Decideware

REPORT ON ANA ‘AGENCY/CLIENT FORUM’ – NEW YORK (JULY 2007)

I have just returned from the ANA Agency/Client Forum and here is a top line summary of the interesting agency compensation discussions that were held.

I will expand on some of these topics in a series of articles over the next month.

Razor thin margins

A recurring theme in the Agency/Client Forum held by the ANA in New York on July 19^th was agency compensation. The concern from the agency perspective is the switch in recent years from a commission-based payment system to one based more on costs (head hours) that, they argue, has both removed the incentive to produce great work and led to razor thin margins.

Best and the Brightest?

In turn, the argument continues, this has undermined their ability to recruit the best and the brightest. The recruitment problem appears to be worst in account service where it was asserted that salaries for MBAs in advertising are way below those offered by other professions.

What agencies want is ‘value pricing’ whereby remuneration better reflects effectiveness rather than efficiency, or value rather than cost.

What to do?

Agencies clearly want to retain their preferred status with clients as ‘partners’ rather than just suppliers. They want to share in rewards where their work has been particularly successful. Clients seem receptive to these desires but are less certain about how to proceed. Not least of the problems is how to identify exceptional performance? How can clients easily measure performance?

Increased Sales vs Agency Performance

On this point, an interesting difference in position was reported between clients and agencies. According to survey findings, clients are more interested in rewarding agencies based on improvements to agency performance than on improvements to sales. By contrast, agencies are more interested in rewards being based on sales increases! Other considerations are the extent to which incentive compensation should be based on Management By Objectives (MBOs) as well as ‘softer’ measures like processes and qualitative measures.

The One Number

What clients want is a system for measuring agency performance that can be tailored to their specific needs, can be easily implemented, and leads to a single score that all participants can accept as final and fair outcome.

Ship and the Iceberg

But aside from incentive compensation, an agency participant noted that an added benefit of performance evaluation was early identification and correction of problems. Here an analogy was drawn with a ship and an iceberg. Early identification of the danger requires only a small correction by the ship but late recognition requires a wrenching adjustment!

Author: Derek Groom (Decideware)

You will find the following self-assessment from purchasing experts ADR International useful about how to identify and manage your strategic suppliers.

1. Do you have a complete list of all approved suppliers and what you spend with each?

2. Do you have a pareto analysis showing your top 20 suppliers and spend by major commodity?

3. Have you determined the optimum size of your supply base (overall and by commodity)?

4. Are you actively restructuring/reducing your supply base to assure a world class supply base with maximum volume leverage?

5. Do you have supplier recognition programs?

6. Have you dedicated staff who help key suppliers to improve their quality and overall performance?

7. Do you have a program to solicit supplier ideas and recommendations for cost and other improvements?

8. Do you have a systematic program to implement supplier generated improvement suggestions?

9. Do you provide training to suppliers?

10. Do you have joint committees with key suppliers to monitor progress on improvement initiatives and establish ways of sharing the benefits with suppliers?

Author: Peter Evans (ADR International)

I laughed in agreement at the points made by our UK consulting partner Agency Assessments International in an article they wrote called "FIVE TRUTHS ABOUT CLIENTS" 

One particular anecdote caught my eye.

It was about an agency customer satisfaction survey where the client respondent answered: "They should know I haven't got time to do this at the moment".

The bigger the fish

How many of you running formal evaluation programs have received similar responses to your surveys?

May I offer the comment that in our experience there is often a direct relationship between seniority and the number of times the "But I haven't got time..." answer is received.

Carrot and the stick

So how do you increase the response rate from senior people?

It obviously depends on the culture of the organization. Some organizations can simply mandate that executives complete a survey and that will work. Other have to use more subtle methods - perhaps cajoling senior managers using a variety of methods. Sound familiar?

What's in it for me?

One tactic that is guaranteed to help is early and frequent communication about why a survey is being conducted, and more importantly what is in it for the respondents. And many people make the mistake of using 'Organizational Benefits' as the reason for doing it. This just does not do the job!!! You need to sell them on the 'user benefit' i.e. how completing the survey will directly benefit them.

So as an example it may be that it will improve communication with the agency/supplier -> which in turn will make for a more productive working environment -> and thus lead to less friction in the day to day working relationship.

We're all being asked to do more and more in our daily roles and I can assure you that no-one wakes up on Monday morning thinking "Wow, today's evaluation is the most important thing on my plate".

Our sales director Derek Groom (who headed FCB in Japan) often hits me with the old pitch adage "Tell what you are going to tell them. Tell them. Tell them what you told them". Use this same philosophy in your internal communication strategy and it will pay dividends.

Author: Richard Benyon with thanks to David Whethey of Agency Assessments International

World Clock Image © Jenny Rollo

I would like to thank John McCleland from ADR International for his insights around supplier relatationships, particularly in helping me understand why you should be very clear about what type of relationship you want from an agency or supplier.

Which path should you follow?

• Strategic Relationships
• Competitive Relationships

The term Strategic Relationship is just so 'super-sexy'! Don't you almost feel compelled that this is what you want all relationships to be like?

What John helped me understand is that it all depends on how much value you can get out of the relationship, and how much effort and 'flex' each party is prepared to give.

Be clear that maintaining a strategic relationship management program takes effort and cost, so you had better be sure that you are going to get a good return on your efforts.

Some key questions

• Is your relationship predominantly price driven?
• Can you get the goods or service easily elsewhere?
• Have you squeezed out all the immediate costs?
• Are you prepared to invest time and effort in managing the relationship?
• Is the agency/supplier willing (and able) to make adjustments based on your feedback?
• What extra value can you get from having a deeper relationship with the agency/supplier?

Cost and Value

In summary if your relationship is predominantly cost based, with little value "upside", then it is probably not worth the effort in building a strategic relationship process with that supplier.

On the other hand if value is the driver, and it is difficult to switch suppliers, then it may well be worth going down the strategic relationship path.

Author: Richard Benyon (with thanks to John McCleland)

How many questions?

One of the most common questions we get asked is "what is the optimum number of questions in an agency/supplier scorecard?".

Of course there is no right answer but there may well be a way to reduce the number of questions you want to ask.

Upside and Downside

The technique is to calculate the VALUE that each criteria brings to the party!

This implies that in measuring the criteria there is an upside, i.e. it leads to action that will…

• reduce cost
• improve performance
• reduce risk
• improve satisfaction

…and also that there is a down-side…

• assessors time and effort in collecting & answering a question (if it is qualitative metric)
• sourcing and aggregating data (if it is a quantitative metric)

Value = Importance - Effort

The term I used above "Value" is rather obscure and needs to be simplified. The technique we use is to calculate the importance that each measurement criteria is assigned. We use a great mathematical algorithm called the Analytical Hierarchy Process, which asks a user to "trade-off" each criteria against the other to come up with an importance weighting.

So you will naturally find that some criteria have so little importance assigned to them that they just are not worth the effort in asking.

Your challenge is two balance the two sides Importance vs. Effort and using your judgement keep it in or take it out!

Author: Richard Benyon, Decideware