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Procurement used to be a four-letter word. When digital agencies first came across it a few years ago, they felt it was synonymous with being beaten up on costs; with bean-counters trying to buy an ad campaign or a website the same way they'd buy heavy machinery.
But two things have changed. The involvement of procurement departments has become much more common, and agencies have come to welcome that involvement.
The first change is easy to explain. When clients started experimenting with online, budgets were small and no one much cared how they were spent. Companies just wanted to find out how the new media worked and what value they could deliver. But now that online is becoming a critical part of companies' business and the budgets are becoming so much bigger, there's a lot more concern among clients that they're getting value for money.
"Procurement has been growing in influence for several years," explains Bob Wootton, director of media and advertising at advertisers' trade body ISBA. "It's widespread in most major companies and it's well-seated, because it reports to the finance director, who's usually the most senior board director after the MD or CEO."
In fact, the rising involvement of procurement departments in buying digital services mirrors what occurred offline some years ago. As Wootton says, "Digital is newer than procurement."
ISBA's procurement expert is director of membership services Debbie Morrison. "When procurement people first came into the advertising marketplace, they started with below-the-line," she says. "Then they looked at media and above-the-line. Now they're managing a portfolio of total communications spend, and digital is just the latest element of that."
But she warns that this involvement comes at a price. "Marcoms purchasing professionals have a lot to learn. There should be a lot more talking between agencies and their clients."
This is the second change. While every agency has horror stories from its early involvement with procurement people, the views of their role and abilities now are almost all positive.
"The level of literacy has improved," says Justin Cooke, founder of design & build agency Fortune Cookie. "We once dealt with a procurement manager from a rail operator who was trying to procure a website in the same way as he would a carriage. Now people are more aware of how you contract for the sorts of services we offer."
Jon Bains, chairman of creative agency Lateral, agrees. "In the past they've been a nightmare, but they're not all bad and it's not a bad process to go through," he says. "When you talk to a good procurement person, you get the sense they know what they're doing more than some brand guys."
Recognising the advantages
In fact, agencies are finding that there are several clear benefits to involving procurement people in the relationship with the client. "It shouldn't be something agencies shy away from," says Craig Morgan, client services director at full service agency Tribal DDB. "A well-informed procurement person can be a real benefit."
In a recent Opinion piece for NMA, Felix Velarde, managing partner at web design and eCRM agency Underwired, pointed out that the sort of financial planning discipline procurement departments demand from agencies is something agencies should be practising anyway (NMA 18.01.07). Cooke agrees, saying, "Anyone who says what they do can't be measured should look at their business practices."
He also believes that the involvement of procurement people gives the agency a sense of confidence that everything is being done in a structured way, and that the relationship is high up the client's list of priorities. "If you get an request-for-proposal from a procurement manager, then you know they won't be wasting their time on something that doesn't have a budget or a decent amount of backing."
Bains highlights the fact that, as procurement people tend to stay in the same job longer than the brand managers they're working with, they can also give continuity to the agency/client relationship. "You can go into the client, and there's someone there that knows you did some work for them a year ago. It means you have some history."
ISBA's Morrison lists further benefits. "Procurement can be the agency's friend," she says. "It can speed up the payment process by chasing invoices, for example. And I've often seen procurement people passionately defending an agency within the client company, and even expanding the amount of work that goes through that agency. These people have been an absolute force for good in some companies."
Bains points to the specialist digital procurement people employed by big FMCG companies like Procter & Gamble who, he says, not only really know what they're talking about but also know how to route agencies to the right people within the company, putting the right agency together with the right brand.
However, there are still problems, particularly with this role as gatekeeper of the pitch process. "When they do their job well, things run smoothly," says Cooke. "But due to the concentrated amount of knowledge you need to gather, you have to be sure they're not stopping you from talking to the right person. A lot of it's about access to stakeholders within organisations."
And while ISBA's Morrison works with 250 client companies, client partner Darren Gerry at full-service agency LBi believes there are many more that are still immature in their approach to the purchasing process, and which don't understand the work agencies do. "There's a lack of awareness of what we do for the fees in both media and mixed media/creative," he says.
In fact, media agencies have seen the involvement of procurement in the pitch process for longer than their creative counterparts, mainly due to the sums of money involved.
"Things have changed in the past three years," says Neil Jones, MD of media agency Carat. "The involvement of procurement is standard practice now, whereas three years ago it was about half and half. It's being driven by client demand."
But even though the discipline has been involved longer, the view of procurement is much the same. Jones sums it up as: "Good when they try to understand your business; bad when they just beat you up on costs."
