Procurement: The buying game

As more client procurement departments become involved in the agency selection process at the outset, Arun Sudhaman hears from industry experts on how this is impacting practitioners.

Procurement: The buying game
Procurement: The buying game

It is the moment that every agency head dreads. After a spellbinding pitch in response to a demanding brief, client and agency are in sync. The chemistry, so difficult to get right, is good. The fees seem reasonable to both sides and a motivated team is champing at the bit to unveil a campaign that could shift the needle for client and agency.

Then procurement rears its ugly head. 'People's hearts sink,' admits Huntsworth Group business development director Alison Clarke. 'When agencies do detailed presentations and win the business, they then go into procurement and that can be a very destructive process.'

Procurement - the division responsible for managing an organisation's purchasing - is not the biggest issue facing the PR industry. But, after steadily seeing each marketing service fall under its remit, it must count as agencies' most common gripe. Thankfully, the type of scenario described above is becoming increasingly rare. Instead, in an environment where spending is under the microscope like never before, client procurement departments are almost always involved from the start of the selection process.

This particular trend does not inspire much more confidence in PR agencies.

Economic factors, says Burson-Marsteller corporate, issues and tech MD Chris Cartwright, are leading to many more pitches. Not only is procurement running the show, it has become the show - with several recent reviews seeming to amount to nothing more than glorified cost-cutting exercises, rather than a search for better ideas in response to specific briefs.

All of which feeds back into the fundamental question that agencies are asking of the procurement process. Can strategic PR counsel be valued in the same way as, for example, a bulk order for paperclips?

Procurement veteran Rosie Doggett, founding partner at consultancy RD Squared, says procurement's inexperience with PR is compounded by a difficulty in finding the right training: 'Procurement people have absolutely no budget of their own - they have no education and very little training,' she says, pointing out that procurement training body CIPS rarely runs marketing courses.

'If there is an in-house PR department, it should take the procurement people under its wing and explain what it does. If there isn't, the agency should befriend the procurement person and tell them all about it.'

Ultimately, adds Doggett, perhaps agencies - and the trade bodies that represent them - simply need to be more prepared to defend their fees. 'I feel we should stand firmer,' agrees Clarke. 'Clients have seized the opportunity to get agencies to sharpen their pencils in order to hang on to business they were doing quite successfully.'

Others are more sanguine. 'It's a reality,' says Tonic Life CEO Scott Clark. 'So you can either spend time griping, or embrace it and take it for what it's worth.'

With that in mind, Clarke advises all agencies to 'meet procurement with procurement', namely the agency CFO. 'Numbers people respect numbers people.'

'You're in the lion's den with these guys,' says Bite Communications CFO Hamish Macphail. 'You have to know your game.'

With that in mind, PRWeek has produced a handy guide to how procurement is affecting PR in 2010, including a robust debate between the main parties to the process: agencies, clients and procurement departments.

5 TIPS HANDLING PROCUREMENT

1. Educate Both agencies and clients need to remember that procurement people can only benefit from learning more about the PR business.

2. Talk numbers Meet procurement teams with a finance person, rather than being vague about costs.

3. Be firm Nothing does the industry fewer favours than bending over backwards on fees, or agreeing to processes focused purely on cost.

4. Trade body initiatives From industryapproved requests for information (RFIs), to training and better fee benchmarking - the PR sector could do worse than look at how its advertising peers have tackled procurement issues.

5. Socialise Next time you take the client out for a drink, consider inviting the procurement person as well.

The sector's seven strategies

1. Pricing pressure

Procurement departments are perhaps best known for negotiating fees with an agency after a successful pitch. 'At the end of the day, it's quite negotiation-focused,' says Burson-Marsteller's Chris Cartwright. RD Squared's Rosie Doggett adds that procurement people are, by virtue of their roles, fearsome negotiators. 'Procurement people talk about mutual relationships and partnerships,' says Huntsworth's Alison Clarke. 'There is nothing mutual about it. The idea it drives excellence is improbable.'

2. Running the show

Increasingly, procurement departments are involved from the start of the process. Recent pitches for accounts such as British Airways, the London 2012 Olympics, Nokia and Microsoft have all been subject to a high degree of oversight from procurement. 'In the bigger pitches, they are in the room,' says one global agency head. 'There's a person sitting on the side, looking like the grim reaper.'

3. Death by Excel

The influence of procurement has led to the increasingly gargantuan requests for information (RFIs) favoured by clients. A recent Excel spreadsheet from Nokia, part of its North American PR review, asked for pricing for every conceivable type of PR activity across multiple countries. Doggett believes the PRCA could consider a similar initiative to the Institute for Practitioners in Advertising, which recently came up with its own RFI template as agreed among its members.

4. Online bidding

The most notorious procurement innovation must be the 'e-auction', where agencies bid to be the lowest-priced in a real-time online auction. HP's reverse auction last year is one example of this, while BA and IHG have also used similar models. 'It strikes me they lead on the wrong point,' says Cartwright. Clarke is less diplomatic. 'They will always tell you it is not about price, but I fail to see how it cannot be solely be about price when it's the only thing you are being judged on at that stage.'

5. Benchmarking

Not exactly a pitch, more an exercise to review fees, often conducted with one eye on squeezing down the current agency's pricing. See Telefonica's European review last year. 'To subject a creative services industry of any description to this is disgraceful,' says Doggett. 'If you feel it is a fake pitch or massive benchmarking exercise, don't do it.'

6. Pre-emptive rostering

A close relative of benchmarking, where the client reviews costs and capabilities, eventually deciding to retain a few agencies, even though there is neither a specific brief nor guaranteed fees. Unilever's global PR review is a good example of an increasingly common practice, which Diageo corporate relations director Ian Wright frowns upon.

