Decideware

All animals are equal ...

Steve McKee of Business Week makes an interesting point in his article about agency selection (How to Hire an Ad Agency - see below for excerpt) on the point of using a spreadsheet with unweighted criteria to make a decision - in this case selecting a new agency. His point "Not every element on your list will be of equal value and a scoresheet can easily introduce an impressive-looking, but false, equation into the decision" certainly rings true to us.

If importance weighting is not used, or even if it is used but is not done accurately it is very easy to let numbers rule over common sense.

... but some animals are more equal than others 

So it is essential that if you do want to use a rating system to supplement common sense, you must accurately prioritize and weight the criteria you are using. There are quite a few well regarded ways of doing this, such as pair-wise comparison or ranked lists. We use the Analytical Hierarchy Process in our software.

Garbage In, Garbage Out

Whenever we facilitate a decision model we have to be very careful to ensure that our client understands the process and has the correct 'brains trust' at hand to weight the selection criteria. It is always fascinating watching the interactions that occur and the discussion generated during the prioritization process.

Sometimes very significant differences in perspective can surface, often to the surprise of the client group.

We caution reliance on the assessment scores that are generated. Indeed if clients do not feel that the numbers are right, there is almost always a reason. As an example there may be a critical risk that has not been factored into the equation, or the accuracy of the evaluation needs review.

As Steve correctly pointed out in his article, we should use the decision model to help frame and focus our thinking, not simply use the numeric outputs as a silver bullet.

The wonder of gut feel

One point that I would like to make is that in our experience there is an amazingly close correlation between the decision model scoring results and those made by 'gut feel'. Our software is used in the Ernst & Young Entrepreneur of The Year program to help with the judging process and one of the key comments we get from the judges each year is how much alignment there is between the scores produced from the decision models and their own their 'gut feel'.

The "Why?" is fairly obvious. If you have spent a good deal of time looking at what is important, and accurately rated each agency on these criteria, does it not stand to reason that the outcomes should match very closely with your natural judgement.

Author: Richard Benyon, Decideware

("5. Don't let a spreadsheet make your decision. It may help if you develop some sort of checklist to track and evaluate an agency's capabilities, but don't go so far as to develop a scoring system and award your account to the agency with the highest average. Not every element on your list will be of equal value and a scoresheet can easily introduce an impressive-looking, but false, equation into the decision. If it helps you bring some element of discipline to the process, fine, but in the end you have to go with your gut.")

("All animals are equal but some animals are more equal than others" with thanks to George Orwell

Is Your Evaluation Program Producing Results?

Many organizations find it so difficult to administer and manage an agency or strategic supplier relationship management program that they end up skipping the most important phase – Action Planning.   The goal of the evaluation process is not simply to gather opinions and information for storage!   Rather, the purpose of the program is to develop actions that lead to constant improvement.  

Take a moment.   What actions can you recall being implemented as a direct result of your strategic performance assessment process?   Is there widespread acknowledgement in your organization that the process is a really helpful tool for keeping things on track?

It's all too hard!

The usual reason for not getting to Action Planning is that managers of evaluation programs find themselves exhausted by the time they have completed the information gathering phase.   No wonder.   It can be a nightmare to develop and prioritize assessment criteria, identify assessors and chase them to participate, then collate and analyze multiple inputs.   A further complication can be agency/supplier participation if a self-assessment of their performance is required.   So if simply getting information is achievement, no wonder nobody then wants to go the extra mile and do something useful with it.

But gathering information is not the end game.   The whole point of an evaluation program is Action Planning.   If you view information gathering as the goal of the program then maybe the tail is wagging the dog!

How Best To Undertake Action Planning

I firmly believe that Action Planning is best accomplished via a meeting involving the senior management of the Client and Agency/Supplier.   At the meeting the participants should draw on the results of the assessment phase looking for both strengths and areas for improvement.   Where these are uncovered and agreed the participants can develop and discuss approaches to specifically address them.   Once decided, these should be recorded.

The benefits of this approach include:-

• The process is de-personalized.   Participants are discussing findings that have emerged from the assessment phase.   The discussion is ‘informed’ by drawing on the aggregated outcome from a rigorous assessment process.
• The process is comprehensive.   All important issues about the relationship (good and bad) are on the table.   Participants cannot overlook matters if they go through all the assessment outcomes in a disciplined manner.
• The process is collaborative.   The Agency/Supplier is in the room to participate and contribute.   They have a big stake in ensuring that good Action Plans emerge.   And of course, they have the opportunity from an informed positioned of being able to critique the Client’s performance and propose actions here too.

