As procurement becomes increasingly commonplace, there are frustrations on both sides as agencies and clients adapt.
Public relations has entered the domain of procurement at many companies. Classic purchasing principles applied to PR have created challenges and forced firms to quantify and defend services and business practices.
"Many peers hear 'procurement' and go into a catatonic fit," says Don Middleberg, CEO of Middleberg Communications. "It's warranted in some cases because procurement people treat PR like it's a commodity. Some get it, and some don't."
Lack of understanding of PR is a common agency complaint. "Most procurement is done for things that go into a product or service," says J. Francisco Escobar, president of JFE International Consultants, who spent more than 20 years in finance and in charge of marketing services procurement for Texas Instruments. "The majority of procurement people have targets for continuously reducing cost. Marketing services are intended to grow revenue, not reduce cost. Classic purchasing mentality doesn't apply."
Cost cutting without regarding value is often a problem with contract procurement professionals, some of whom have been likened to bounty hunters. "Bounty hunters largely are only worried about cost," says Steve Boehler, founding partner of Mercer Island Group. "They ride out of town and don't worry if the thing worked. That's not a good model."
Yvonne D'Amelio, principal and CFO at Vox Medica, notes that it can be "extremely unfavorable" when consultants are hired to negotiate price. "Consultants are compensated in many ways," she says, adding that consultants' interests are rarely aligned with those of the PR department and the agency. "It's people talking about jobs they don't do."
The best scenario seems to be internal procurement working closely with marketing services with intent to derive value. Ideally, procurement's role is arbitrator, not dictator.
"[Managing cost] makes perfect sense," says Mark Hass, CEO of Manning Selvage & Lee. "Some companies do it well, and some do it poorly. The best situations are where the communications people drive the process."
Big pharma has blazed trails using procurement for marketing services. "We don't have the problem of procurement people not understanding PR because we've integrated them and insisted they get to know our skills and best practices," says Steve Lampert, executive director of corporate affairs at AstraZeneca (AZ).
"I don't think a procurement person has to be a PR expert. They have to understand how agencies work," adds David Vietri, AZ marketing procurement senior manager. "I had to learn how to talk and react to agencies. We don't use the word 'commodity' anymore. We put everything into categories, and we understand nuances. You can't treat everybody the same. There are procurement principles that do go across different spends. We really focus on hourly rates - whether it's R&D or PR."
Agencies are loath to reveal overhead and salaries, and benchmarking time and rates is tough. Measuring ROI is tougher still. Escobar believes the key is getting procurement to understand that agencies are entitled to recover all costs, plus a reasonable profit.
"Procurement [tends] to dissect and break down cost components," he says. "They [can] start to tell [agencies] how to run their business. I don't think [dissecting median salary and overhead is] the right way. It's about how many people and at what levels it will take to do the work. It's not about dissecting costs and using benchmarks to knock them down. The ad industry last year published a white paper compensation guide. PR sorely needs that."
Although there have been a few challenges, Waggener Edstrom Worldwide CFO Michael Bigelow says the procurement process has generally improved relationships.
"A clearly defined contract cuts down opportunities for misunderstanding in the ways services are priced, what's included, and expectations," he says. "Understanding and appreciating [procurement's] role [is important]. When procurement is empowered solely as a cost-reduction mechanism focused on discounted services, [it can be challenging]. The key is to help [them] understand the business model of PR agencies."
MS&L's financial staff is larger now than years ago, and Hass says procurement is a factor. "Intellectually, it's very demanding. The good news is, the professional level of financial people in PR is improving," he says. "A lot of people think of [PR] as a profession. It is a business. You need financial people."
Reluctance to disclose financials can seem murky to those involved in procurement. "The knock on agencies is that they're not very fiscally responsible," says Escobar. "It can come out in negotiations when it doesn't look like they know what they're talking about."
AZ procurement gives procedure training and tries to meet agencies in the middle. "We want to pay for [services]; we don't want to create anything new they have to charge us for," Vietri says. "As profit centers trim, they get more tight about what they do for us for free."
Eve Dryer, Vox Medica EVP and president of its healthcare PR group, says, "Larger pharmas are investing in education of procurement, so price negotiation isn't impacting the value of PR outcomes and metrics. They're just holding PR very accountable to ROI."
While measurement is definitely an issue, Escobar feels it's not procurement's domain. "They should be involved in controlling cost, not in measuring return," he says.
Squeezing dollars impedes performance and profit. "We can say no," Middleberg says. "If you don't think you can make money, why take the business? If I can't put in time and quality people to make an account work, it reflects poorly on me. It makes no sense to let it damage your agency."
Procurement isn't going away, and cooperation and understanding will greatly benefit both parties. "Embrace procurement," says Boehler. "Shower it with positive attention that includes education, free flow of information, and open-mindedness about requests. You can't beat it, so you better figure out how to join it."
Guidelines for procurement
The Council of Public Relations Firms will publish a "best practices" white paper on agency compensation in Q2. Council president Kathy Cripps says the aim is to provide a negotiation tool to help facilitate fair scenarios. The Council would like to see:
1. In negotiation, that firms and procurement first reach agreement on the goals and objectives of the program (the agreed-upon scope of work)
2. The contract match compensation with the talent required for the work.
3. That negotiations are fair for both agency and client and provide value for both agency and client.