(Q&A with Tim Mai, director of global procurement and sourcing at Yahoo, at the end of this feature)
In March, Pitney Bowes began a global review of everything it buys that was initiated by its procurement department. Matt Broder, VP of external communications, explains that though the review was not isolated to PR, it was the first time the mail-solutions company's two US PR agencies, CJP Communications and Schwartz Communications, had faced the process.
“We haven't been in the market for PR services domestically for about four years, so procurement's involvement in domestic agency selection is new,” he says.
“Our relationship to procurement isn't new. We've been very satisfied with agency performance, but, as a whole, the company was looking at all discretionary spending. The PR review was a pretty small part of the overall global procurement exercise.”
PR might be a small cog in the procurement machine, but it is playing a bigger role in the client/agency relationship, as it is almost always directly involved in the purchase of PR services.
“Procurement is as important as any other part of the client base,” says Next Fifteen CEO Tim Dyson. “Agencies talk about wanting client partnerships – unless you get procurement to be a partner, it'll never be a partnership.”
Firms report varying degrees of procurement involvement and influence, but most believe client communications teams have the final say in agency selection. Such is the case at Pitney Bowes.
Procurement usually has the biggest influence in the beginning stages. Details about finances, staff, and clients required by RFIs and RFPs are typically driven by procurement and are used to vet agencies on criteria such as solvency, stability, competitive rates, and cultural fit. Procurement officers are also sometimes present in pitches, and some dictate review scope and timing.
Eric Brown, who joined Yahoo as SVP of global communications about a year ago, says procurement has been consistently involved in all RFPs, new contracts, and reviews over the past six months. As at Pitney Bowes, Yahoo procurement advises in agency selection. Brown says procurement only gets a veto in the early stages if problems exist, such as insolvency or dubious business practices.
“[Procurement confirms] that agencies meet the baseline for any Yahoo supplier,” Brown explains. “It's our decision on who's going to best meet our marketing objectives and brand needs. The budget is mine. In 20 years, I've never not chosen a vendor because they were too expensive. There's nothing more valuable than a company's brand, and the brand is most influenced by media, social media, and the blogosphere. You don't look to save $100 a week when the stakes are that high.”
Tim Mai, director of global procurement and sourcing at Yahoo, says services account for 60% of the company's annual spend with third-party vendors. Mai, who has been in procurement for more than a decade, explains corporate procurement models in terms of a continuum.
“On the far right is centralized procurement – like at P&G where procurement is very mature,” he explains.
“On the far left is decentralized procurement. Yahoo is on the decentralized end of the spectrum. Managing vendors at the operational and relationship level is the primary responsibility of the PR team. We provide framework and assist with conducting business reviews, analysis of utilization, and form recommendations in support of the management activities of the PR team.”
While procurement reporting requirements can be administratively cumbersome, the bigger challenge has been the lack of mutual understanding between procurement and PR. Agencies worry that procurement's main objective is to reduce price and that procurement officers lack an understanding of the value of strategic services. The most productive relationships involve education about the business practices of both parties and a focus on value rather than cost.
“The model we need to move toward is one where people look at maximizing value as opposed to minimizing cost,” Brown says. “If procurement people find a way to help marketing people with that part of the equation, it's a very different discussion and a very different practice. If results are 10 times better compared to what they were for the lower price, that's what our executives look for.”
Mai notes that almost all agencies are initially concerned that pricing is procurement's only focus. “When they see we have a comprehensive approach based on the premise that we're buying expertise, conversations become more collaborative,” he explains.
At Yahoo, procurement and the communications team share an understanding of how the other works – in part because the communications team has an entire arm dedicated to interfacing with procurement. It also doesn't hurt that Brown formerly worked in supplier management at Sun Microsystems.
“In general, more education is needed on the procurement side because they have a tendency to look at all agencies as equal,” Brown says. “If you have the luxury, one-on-one education is great.”
Working well together
Next Fifteen, Weber Shandwick, Text 100, and Ketchum all proactively engage procurement in their relationships with clients. And each agency can cite instances in which procurement has helped, including acting as advocate and arbitrator during times of corporate team transitions.
“The clients we've had the longest relationships with are ones where procurement is involved,” says Aedhmar Hynes, CEO of Text 100. “They can even out bumps. They can often see the entire value chain and not just react impulsively to highs and lows.”
The specifics of how Text 100 relates to procurement vary among clients and markets. Typically, the PR lead and finance team interfaces with procurement. Hynes says understanding which measures specific procurement departments use helps the agency encourage discussion about value-based decisions.
“You have to talk procurement's language,” she explains. “‘Strategic services' can mean nothing to them. We ensure we maintain focus on value versus lowest price. When you talk about value, you have a very different discussion.”
Ketchum senior partner, COO, and CFO Rob Lorfink says finance, new business, and clients' service leads all interact with procurement.
“A sophisticated and experienced procurement function will be the steward of the relationship,” he adds. “The more experienced the procurement officer and the more robust and developed the function, the better it is for us because they understand our world.”
