (ie, a real pitch with ideally no more than three agencies participating) would go a long way to allowing agencies to provide the value that clients need, without sacrificing quality of thinking and service.

One thing is for sure, with increased pressure on pharma companies' margins coming from governmental price control, loss of exclusivity and drying up pipelines, pharma companies will continue to seek to wring maximum value from every pound of marketing spend – and so the procurement process is here to stay.

We can all either continue to yearn for the good-old-bad-old days, or look for ways in which all parties can deliver maximum value for the brand. Mutual respect, dialogue and shared purpose may not solve all problems, but they certainly beat a cold-war or outright hostility.

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The Author
Max Jackson, is CEO, EMEA&APAC, at Sudler & Hennessey
He can be contacted at max.jackson@sudler.com

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