In a recent article titled How to make friends and influence marketers, Procurement Leaders articulated as clearly as I have ever seen the fact that Marketing Procurement, as a discipline within the sourcing area is here to stay, and in fact likely to grow in importance.

A key fact is that marketing procurement has the goal of ensuring that every advertising dollar spent, is used in the most optimal way possible.

So targeting business efficiencies, which can be in the interests of both clients and agencies, is key to the task and surely this is where Procurement can deliver real value to the marketing environment.

The end game is not to reduce overall expenditure but to buy and receive the maximum service possible, at the best price possible.

It is interesting to see the other side of the argument in an article in Adage from the individual agency perspective, where driving down rates is seen as a destructive end in itself. I fully agree that once costs drop too low that the talent issue comes into play.

BUT...the question is who is responsible for setting the correct price? The buyer or the seller? The agency perspective seems always to be that it is the seller (client & procurement) who is at fault.

As we all know the "market" needs both parties to agree, so if the price asked for is too low then the seller has the right to go elsewhere. I suspect that till this happens the natural forces of competion will continue to exact their toll on agency margins.

We are currently drafting a whitepaper on best-practice Scope of Work (SOW) and Agency Compensation management.

Any input on these topics, below would be very much appreciated.

Some key questions under consideration, are:

• What should a best-practice Scope of Work should contain?
• How you handle approvals?
• What are the key considerations in handling Version control? Specifically, what are the best ways to handle variations to the original scope?
• How do you prefer to view agency resource plans? What is the key information you seek in these documents?
• What is the best way to handle agency compensation based on deliverables, rather than labor based models?
• What are you thoughts on benchmarking agency costs? What's the best way to do it and why? What are the key considerations in benchmarking agency costs?

Note, in this paper, we plan to focus on SOW and Compensation process, rather that the type of compensation that is chosen. Feedback from major advertisers indicates that most are more concerned about better managing SOW and Compensation processes than trying to implement new, complex compensation models.

Please contact us at blog@decideware.com if you have thoughts on these issues; your contribution will be highly valued.

Richard Benyon (Decideware)

An article from Industry Week released this week titled "Purchasing Officers: Confident Now, But is Trouble Ahead?", discusses the finding of a study conducted across 400 CPO's and purchasing directors of large organizations across 5 countries (United States, United Kingdom, France, Spain and Italy).

A key finding we picked up on was the ROI finding around Supplier Performance management.

"Of those purchasing professionals that have introduced new systems and processes to their supplier management strategy over the past 12-24 months, a large proportion report a clear return on investment within six months: 41% have made savings from greater supplier performance management, and 31% witnessed improvements from eSourcing tools and templates."

It seems that SPM is really delivering the goods under the current economic environment, where there is a strong emphasis on cost management.

Why???

My theory is that it is very hard to find any other "procurement/purchasing" process where there is such a high focus on action. Well designed SPM by it's very nature is focused on outcomes. So if these outcomes are clearly aligned with cost savings efforts, we can modify both our supplier and our behavior to meet those goals. With Strategic SPM we have the tools to figure out where we need to look (ratings and scores), as well as what to do when we find it (comments).

Author: Richard Benyon (Decideware)

In the latest edition of The Advertiser I was quoted as saying the following about the new Coke compensation model.

"Does this mean that Coke’s agencies are being paid less? If the answer is no, then it seems to be going to a lot of effort to get the same result."

The implication of this quote, especially when placed in a section looking at cost containment is that I think that agencies should be paid less.

I don't think that at all.

In fact what I said was:

"Does this mean that each Coke agency is being paid a significantly different amount? If the answer is no, then it seems to be going to a lot of effort to get the same result."

What I think is, that if the new Coke model is still essentially paying agencies for labor, as it it before, then is there a significant benefit to change?

I want to state for the record that I am most definitely not an advocate of their agencies being paid less.

I am definitely in favour of better compensation systems which recognise and reward agencies for value they deliver beyond their labor efforts, i.e. the new compensation system results in agencies which deliver greater value receiving a higher level of compensation.

And the flip side is, of course that agencies which don't deliver value (even if they deliver labor) will probably receive less than those delivering greater value above their labor inputs.  

The base fee of new Coke model features what I would characterize as "unit-based" compensation where Coke sets the parameters of a unit, e.g. a TVC based on historical cost data and the characteristics of this particular unit (complexity, competition etc.)

However, this part of their compensation model is essentially still a labor-based system and not one which rewards value creation.

If agencies are all paid roughly the same, i.e. the (labor based) unit cost, then what's the mechanism to reward significant value creation?