Ketchum proactively communicates with procurement in numerous ways. For example, the agency initiates scorecard sessions where client directors engage with procurement to discuss the value the firm is bringing to the process.
Andy Polansky, president of Weber, says the agency's CFO and business and legal affairs leads typically work with procurement. Years of experience has given the firm insight, as have former procurement officers who have served as consultants.
“We've done a lot of outreach to educate them about our services and associated costs,” he explains. “We're not a commodity service. Fees are related to intellectual capital and we price accordingly. The dialogue around that is important.”
Polansky says conversations about long-term priorities, business objectives, and measurement and ROI strengthen client-agency partnerships.
“The relationship with procurement, in some instances, has helped facilitate focus on longer-term objectives,” he adds. “This isn't always just about price. It's about thinking broadly about all the elements that establish protocols for a long-term, healthy client-agency partnership.”
Pitney Bowes' Broder notes that he and his team have a collaborative relationship with the company's manager of strategic sourcing Ina Avidon.
“She pushed us to document our requirements,” Broder says. “She's a good adviser in helping us think through metrics and document what we're looking for.”
During the review, Avidon questioned efficiency after initially observing that the company had a lot of PR firms. Broder's team explained that it historically preferred to hire niche specialty agencies for specific needs and that it had never looked for one PR agency to handle all PR.
“She understood that right away,” Broder says. “This review was about making sure we get the right number of agencies at the right price. She wasn't telling us we have to have one agency. We weren't telling her that everything had to stay exactly the same.”
Anne Fenice, senior manager of Critical MAS (metrics analysis and systems) at Yahoo, is part of Brown's team and the lead interface with procurement. Her division works with procurement on processes and manages budgets, metrics, and reporting.
“We look at the specific processes procurement has and morph them into what a communications team needs,” she says. “We've helped educate them as to how they can customize [procurement] to communications.”
Procurement people can attend pitches and most agency leaders agree it helps them understand why one agency is chosen over another. Lorfink says procurement officers often attend Ketchum pitches, with participation ranging from quiet observance to leading the show. Brown invites procurement to pitches, but he deems attendance optional.
As at Pitney Bowes, reviews can be purely driven by procurement. Text 100's Hynes says procurement people are usually involved in quarterly or annual reviews, and she's seen them interested as much in strategy and creative as they are in operational details. She's also seen procurement drive satisfaction surveys, which she says can be very helpful.
“They review satisfaction and are in position to provide feedback to both sides,” she explains. “Often, they'll help us navigate something that perhaps we wouldn't understand because it's an internal issue.”
Many of Next Fifteen's clients have standard three- to five-year reviews. Dyson says they can involve a rate review alone or a full pitch. “Sometimes procurement doesn't allow the company to have any supplier for longer than a given number of years, so you have to rebid,” he adds. “That's frustrating for everyone. If the client is happy, they don't want to be tied up in a process for three months.”
Yahoo switched out 30% to 40% of its agencies last year. Brown says he has declined procurement's request for periodic formal reviews given that he reviews and benchmarks the market monthly.
Pitney Bowes' teams haven't discussed how reviews will be handled going forward. Because all agencies are on 12-month retainers, Broder says annual reviews wouldn't be difficult, though he's not sure it'll be a priority.
“PR isn't a big line item and it probably wouldn't be the biggest priority given some of the other categories,” he explains. “We'll do what the company asks. Procurement is part of how we have to do business."
Q&A with Tim Mai, director of global procurement and sourcing at Yahoo
How do you evaluate quality when purchasing PR services?
Mai: We buy media communications expertise from a PR agency. This expertise resides within the firm's people. Evaluating PR agency quality is tantamount to evaluating the expertise, experience, reputation, and fit of the communications professionals.
How does Yahoo make the distinction between buying professional services and buying products?
Mai: With professional services, we are buying expertise. This is fundamentally different from buying products, where feature and functionality often drive purchasing decisions. The process is more rigorous for services. In addition to due diligence, we require a signed Statement of Work that details the agreed scope of services; deliverables; quality and performance levels; pricing; and terms and conditions regarding intellectual property, brand reputation, data privacy, and data security.
What best practices in working with PR firms help you accomplish your goals?
Mai: One of the best is working with firms to recommend an optimal staff mix and utilization plan that's flexible and can scale with our needs. Providing billing transparency on invoices is crucial in allowing us to track and measure ROI.
What's the best way to maximize value, as opposed to minimizing cost?
Mai: There are several value levers. Our PR teams only work with preferred agencies best suited to specific needs. Second is an optimal staffing mix, utilization plan, and competitive rates. Third is measuring and tracking metrics based on communications objectives.
What value does procurement bring?
Mai: At Yahoo, procurement's role is to facilitate fact-based vendor selection and contracting processes with the PR teams to enable decisions based on full transparency and understanding of the values and trade-offs involved. Specifically, procurement identifies value levers through analysis of the supply market; internal spend and usage data; facilitating a structured competitive RFP process; vendor negotiation; business case for vendor selection; and structuring the contract and relationship.