CLOSING THE GAP: Purchasing power

Procurement officers often need to be educated on the importance of PR before they agree on an outside agency

Procurement officers often need to be educated on the importance of PR before they agree on an outside agency

While PR practitioners are described in many different ways, "widget" is not one of the more common references. Yet that is the perception of how some corporate purchasing officers - who often view agencies as commodities and favor the lowest-cost provider - treat the procurement of services from external PR firms. Because the practice is increasingly becoming a fact of life in the industry and can severely impact a company's PR competencies, it is imperative for internal communications personnel to demonstrate to a procurement department how an integrated selection effort will result in the hiring of the optimal agency. "The PR people within a company should be working side-by-side with the procurement folks to make sure they select the right firm, along with the associated products and services," says Ed Moed, managing partner at Peppercom. "It doesn't matter if an organization buys what is cheapest if it doesn't fit their needs or is not of quality. Procurement should be working with the PR experts." Procurement's growing influence on hiring PR firms is an outgrowth from its now common role of choosing advertising agencies, notes Michael Lasky, a partner at Davis & Gilbert, a New York-based law firm that provides counsel to PR and marketing services firms. Purchasing's involvement in the selection of ad agencies was in response to an environment in which agencies were receiving lucrative commissions based on the level of media spending, he says. Though PR firms typically operate under different circumstances, procurement departments are increasingly focused on ensuring that vendors are not generating excessive profits at the expense of their company. As a result, PR firms vying for contracts often are asked to provide financial information related to their internal operations - such as the salaries paid to account executives, monthly rent and utility expenses, as well as income statements. Organizations that refuse such requests frequently are eliminated from consideration, Lasky notes. The practice started in PR about five years ago and has been picking up momentum over the past 24 months, he adds. "Procurement in many cases is creating an uneven playing field," Lasky says. "Purchasing will tell PR agencies that are reluctant to provide the financial data that there are many other firms waiting in line." Kathy Cripps, president of the Council of PR Firms, agrees that procurement departments sometimes are heavy-handed when dealing with agency compensation issues, but adds that better operating procedures are needed. "Some procurement folks who have bought services for a long time are savvy about what PR is, but others just equate it to purchasing supplies," she says. "So it is important to educate procurement about what an agency is doing strategically, and why they should be compensated fairly. But the agencies still will be required at times to reveal financial information." Eliminating conflicts Corporate purchasing departments' growing authority in selecting PR agencies led the Council of PR Firms to develop a booklet listing strategies that agency executives and procurement professionals should follow in order to build and sustain a strong relationship It notes, for instance, that conflicts between the two groups often are the result of misperceptions or a simple lack of understanding, and both would benefit from increased education about each other's disciplines. The parties also should be working toward common business goals; must be open about their objectives and business models to eliminate distrust; and need to realize that a partnership only can succeed when both operate with fairness and integrity. "Many agencies have been frustrated by the involvement of procurement, which is sometimes not fair when considering agency compensation," Cripps says. "It is vital for the sides to understand the role each plays in the process, and determine how they can best work together." While internal communications can play an important part in helping procurement hire a PR firm that is satisfactory to each party, the groups must understand each other's needs, analysts say. Eastman Kodak eliminated the gap between PR and purchasing by using personnel with agency experience to assist in the selection of its PR, marketing, and advertising agencies, says Loren Martin, procurement manager, global shared services, at Kodak. Purchasing also receives input from Kodak's corporate communications managers, but will garner data on agency expenses from the firm's financial personnel, Martin notes. The company uses a matrix that measures the potential return on investment from contracting with an agency in order to get the best payback from PR spending, he adds. Kodak began using corporate communications to assist in agency selection about five years ago when stiffer competition - and a market transition to digital products which carry tighter margins - forced it to give greater scrutiny to its spending, Martin notes. "It was important to get the people involved who can recognize value, and that has led to improved performance in the PR area and a 5% to 10% reduction in PR costs over the past five years," he says. "Now we are better able to evaluate the scope of the PR agency's work and also give better direction to the firm." Using corporate communications to help select an agency and formulate the contract enables Kodak to more intelligently spell out to PR firms its priorities and expectations, Martin notes. "Procurement and corporate communications need to operate as partners," Martin adds. "And the first step is to define each side's requirements and objectives and then find the agency that is best suited to meet those needs." Behind the price tag Getting procurement to look beyond price when selecting an agency, however, is not always easy. It is particularly difficult in organizations that have made spending cuts a top priority. The corporate communications departments in such environments must find new ways to convince purchasing that it is important to consider a PR firm's expertise in addition to its fees, Moed notes. "PR agency selection was once one of the last areas of a company that procurement wasn't involved with," he says. "But now that they're active there, the parties need to collaborate and see that decisions are made hand in hand." And because some procurement officers still will place what corporate communications staffers view as an excessive focus on the cost of agency services, Moed says PR will need to continue to justify why their preferred PR firm will be of great value to the organization "It is important for procurement and corporations to work closely so they understand what each side does," he says. "Then the groups can better see the roles that both quality and cost plays in terms of purchasing PR services. The sides have to hold regular meetings so they can learn together and gain respect for each other's job." Working with...procurement Bridging the gap between a firm's procurement and corporate communications departments requires that each side understands the importance that cost plays in selecting a PR agency, while also agreeing that price should not be the overriding factor in the decision making. Some ways to navigate the relationship are: 1. In-house communicators need to prove they can think and act like business people. One way to do this is by closely monitoring and reporting on agency expenditure. "If the PR group members can show they are good managers and are not just creative problem solvers, it is more likely procurement will trust that the corporate communications is interested in paying a reasonable amount to the firms," explains Kathy Cripps, president of the Council of Public Relations Firms. 2. Communicators must reach out to purchasing agents and educate them on the PR function. Not all procurement managers will have a clear understanding of the role that PR plays in an organization, or why PR firms are often a necessary part of the team. 3. PR pros need to realize the importance of efficient procurement and recognize that purchasing is watching out for the good of the organization. "Corporate communications can't think they are the end all, and that they shouldn't have to justify what the PR services are, or why they are meaningful," says Ed Moed, managing director of Peppercom. "Some people on the purchasing side still think that PR folks don't realize they are involved in big business or are operating in the real world." 4. When selecting a PR agency, communicators should educate purchasing counterparts on the qualities of potential firms. "Sometimes all procurement cares about is price, but PR has to make it clear that that can't be the only way to select a very important service," Moed says. "The best education come about when the parties are willing to take the time to sit, talk, and learn about each other so they can truly make an impact together." 5. Procurement managers need to understand the limits of what PR firms will be willing to reveal to win business. Industry publications, such as a recent booklet by the Council of PR Firms on best practices in retaining agencies, can be a useful resource.

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