It’s all in the Planning!

So in summary, if through administrative issues your evaluation program is only used to gather information and agree a score, you are selling yourself short.   The key goal of should be Action Planning.   The test of success for your process should be the extent to which it really does help keep the relationship on track.

What Action Plans can you recall being developed from your evaluation program?

Author: Derek Groom, Decideware

We do!!!

Please excuse the inflammatory headline, above because I am guessing that a lot of people, including myself are very interested in the opportunity to incorporate metrics of 'value' in agency compensation arrangements.

That is, to consider measures of the value that agencies deliver to their clients, beyond their fee-based services.

Just this morning I received the AAAA SmartBrief and saw a reference to an article published in AdAge earlier this year.  (See source article reference, below).

In particular the line "We price ourselves on the subjective theory of value" caught my eye.

Concrete and measurable

A question to those in the finance or purchasing department is this; how likely is it that significant contracts and compensation agreements will be structured around metrics that are purely subjective and quite often intangible?

The answer, of course is that compensation metrics often do not include any subjective measures. I suspect the common finance view is that when it comes to compensation, concrete measures are best.

Measuring Value

If we look at the time-worn cliche of SMART Objectives (Specific, Measurable, Achievable, Realistic, Time-based), is this an approach we can directly apply to measuring value?

What some would argue is that it is highly likely that there will be a direct correlation between performance and value. They say that in effect performance becomes a surrogate for value, it just doesn't sound as sexy.

"Performance-based compensation vs. Value-based compensation"...they ask is really that much of a difference except in terminology?

However, others (particularly agencies) feel that value has a far deeper role and a longer term horizon (e.g. aligned with building a stronger brand) and short term objectives with their direct measurement often miss this vital contribution.

The 3 Dimensions

Looking across our clients, we see them assessing their agencies across a mix of three key dimensions. Some will even use all three dimensions in their agency assessment framework.

• Outcome Measures; e.g. sales volume, market share gain

• Drivers; e.g brand awareness, recall

• Relationship Measures; e.g. creative quality, strategic insights, account service

The Relationship Dimension

You can be sure that most marketers primarily want to assess the fundamental agency relationship. And it is here that the rating will, by necessity, always have a subjective element to it.

It is also worth noting that a recent ANA survey on Client/Agency Relationships confirmed that the "Relationship attributes" are of key importance to clients.

(One issue that we will explore in a future article is that many clients and agencies are finding it hard to define workable measures of value to include in agency assessment programs, which are often used to aid the compensation process.)

So in addition to the pure performance attributes that your CFO loves, it is in the relationship measures, that the intangible but hugely important value-adds (such as great creative or strategic insights) are captured. These can then be combined with the more directly measurable performance criteria and objectives to form a complete picture of the agency's contribution.

Finally then, a balanced compensation model can be built that uses a mix of value and performance. This should satisfy both the desires of the Marketers and the needs of Purchasing/Finance.

Author: Richard Benyon (Decideware)

Exert: Agency Value Creation Center
News, events and advice on agency compensation matters ... "We price ourselves on the subjective theory of value. That allows us to structure more varied, entrepreneurial compensation agreements." These thoughts on value-based pricing excerpted from "Fed-up Agencies Quit Punching the Clock," by Jason DeLand, partner, Anomaly (Advertising Age, January 2007).

The Twin Pillars

Our experience and anecdotal evidence from our clients, major retailers and key suppliers, confirms that the evolution in retailer/supplier relationships from being just a “Vendor” to “Supplier”, to that of a “Key Supplier”, then to a “Strategic Partner” is beginning to take hold as more retailers and their suppliers embrace the twin pillars of Efficient Consumer Response (ECR) and Supplier Performance Management (SPM).

Is your journey really necessary?

The journey to a “Strategic Partner” is a Win: Win for both retailers and suppliers, with improved performance and a more profitable relationship, through a focus on working together to fulfill consumer needs better, faster at less cost. But the question is, to paraphrase a WW2 Government slogan in times of petrol rationing: “Is your journey really necessary?”

