The Rise and Fall of Procurement
The Experiment in Procuring Marketing & Professional Services Has Failed
November 19, 2009 at 1:23 am by Blair
It's interesting to watch people who begin to sense a weakening in the oppressive powers that have lorded over them for so long. Change can come quickly and violently. The fall of Ceauşescu in Romania. The Islamic Revolution in Iran. One minute it's business as usual, and then next, bodies are swinging from ropes as years of suppressed anger explodes.
I might be a little bit off on the timing (these things are hard to predict) and a little dramatic in my choice of metaphor, but I think these next few months are going to be interesting times for procurement departments around the world and their roles in purchasing creative, marketing and other professional services. The pot of frustration is about to boil over.
The Pitch That Started it All
The procurement departments of the world's biggest companies moved in on their marketing departments a couple of years before I started my consulting practice in 2001. One event seemed to start it all. I initially learned of this seminal pitch through one of my earliest agency clients. (I've since heard the story from many others who were involved 10 years ago - some client-side, many from participating agencies - winners and losers - and some of the procurement people themselves.)
The client company (a well-known CPG company - I won't name any names) had hired an outside consulting firm who claimed that through a strategic sourcing initiative that would apply standard procurement policies to the services of creative and marketing firms, the company would save millions of dollars. This was, to my knowledge, the first time that procurement breached the wall that separated the purchasing of commodities from the purchasing of marketing services on such a large scale.
The strategy was to streamline the company's agencies down from a couple dozen to a small handful for all of the company's varied creative and marketing needs across their many brands. The selection process saw numerous firms contacted, 81 firms interviewed and 12 firms invited to pitch their proposals that included free thinking. My client, one of 12 invited to pitch, was at the time averaging $200k in time and hard costs per pitch.
The story made waves initially but died quietly as the promised savings never materialized and the people responsible for marketing the brands found ways to end-run procurement to hire the right firms for the job. It was a failed experiment, but it breached the door into the marketing departments for the procurement people, and it changed everything. Procurement was now at the services table, even if from the beginning they struggled with how to add value.
The Effect of Procurement on Marketing
While purporting to keep a selection process fair, procurement has skewed it. The winning firm, studies in the procurement of other professional services are now beginning to prove, is almost always the firm that affects or derails the procurement process.
The firms that play by procurementís rules lose, and the rule-breakers win. Marketers have learned to hide behind the procurement people to keep the undifferentiated agencies away, while bending the rules for the truly qualified ones who are brave enough to try to affect the process.
Once the firm is selected, procurementís role shifts to getting the services as cheaply as possible. A reasonable enough goal, as long as the pricing pressure doesnít inadvertently drive value out of the purchase while purporting to drive value in, which is almost always what happens. Procurement does not buy expertise, creativity or strategic guidance Ė just hours.
The formula for value is Value = Quality x Quantity / Price. With no understanding of how to measure the quality of creativity or advice, procurement is left trying to get more hours, cheaper. But in any thinking-based business thatís already run on tight margins, cheaper hours is achieved through deploying less-skilled people. The efficiencies derived from economies of scale in commodities manufacturing are not readily obtained in businesses of ideas and advice.
Ten Years Later
After ten years we are starting to see the frustration with procurement's involvement in marketing boil over. Whatís new however is that the calling out of procurement is now coming from within the client companies and not just the agencies. Marketers are now openly talking about how fed up they are with having to fight their own people to hire what they see as the right firm for the job, regardless of what the commodity purchasing scorecard says.
Iíve never advocated that agencies should work with procurement or agree to play by their misplaced rules. But Iíve long believed that procurement departments can add value to their companies in the hiring of creative and other marketing firms. I also think agencies have some responsibility for the rise of procurementís role in hiring them.
However, procurement departments around the world have so clearly made a mess of hiring agencies by blatantly applying the irrelevant practices of commodities purchasing to the acquiring of expertise and creativity that itís hard to muster any sympathy as the wrath of agencies, and now marketers, starts to fall on them. The more responsible marketers (responsible to the brand, not company policies) have found ways to work around procurement, but what has been missing until now has been marketing people saying publicly what they thought privately: procurement is hindering, not helping us. People are now speaking up. I expect that over the next few months, many more will add their voice.
Itís Time to Talk
The buying and selling of ideas remains a tricky business fraught with risk to both sides. The rise of procurement was another attempt to drive efficiencies into an inefficient process. The failure of the experiment does not mean that procurement is going away. But maybe it means that we can now have a larger conversation between agencies, the marketers that hire them, and the trade associations of both procurement practitioners and creative professionals on the subject of how to buy creative services. Indeed, there are signs across the wider professions of a willingness among the parties to revisit roles and practices.
Cal Harrison is a sales consultant to management consultants and other professionals. After years of advising consultants, lawyers, architects and accountants on how to end-run procurement, he decided to reach out to the other side and bring procurement practitioners and professionals together in workshops across Canada to talk about the shortcomings of applying standard procurement practices to the professions. In the most recent written feedback he has collected from participants, 100% of procurement practitioners say these conversations will change the way they buy professional services or cause them to recommend changes to the way their companies buy professional services. Equally as encouraging is the rate at which procurement professionals are singing up for Harrisonís workshops. ďI thought I would struggle getting the procurement people interested, but that just has not been the case.Ē They seem to recognize there is a problem, and are willing to do something about it.
I've spoken to sensible procurement people employing reasonable practices at a few large, well-known companies, and I'm always impressed with these people when I find them. But they're far too rare. As a whole, the experiment of procurement driving real efficiencies into marketing has failed spectacularly. But the tide is turning and itís going to get noisy as years of frustration pour forth in streams of angry rants. Looking past this cathartic venting, Iíve never been more optimistic about our ability to get this right than I am right now.