And to my mind Incentive Compensation used to provide all the profit margin, with the significant risk involved, is only part way along the curve of true Value-based Compensation.

Summary

So for the record I definitely do not want agencies to be paid less, and I do not want anyone to think that the success of the Coke compensation methodology should be based on whether they pay their agencies less.

What I do think is that the effort and risks of moving from "service-based" to "unit-based" compensation model needs to be balanced against the outcomes that it produces, one of which is a variation in the amount paid to each agency.

Author: Richard Benyon (Decideware)

The Association of National Advertisers' (ANA) Agency Relations, West Coast Chapter is scheduled to meet Thursday 10 December at the Farmers Insurance Group offices in LA.

The second agenda item is a case history presentation highlighting Genentech's work in marrying Decideware's agency relationship management software with best-practice agency evaluation concepts from the ANA, to develop a structured and comprehensive performance management program.

I will be assisting in the presentation, to support Kate Corpus, Senior Manager, Agency Management & Support Services at Genentech.

I'm looking forward to meeting the West Coast Chapter once again to discuss a crucial aspect of agency relations practices - formal agency evaluation and ongoing performance management. 

Author: Richard Benyon, Decideware 

ANA Master of Marketing Conference

November 5-8, 2009

I attended the ANA Masters of Marketing conference last week in Phoenix Arizona, along with 1,200 other participates. The size of the audience indicates the importance marketers place on this ANA annual event. 

There was a great variety of speakers from various companies, including marketers from Coors Light/Miller Light, The New York Times, Kodak and Wal-Mart among others.

Perhaps not surprisingly, many of the speakers focussed on how to get beyond the recession and they discussed the attributes of different techniques, including viral marketing vs. mass marketing and staying with your core - defining and communicating who and what you are in this economical climate.

Just a few examples of marketers responding to the econoomic challenges, included:

Dairy Queen: leveraging their 70 years of heritage and strong brand recognition in updating and growing the QSR (quick service restaurant) business.

Kodak: keeping their valuable core “Kodak Moment’ and firmly moving into the digital market

Wal-Mart: going back to the power of their roots - Save Money Live Better

In regard to hot issues, viral marketing was strongly endorsed as a "fabric running through all marketing genre".

And there was also considerable discussion about the use of newer, digital techniques, such as viral marketing, facebook, twitter, etc and the challenges marketers face in trying to access measurable metrics.

All in all a very worthwhile investment in attending the conference to refresh my understanding of best-practice marketing.  

Author: Liz Geiser (Decideware)

DECIDEWARE PRESENTS TO ISBA's COMPAG on Agency Evaluation Best Practice
 
Hot on the heels of my recent relocation to London to head Decideware | Europe, I was invited to address the Communications Procurement Action Group of ISBA on the topic of Agency Relationship Evaluations.  

ISBA is the leading industry body representing advertisers in the UK. 

The COMPAG committee sees itself as an "educational forum and community" with a focus on marketing communication services procurement.

I took the opportunity to build a presentation which drew on Decideware’s recent White Paper:
 
What we’ve learnt from the world’s best advertisers
Best Practice Agency Relationship Evaluations

This paper aims to capture the key learnings we've acquired over the years working with some of the biggest and best advertisers to conduct agency evaluations around the world.

 
The 10 key “learnings” reviewed, were:
 
1. Clarify the purpose of the agency assessment program
2. Limit the questionnaire/scorecard to 15-25 meaningful measures
3. If applicable, include performance objectives
4. Make the program as easy as possible for participants
5. Involve the agency
6. Evaluate the client’s performance
7. Transparency and immediacy are essential
8. Make sure that reporting outcomes are superb!
9. Ensure that the evaluation phase is followed by Action Planning
10. Use specialist software
 
The presentation drew spirited participation from the audience.  

There was widespread consensus about the value of conducting formal, robust agency relationship reviews but acknowledgement as well about the difficulties of actually introducing and implementing programs.  

Particular problems appear to be getting all stakeholders onside, and working out which department should fund the cost.  

But once these practical issues are resolved, it is widely agreed the benefits will flow from a well executed review!

Author: Derek Groom, Decideware | Europe

dgroom@decideware.com

Congratulations to the ANA on a huge turnout to the 2009 Client-Agency Forum held in mid-town New York last month.

Over 300 advertising, marketing, agency and vendor stakeholders were in attendance listening to a wide range of topics covering the client/agency relationship.

The two we took specific note of were the follow-up presentation by Sarah Armstrong of Coke (first presented at the Financial Management Conference) and the discussion about the Agency Performance Evaluation survey. We have covered the key results of this survey in a previous posting so we will restrict our discussion to the Coke Value-based Compensation presentation.