7. External consultants

A number of agencies have popped up as external procurement consultants, offering some much-needed insight into buying marketing services. They include such names as RD Squared, ICG Commerce, Tina Fegent Consulting and Red Nectar. Conventional search consultancies such as the AAR, Oystercatchers and Billetts also offer services to help advise clients on agency fees.

Clients weigh in

Conflict between the comms team and the procurement department is hardly unheard of. Indeed, one source points out that this year's high-profile London 2012 PR pitch showcases some common difficulties.

Despite a procurement-designed brief calling for one agency to handle everything, for example, the client eventually chose to stick with its public affairs agency Mandate. Meanwhile, Edelman - after being ranked last following the final pitch round - was invited back on to the roster after a rethink by the comms directors.

'It's a classic example of procurement and comms not seeing eye-to-eye,' says one source involved in the pitch.

Diageo corporate relations director Ian Wright says that the solution to these types of issues is to ensure comms has the final say: 'The procurement person could put up a red flag, but I would make the final decision.'

He also notes that friction is considerably lessened by having specialist procurement expertise: 'We have struggled in the past to reach a common level of understanding with our procurement colleagues about what it is we want them to do. It is a specialist discipline and it's in the interests of procurement to have specialists.'

Microsoft EMEA corporate comms director Peter Devery adds that the relationship between client and procurement has to be 'collaborative'.

He points out that this mentality helped him during Microsoft's review last year: 'What you look for is a great partnership with your procurement department, not a set of rules that you have to adhere to.'

Wright admits that clients 'have not always got it right' in terms of educating procurement about PR. But he warns agencies that they must stop fighting the idea that someone from outside the PR function happens to have a voice: 'Agencies need to understand that and it is incumbent on the client to make sure it does not drag on.'

For clients, procurement also offers a less obvious benefit - freeing them from a potentially unpleasant fee negotiation. 'It helps clients to have procurement pushing on price,' admits Devery. 'And it can push client-side PROs to look harder at ROI.' Devery believes that not enough agencies are actually partnering properly with procurement: 'Don't think of them as a blocker, think of them as an enabler.'

The benefit, says Wright, comes from situations where procurement may 'liberate money you can then spend on other activities'.

Neither should agencies forget that procurement is not all about numbers, adds Devery: 'It's as important for agencies to take the procurement guy out for a beer as the PR guy.'

52% of PR agencies end up negotiating contracts with procurement

67% of large agencies negotiate contracts with procurement

25% of agencies have been asked to participate in a reverse auction

9th ranking of procurement among top threats to the PR agency

THE BIG DEBATE

Nicola Lovejoy-Mellonie Procurement, GSK

- Are PR agencies right to feel anxious about dealing with procurement?

My experience working with the PR agencies that partner with GSK makes me question that they do 'feel anxious'. Procurement is there to facilitate the relationship between the client and the agency, and the agencies we work with genuinely seem to appreciate that.

- What is more important - an agency's fees or its creativity?

It depends entirely on the activity. If it is a standard activity with well-established specification and can be easily commoditised, then fee becomes very important. If, on the other hand, it is a more complex activity that requires more strategic thought and creativity, then cost is the less important factor by far.

- Is procurement really able to accurately value a people-based industry, in the same way it values, for example, stationery?

Procurement can establish the cost of people through access to labour indices, average salaries, market rates for agency roles, benchmarking data etc. Where there is more debate is around the time required to deliver an activity. It is difficult to be very accurate and it depends on the business needs.

- Without procurement, would clients be overcharged?

I could not categorically say that, but with procurement involved, the client gets better value and more consistency out of agency relationships and the agency benefits from a partnership relationship, a focus on continually improving the agency performance and access to more opportunities.

- Can an excellent procurement department ever lead to truly world-class PR work?

I believe that procurement can work in conjunction with teams to tease out their business requirements and then turn these requirements into a supply market solicitation, and by ensuring the best and most suitable agencies for that specific business are available at the best value.

- What is the one thing the other side could do to make your job easier?

They can foster an environment of mutual trust and approach the relationship with complete transparency. This does not mean that we want to see every single receipt, but we need to earn each other's trust and work together as a partnership.

HAMISH MACPHAIL CFO, Bite Communications

- Are PR agencies right to feel anxious about dealing with procurement?

The first time you win an account, it is an anxious time. You could be talking to someone on the other side of the world who just came off call-buying paperclips and now wants to buy PR and has no idea what they want to buy, but is after a big discount. It can undermine the value of the relationship.

- What is more important - an agency's fees or its creativity?

The two are not mutually exclusive. Creative is a key part of the client service, but people who are in the marketing department choosing the agency are also going to want value for money. If they really understand value for money, it is not just the cheapest hours. It is the best hours at the best price.

- Is procurement really able to accurately value a people-based industry, in the same way it values, for example, stationery?

Yes, if they know what they are talking about.

That is also an investment from the client. If you are responsible for buying everything from paperclips to PR, there is no way you can understand and value every single one of those suppliers.

- Without procurement, would clients be overcharged?

I would like to believe at Bite, no. Even though we do agree discounts, we do not knock huge chunks off our hourly rates. With the larger generalist agencies, some of the ratecards are a lot higher than ours and I would suggest any client dealing with those agencies should negotiate.

- Can an excellent procurement department ever lead to truly world-class PR work?

Yes, it can. When our clients get it right, they make sure they get value for money on the core services and then also drive initiatives that could be more valuable, instead of discounting on rates. But we can walk away from business because the pricing is undermining the relationship.

- What is the one thing the other side could do to make your job easier?

Probably listen more to what we are saying and how we try to justify our pricing. Agencies are generally trying to provide good value for money. None of us are making huge margins. If they make it a dialogue as opposed to a dictation for us, then we can end up with a better deal that can work for the long term.

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