Procurement of PR

Agencies are worried the RFP process is commoditizing PR.

Agencies are worried the RFP process is commoditizing PR.

Getting the attention of top PR-agency executives and their new-business managers can be accomplished these days by simply uttering one word: procurement. This is because a growing number of agency searches by multinational corporations are being steered as much by procurement or purchasing departments as by the companies' in-house PR staffs. Hewlett-Packard, IBM, AstraZeneca, GlaxoSmithKline, DuPont, and Eli Lilly are all examples of companies that have had agency reviews where procurement played a significant role in the search-and-selection process. Although some industries seem to be moving rapidly in this direction (most prominently pharmaceutical companies), there is a general feeling that the rise of procurement-driven RFPs will continue into the foreseeable future. While this is not an entirely new phenomenon, procurement seems to be getting involved earlier in the process. The purchasing staff is no longer showing up just to conduct contract negotiations toward the end of the selection process, but is often facilitating the entire process from start to finish. Procurement here to stay While it is tempting to ascribe the phenomenon to a sluggish economy that has forced corporations to pay closer attention to cost control, there seems to be quiet agreement from agency executives, in-house corporate practitioners, and management consultants that the procurement folks are here to stay. "I think this is the way of the future, and agencies are going to have to adapt to this new way of doing things," says Steve Lampert, senior director of PR for AstraZeneca. While they are reticent to admit so on the record, most agency executives are dismayed by the trend, and find it difficult to say anything positive about the increased role procurement is playing in RFPs. "It's just bad all around," says a new-business manager at a top-10 firm. "There's nothing I like about dealing with this." PR's sister marketing discipline, advertising, is also grappling with procurement's arrival on the RFP scene, putting the issue front and center in the minds of many ad-agency executives. For example, a recent AAAA (American Association of Advertising Agencies) conference, the 2003 New Business Summit had an entire panel discussion dedicated to the procurement issue. The session was called, "Procurement: Facing Up to the Reality." "Procurement has been an incipient trend in advertising for a few years," says Dick Roth, president of advertising search consultant Roth & Associates. "But in the last year, it has made its way onto people's radars." A lot of the PR-agency unease about the rise of procurement managers in the RFP process appears to be the result of an uncomfortable - yet implicit - question: Are clients beginning to see PR as a commodity? "There is definitely a concern that this is a step toward the commoditization of PR, especially on the execution side," says one high-level agency executive. "It's the danger of the client looking at the bigger firms and thinking, 'Well, you are all well staffed, you all have lots of media relations experience, and you all seem to write very well, so you all must be pretty much the same." One hallmark of a procurement-related RFP is that the agency is asked several probing financial questions about its internal cost structure. This is underscored by an RFI recently sent out to some of the largest PR firms, and obtained by PRWeek. In the RFI, sandwiched between a question inquiring about the firm's experience of implementing integrated marketing campaigns, and another asking how the firm reports its program results to clients, is a six-part question that seems unlikely to have originated from the in-house PR team. The parts include: "What is the average hourly charge per staff level? How do you charge for markups/ commissions on purchases, print, and A/V production? Do you mark up travel and other out-of-pocket expenses? What percentage of total agency compensation is profit, overhead, and payroll for client-billable and non-billable staff?" Procurement officers explain that this financial grilling very early in the search process is designed to discover what each agency is willing to deliver, and at what price. They say that knowing about each agency's markups of expenses - like print production and travel - is important. (A markup is a charge that an agency might pass on to the client that is over and above the price the agency originally paid to provide a service or product.) "If one firm was charging more for out-of-pocket, we'd want to know why, and maybe determine if it's a profit center for them," says Craig DeMaria, procurement manager at AstraZeneca, who recently led a search for a new agency on behalf of the pharmaceutical company. "For instance, we might have a preferred vendor for printing that we would like to send that work to." Nevertheless, the level of financial disclosure required on these pitches can be off-putting to agencies. "When you go through the first one of these, it's a whole new world," says Helen Ostrowski, CEO of Porter Novelli. "The level of [financial] transparency that the clients request in these reviews comes as a shock to some agencies." Yet Ostrowski says that if there's a silver lining to the rigors of this process, it's the fact that it has begun to force agencies to become deeply aware of their own cost structure. "You really do need to know your cost structure to go into these negotiations, because if you don't, you will inevitably negotiate things that are detrimental to your business," she explains. "Before you go into these negotiations, you really have to establish within your agency what you're going to negotiate and how far you are willing to go, and what point you're not going to go beyond." Ostrowski and other agency executives also say that one of the recurring themes of the procurement- steered review is that, because of the detailed nature of some of the disclosures, an agency relies on its own financial people early in the process, and often. Yet some financial heads say that dealing with procurement is not so bad from their perspective, as it provides them with sophisticated number-crunching counterparts they can deal with on the client side. "It's the non-service delivery people making sure the back-office aspects are being handled," says Martin Franken, CFO of Weber Shandwick. "We haven't always had that [on the financial side], so that's an obvious positive for us." Dictating agencies' profits The flip side seems to be that the client side has now enlisted sophisticated negotiators that can force the agencies to lower their profitability in order to win a large piece of business. At least one procurement manager acknowledges that he entered his negotiations with PR agencies knowing that there was a maximum profit margin he would allow the winning firm to earn on the account. He says that all the financial disclosures he had required throughout the RFP process allowed him make sure that he had a good idea that that objective was met. "Once we have all the data," he explains, "if we do our calculation right, we have a pretty good idea [of the agency's profit margin]." ----- Financial probing in question For PR agencies, one of the more uncomfortable parts of the procurement-led review process is the financial probing. Procurement managers say that they need this information to make an appropriate decision on outside vendors. "We are interested in things like the viability of vendor companies," says Craig DeMaria, procurement manager at AstraZeneca. Nonetheless, agencies say that sometimes these pointed inquiries can cross an unwritten line. "Some of these questions probe in areas of our agency where we are not sure where the relevance is to the quality of work we provide," says one agency executive. "From our point of view, it does not add any value to what they need to know." Martin Franken, CFO at Weber Shandwick, is one of many agency executives who insist that this line should not be crossed. "Obviously, there are some things that we consider too proprietary that we will not share," he says. The question agencies say they are least likely to answer involves a request for individual salaries of account team members. "This is confidential and personal information, and we are not going to provide that to a client," says a top agency executive. "Average salaries? Sure. But individual salaries should not be shared." In November 2002, the advertising industry tackled this issue in a position paper titled, Guidelines for Effective Advertiser/Agency Compensation Agreements, published jointly by the major agency and client industry groups, the AAAA (American Association of Advertising Agencies) and the ANA (Association of National Advertisers). Listed under the heading Worst Practices is a bullet point that says in part, "Advertisers' access to individual salaries is always inappropriate." The AAAA's PR equivalent, the Council of PR Firms, says it is studying the sensitive issues surrounding procurement, and may issue guidelines in the coming months. "We are definitely looking into it, and are on our way to developing guidelines for agencies to follow," says president Kathy Cripps. ----- Buying power The nature of what procurement officers do makes PR's commoditization an inevitable concern. Procurement employees act as purchasing agents within organizations. That means they spend much of their time hunting down bargains on seemingly indistinguishable commodities like office furniture, phones, and light bulbs. But in recent years, procurement officers have been taking an active role in the purchasing and outsourcing of various services, including such critical business functions as legal services. "We don't approach everything like we are buying widgets," says one procurement officer at a Fortune 500 corporation. "That's not what we do."

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