This guest column is an agency response to Mark Stouse's recent Op-Ed, “Clients want espresso – not latte – from their agencies."
We all appreciate BMC Software Global Connect VP Mark Stouse's insightful analysis of the PR industry. It's always refreshing to get a client's perspective. He has steadily built himself a highly visible platform by criticizing agencies' value creation and billing practices, and his most recent critique bears close scrutiny and careful response.
Stouse makes the point that: "The trust gap between an educated guess and real insight is deepening. The consequences of getting caught on the wrong side will be huge." That sounds clever, but what does it actually mean? In many cases with communications - particularly at the front end of certain processes (media engagement just to name one) educated guesses will never lose their importance. Stouse conjures the shibboleth of “real insight” as if to say that cold hard facts and data are somehow a substitute for judgment and experience. This notion is as preposterous as it is dangerous to the bottom line. For proof, one need look no further than thousands of world-class bankers and whiz kid traders steeped in sophisticated analytical models attached to limitless flows of real-time data who could not see the underlying rot in the investments they were making.
Stouse says: “Agency rates are tied to labor costs, which is no guarantor of value.” True, but this is a specious statement and a variation on an easy albeit shopworn critique of any service – or product – industry. For example, one could just as easily argue: “The pricing of enterprise IT solutions at companies such as Stouse's, BMC, are tied to software development costs that are charged to customers in the form of upfront license fees,” or “time-based licenses that are recognized over the term of the arrangement.” The fact that BMC's customers own a particular piece of the company's software is hardly a guarantor of business value for those customers.
Stouse goes on to say: “Time and materials billing is a dead man walking. It is being swept aside by flat quarterly fees and piped into analytics.” If by flat quarterly fees, Stouse also implies a finite scope of work with fixed deadlines, unchanged corporate and product messages, and products that ship on time, then we say “yes!” But we actually live in the real world, where scope is variable, events get cancelled and rebooked, timelines slip, business plans change, and messages get reworked numerous times – all of which requires significantly more time and resources on the agency's part than originally forecasted using the client's rosy scenarios. We're not even sure what “piped into analytics” actually means, but as a general axiom nothing is more useless than analytics absent the added benefit – and attendant value add cost - of human analysis and context in order to give senior executives proper perspective and insight for decision-making purposes – so we trust “piping” is a euphemism for” value add.”
We agree wholeheartedly in the emphasis Stouse places on analytics. There are actually many of us on the agency side who are working creatively and diligently on building awareness and credibility for “big data” in its many permutations: from defending for clients who market it to using it more effectively to measure our own results (Stouse hired one such outstanding firm as his new agency of record.)
What we find unfortunate is the statement: “Clients are innovating and changing faster than their agencies, and many of us are not getting what we need.” Many companies are in the business of “innovating and changing” today – at speeds exceeding their own ability to adapt, and to keep their external partners properly informed and therefore able to perform and deliver results effectively on their behalf. Fellow readers: please raise your hand if you've had a client in the recent past inform you that “tomorrow,” or “next week,” or on the “first of the month” we're “announcing a new strategic direction for the enterprise.” Now, raise your other hand if you had any advance knowledge of, or participation in, the process. Hey, look! We're all doing the wave!
PR firms, as with BMC, have owners, holding companies, or investors who demand a profit. BMC's CEO, Robert Beauchamp, is unapologetic in his intent on to grow revenues and increase profit in order to deliver predicable returns to shareholders. Speaking of data, here's what Mr. Beauchamp said in the most recent annual report, “Our return on equity in fiscal 2012 was 28%, our return on invested capital was 18%, and cash flow return on invested capital was 35%. We also returned to shareholders via share repurchases $781 million in capital, which was 122% of our free cash flow.” Sounds like a pretty good business.
Stouse's company is about to be taken private by a group of investors including Bain Capital that will leverage the company up with $6.23 billion in debt. No doubt the new investors will be looking hard at the bottom line and seeking improved business performance. They will also, if history is a trusted guide, raise pricing on license fees in a manner not commensurate with added value to customers but rather to pay down a mountain of debt.
Let's just hope there's someone who can tell a good story, squash a bad one, counsel the CEO, and build a defensible corporate reputation. Given the fate of many leveraged buyouts, talent rather than data might be just the ticket for success.
Michael Young is SVP in San Francisco at Access Communications.