Jones's role means he's aware of trends in both traditional and digital media. Where he believes things are changing dramatically for all media agencies is in the way they're paid. "These days things are much more focused around a fee plan rather than simple commission," he says. "Things tend to be tied into performance metrics. Media agencies prefer to be paid by fees since that reflects the work we do for the client."
According to Jones, a typical payment structure for Carat is now a core fee that covers the costs of the piece of business, then a performance-related element that accounts for the profits.
"Only five of our top accounts are on commission, and they tend to be big global accounts that just want to work on a number," he says. "The advantage for the agency is that with a pure commission structure you don't make money until the client spends it. With a performance-based model you still get paid even if the campaign gets pulled."
At Tribal DDB, Morgan too is seeing the impact of procurement people on the media side of the business. "Terms of business are becoming more stringent and the 'more for less' approach is becoming more common," he says. But he attributes this at least in part to inflated commission rates at digital media agencies. "Rates have been high because it's been seen as a specialist media buy. Also, because spends were low compared to offline, rates were higher."
But Morgan is also aware of the same change in clients' views of how agencies are paid as Jones, albeit with a slightly different emphasis particular to full-service agencies. "Clients want to see more shared risk," he says. "Payment by results is becoming more common, and when you have control of all the elements of the campaign, as you have in a full-service agency, that becomes easier. We're willing to take on risk/reward programmes, as we have more control of the risks."
There is, however, a more problematic side to procurement for full-service agencies, springing from old-school attitudes, as LBi's Gerry explains.
"There are many companies that are quite immature," he says. "They understand IT in that they understand buying software or hardware, but they don't understand buying agency services. There are boxes we get put into and the clients don't understand the problems that can arise."
One particular problem for full-service agencies can be that when clients are procuring media and creative together, the creative element can get lost in the procurement department's attempts to beat the agency down on media costs. It's a problem that seems to occur most with large global accounts.
"It depends how you get your first client," Gerry says. "If there's an existing media relationship in the field, there's a chance the client will try to replicate that with a full-service agency."
But even this problem is easing as both sides gain more understanding of each other. "Where there's a good mixed media and creative pitch, there's certainly an appetite on the procurement side to understand the relationship," says Gerry. "I think these conversations will be a lot easier this year, but that's what always happens when you start delivering results."
Indeed, Agency.com's sales and marketing director Nick Corston says he's never experienced a problem with creative and media in the same brief. "Clients are very savvy," he says. "They can put a qualitative head on for creative and a quantitative one on when they talk about media."
There's one other problem that agencies have found with having procurement involved in the pitch process, and it's nothing to do with them.
"I don't think marketing and procurement always get on," says Liane Salthouse, deputy MD of Manchester-based agency Pavilion, "and that's challenging for everyone."
But the broad picture is that the relationship between agencies and procurement people is improving as both sides come to understand each other better.
"They're not the ogres they're made out to be," says Corston. "I think they know the reputation they have and they're trying to change it. They're about accountability, and that's something we, as digital agencies, can give them."
Morrison agrees. "There's always paranoia when procurement people come into the room. But maybe there's a better way of doing things. Maybe the client needs a different mix of people on their account. Procurement people are there to make things work more efficiently, but also more effectively," he says.
Lateral's Bains sums up the attitude of many agencies. "Overall, I think it's a good thing. It's nice to be talked about in the same breath as traditional above-the-line agencies, so it's good for the industry to go through the same process, even if it's not the best process in the world."
- Procurement departments have become more involved in digital pitches as budgets have increased
- Agencies initially felt procurement people only wanted to beat them down on price, but are now realising there are benefits to having them involved
- Procurement can help make projects run smoothly, ensure agencies get paid on time, and even increase the amount of work agencies get
- Different payment models are starting to emerge, with an emphasis on including performance-related elements
Establishing procurement best practice
Magic and Logic is the first result of a co-operation between the Institute of Practitioners in Advertising (IPA), ISBA and the Chartered Institute of Purchasing and Supply. The booklet, published last June, sets out best practice in relationships between marketing, procurement and agencies.
The book's title refers to the ideas that agencies produce to grow brands and business (magic) and the processes and management of the agency (logic). "The terms magic and logic have struck a chord with people in the industry as capturing what it's about," says IPA director general Hamish Pringle. "Not many clients have a problem with the magic that agencies produce. What they do have a problem with is the logic."
The next stage will be to host roundtables to debate best practice in separating out agency services, pitching, payment for value and efficiency in relationships. "If we can get this incorporated in the training of procurement staff, it'll bring about a structural change in the way they approach the creative industries," says Pringle.magicandlogic.co.uk