The Coming of Age of Procurement for Agencies

Posted 16 October 2015.

​By Brian van den Hurk, CEO, FCB New Zealand and member of the CAANZ Executive Board

​Procurement within client organisations has evolved and matured over the last few years in its dealings with advertising agencies, which is great news for the industry. It’s now not only about selecting an agency but also maintaining relationships and improving the overall efficiency, producing more effective work and creating business results for clients in the process.

In our experience the most successful procurement team interactions don’t just look at the appointment in isolation, but continue to engage with us, nurturing a relationship between their marketing team and the agency. This approach ensures that the way we work together produces the best communications, most cost effectively. It’s an ongoing relationship that looks at how the scope of work changes over time and allows a better remuneration structure to be put in place that will benefit the overall efficiency of the agreement.

We have seen clients move on from the days of having conflicting goals and incentives between procurement and marketing teams. Historically procurement were often incentivised to achieve the lowest possible cost or make the biggest demonstrable cut. The marketing team on the other hand were incentivised to find the best partner to help deliver to their brand and sales targets. With different agendas and lack of clarity around expectations of service levels, this ultimately eroded the relationship between marketing and the agency. Now with SLA’s and ongoing reviews the relationships are in much better shape which produces better more effective work.

Agencies are incentivised to make a margin, but also to produce work that adds to their reputation (at FCB that reputation is about creating behavior change) and provide an environment for talented people to excel. Procurement are increasingly recognising the value of highly motivated marketing and agency teams working well together.

The often intangible nature of creative work has proved challenging in the past for procurement teams that are used to assessing the value of physical products and widgets. It’s a different mind-set when it comes to negotiating creative output. A great creative idea can be cracked in a day or it can take weeks. Are you buying a lower head hour rate or are you buying an end result that’s going to change the behaviour of your consumers? We’ve seen more procurement teams who understand this challenge and this has gone a long way to improving understanding between both parties.

James Murdoch, 21st Centry Fox CEO said it best at this year’s Cannes Lions Festival in France: “Efficiency is not about spending less, it’s about having greater impact”.

Recruiting the best talent within agencies is therefore key and we have to maximise our efficiencies to maintain a level of income that allow us to retain this talent in a very competitive market.
Agencies are now competing for staff with the likes of marketing organisations, governmental departments and the IT industry. It’s fairly straightforward maths and agencies quite simply will go out of business if they can’t manage this properly.

While there have been improvements in procurement, there are still some clients that are stuck in the rut of highly complex pitching and that impacts agencies’ ability to improve cost efficiencies. The reality for any business is that it needs to make a margin. If agencies are spending (say) 10% of their time pitching, that cost recovery has to come from somewhere and they can’t continue to improve cost efficiencies across the industry.

The All of Government procurement contracts have gone a long way towards reducing the complexity and cost of pitching. It was a common view that the pitching process was too complicated and onerous for both sides. There was a strong desire to simplify the process to reduce time and cost with the common goal of a more streamlined procurement process.

Overall procurement should be an essential part of a very effective client-agency relationship that builds strong institutional knowledge whilst pushing for innovations and efficiency. It should also serve as an honest reality check for both parties in order to keep costs in line with the market. In our experience, when both agencies and procurement approach discussions and negotiations in this way, both parties should get a successful outcome.