The journey to “Strategic Partner” is a different path for retail suppliers and their customers than that trodden by manufacturers without retail channels, for two main reasons:

The “Consumer Handcuffs” effect

Where markets are driven by consumer demand and both parties need each other: Strong brand franchise and loyalty by consumers means that retailers are virtually forced to stock the top-ranked brands in a category, or risk loss of sales. Suppliers suffer from the same problem in reverse: where their consumers are the retailer’s customers, they have an expectation of availability. The situation is even more critical in some retail channels, like grocery, where there are only a few major players and supplier and consumer choice is restricted.

Formal Reviews

Formal, critical “Strategic” reviews of performance and the relationship (SPM) are less common. Some major retailers have used formal supplier reviews as the basis for their “Supplier of the Year” programs and awards. However, to our knowledge, only a few retailers undertake formal annual, or quarterly, performance reviews that look at the entire business relationship with specific KPIs. More often retailers have regular category reviews at a detailed, tactical level. But many tell us they are concerned that their annual review process is unstructured with no common format, are too time consuming and sometimes “hijacked” by suppliers with a focus on their own business (and new products and advertising campaigns), rather than being from the individual retailer perspective.

Discussions with Brian Walker, Director of The Retail Doctor, confirm that in his experience the supplier review can often take the form of:

• An annual/bi-annual meeting;
• Some complimentary remarks about the retailers newest store, or upgrade;
• General discussions about category or product performance;
• A few ad hoc comments on supply/business performance;
• Negotiations on next period’s promotional contribution;
• A presentation on the supplier’s new products, consumer advertising, promotions and next period’s in-store support activities;
• A promise, to “do lunch” soon;
• Same again next time.

So, back to the question: Is the journey really necessary?

For retailers, the answer is absolutely “Yes” - to enable them to build competitive advantage, reduce supply chain costs and maximise profits.

For suppliers, the Pareto principle will be a deciding factor: the 20% that account for 80% of a retailer’s business will need to make the journey in order to join the club, whilst those in the next level will need to show they can improve in order to force their way into the top 20%.

Author: Ron Latham, Latham Consulting, a Decideware partner, specializing in the Retail and Franchise sectors.

Intangible and Important

I find it really interesting that in our contemporary, complex business environment there are still question marks about the value of measuring 'intangible' relationship criteria, such as Trust.

Trust is obviously a crucial element in successful, strategic (high involvement) business relationships where both parties are relatively powerful and able to influence each other's fortunes.

A key characteristic of trust is the belief that the future actions of our business partners can be predicted. And that they will act to the mutual benefit of our both parties.

Trust leads to Disclosure

A second characteristic of trust in commercial partnerships is the likelihood of deeper levels of disclosure, due in part to greater confidence that the information being disclosed will be properly treated.

I feel that disclosure is an important driver that impacts on directly measurable aspects of the business.

Disclosure drives business outcomes

So how does disclosure drive tangible business outcomes? Two examples spring to mind; innovation and resource allocation.

If I am prepared to disclose aspects of my business that otherwise I would keep internal, then the other party is in a better position to generate innovative ideas sparked by this information. So the better they understand my underlying business issues, the better able they are to respond with interesting and appropriate ideas.

On a more pragmatic note, disclosure also allows my business partners to align their resources to meet my needs - so they can deliver the right effort in the right area and simultaneously improve their ROI from the relationship.

Risk reduction

A third characteristics of greater trust in business relationships is risk reduction. If I do not have complete trust in my business partner, I am less likely to disclose the elements of the relationship that are bothering me, because I am less likely to believe they will take positive action based on that feedback.

Often this means early, remedial actions are not implemented leading to a greater likelihood of the relationship breaking down completely.

On the other hand, where trust exists both parties are more able to disclose issues in the relationship and to readily engage in early interventions.

Who do I trust?

A further point to consider is this: 'who is it that I trust?'

Is it: 

• The Company
• The People

Strategic Relationships are likely to be driven by a combination of the two, so it is important that both aspects are addressed in a relationship management program. Don't assume that because the relationship between the business entities is healthy and trusting that this is true between the people working daily at the 'coal-face' of the organization.

The only way to identify where trust exists in a relationship, and where it doesn't, is to ask the people themselves!

If you find this topic interesting please read an article by Doug Hudgeon's on his Vendor Management Blog entitled "Prisoner’s dilemma in long term supplier relationships". It is worth noting his comment at the bottom of the article "However, if the game goes on for an infinite number of rounds then strategies other than always defecting result in higher payoffs"

Author: Richard Benyon, Decideware