Unit-based Compensation?

Interestingly for me, the Coke compensation model made much more sense the second time around. My impression is that it is a "unit-based" compensation model, rather than a "labor-based" compensation model - with an Incentive bonus layered over the top.

So my understanding is that Coke look to purchase "units" (i.e. deliverables) and those units are assigned a cost. This cost is established by looking at the benchmark range for that unit (using historical data), and then varying the cost based on criteria such as complexity, competition and perceived strategic value. This unit-compensation is designed to cover the base costs of the agency.

The only aspect I do not fully understand is how situations are handled where the units are not well defined, and here I am thinking mainly about the areas such as digital where as an example the construction of a marketing web-site has a wide range of variables.

Scope of Works process

Coke have a very well thought through Scope of Works definition process that supports the purcahse of the "units". From the screen shots provided it seems that the marketers are supported in this process using defined templates, and Sarah's team have developed strong training to give their marketers a deep understanding of what they need to do.

Incentive Compensation (Value-based component)

Then the profit margin is provided using an Incentive bonus calculation.  As with other incentive-based mechanisms it uses the three key data streams; qualitative evaluation scores, business measures and agency measures.

Conclusion

Coke have developed a structured approach to compensation that they say is working well for their marketing team. They address the fundamental issue that ideally agencies should also be compensated for their outputs & outcomes rather than their inputs, only. This shift requires a rigorous approach to Scope of Work management that most companies agree is the basis for a well managed agency relationship.

Author: Richard Benyon (Decideware)

In talking with senior vendor management executives we've realised many organizations find it difficult to develop strategic supplier scorecards.

While there's a high level of comfort with scorecards for transactional suppliers, it's the measures of partner-like, high value and complex relationships which seem to pose greater challenges.

We've seen our clients take various approaches to the task.

One is the idea of building a scorecard from the 'bottom-up', ie

• Start with Tangible metrics that are so familiar, eg quality, PPM, lead times, etc 

• Develop metrics to understand and improve the business Relationship - some of these will be qualitative, eg do they understand our business?, level of trust, commitment to strategic alliance, etc  

• Go to the next step to define measures of Financial Value - eg price metrics, return on assets & investment, etc 

• Then address the critical Strategic Drivers, eg Delivery of continuous innovation, Creation of competitive advantage, New market penetration, etc. 

In thinking about what our clients would find useful, we scoured the available published resources of experts in this field and compiled a selection of what we think is some of the of the best advice on how to develop Best Practice Supplier Scorecards.

For a copy of Best Practice Supplier Scorecards, please email me at: mailto:blog@decideware.com

Author: Richard Benyon 

The report of the 2009 ANA Agency Performance Evaluation Survey  was released today and it reveals interesting findings that all agency management executives should study in some depth.

The first finding that jumps out is that 92% of firms of revenue size greater than $5Billion run formal  agency evaluations."

That's "near universal" as the ANA describes it.

The second key finding provides a better understanding of why clients are evaluating their agency relationships. 

The 2 top benefits derived from a formal agency evaluation process were identified,  as:

1. Improving under-performing agency relationships (92%)
2. Recognizing high-performing agency relationships (85%) 

A third finding is that qualitative criteria dominate the agency assessment scorecard.

So while quantitative measures are being used, qualitative metrics are the primary drivers of evaluations.

A further interesting result of that 360-feedback evaluations are on the rise with 59% of advertisers running them to develop .

Agency Evaluation Best practices

The 2009 ANA Agency Performance Evaluation Survey also identified very powerful agency evaluation best practices, including:

• All marketers (even those with smaller budgets) should conduct formal agency performance evaluations on a regular basis
• Assign a trusted, neutral point person (could be internal - for example procurement - or an outside consultant) to keep focused on objectives and metrics vs. personalities
• Consider having a more informal "mid-term review" to avoid surprises at the end of the year
• Use a consistent format for all agencies, although specific questions can be varied for different agency types
• Use technology to facilitate adoption, ease of implementation, and analytics
• Consider 360-degree evaluations to get the perspective of the agency
• Present results in person
• Have clear corrective action plans with due dates and owners

Also see the AdAge article, here which includes further commentary from Jim Stengal, ex CMO at P&G and now a Cincinatti-based marketing consultant and senior industry figure Arthur Anderson, principal in Morgan Anderson Consulting.

See:

http://adage.com/agencynews/article?article_id=138983

We will to post further items about this survey over the coming weeks.

Source: Association of National Advertisers - the leading client-side industry body