Rick Hirst, CEO of Carat UK, Discusses the IPA’s Commercial Conference 2016
Following on from the IPA's 2016 Commercial Conference, our CEO Rick Hirst shared his key learnings from the day.
How do we get paid fairly for what we do for our clients?
It was clear that this issue is certainly weighing heavily on the minds of the majority of agencies in our business. Combine this with the uncertainty of post-Brexit Britain, an oversupplied agency marketplace, increasing budget pressures from clients and you've got a soup that no one really wants to taste.
The theme of the conference was 'Our Shop, Our Rules' and rightly so. In many respects a call to arms for the attendees and industry at large. It felt like time to stop complaining, stop feeling like the victim and have permission to genuinely front up to the commercial challenges we're facing.
First up was Michael Farmer, a Madison Avenue veteran who's watched the demise of our commercial model over the last 25 years. He distilled the issue into one around pricing and workload. Put simply, we're being paid less and doing more work than ever before and the trend is shocking. Since 1992, there's been a 62% decline in fees for the same amount of work. Not only that, according to his research, a creative team today is likely to ask for nearly 130% more output for that diminished fee. His criticisms of our business were stark; CEOs need to put a floor under our pricing and take responsibility for these challenges, not delegate them deep into their organisations. Agencies must also manage scopes of work; the old excuse of 'We're creative' doesn't wash when you look at our business as an advertising factory - we have raw materials and end product - it's no different from manufacturing cars. Michael noted that consulting firms get paid a 5x multiple on staff costs. Why? He believes they are more focused on creating a culture of accountability, they have uniform documentation and senior management are intrinsically involved in this aspect of their businesses. Lessons indeed.
Tim Williams from Ignition Consulting took up the mantle of value. His challenge was that we're fundamentally undervaluing what we actually deliver to our client partners. He believes that we're in a pricing revolution that almost all sectors and businesses are having to deal with. No longer seeing the world through the eyes of cost, businesses are becoming much more dynamic in how they create models for their customers. From Uber's low-battery price surge to Tesla's functionality unlocking, there's a huge shift towards understanding how to create new value for customers and clients. Unsurprisingly Tim called out "cost-plus" as a relic of our business that needs to be buried and also that agencies are woeful at pricing; we use all the wrong language, we don't make pricing a core competency and we put our people in front of skilled buyers - it's no wonder that we're losing the battles today.
Next up was Blair Enns with a slightly different angle. His talk focused on the commercial lifeblood of all our agencies - new business. Blair is the creator of the 'Win without pitching' philosophy that challenges many of the long-held beliefs on successful business growth strategies. It's a philosophy that centres on the axis of power and control which normally in a pitch, an agency will hand over to the prospective client. Whilst refreshing in his pitch, actually Blair talked nothing more than good old common sense:
- Don't pitch too much. Only play if you can win.
- Manipulate the rules in your favour to test your chances of winning.
- Make the prospective client see your agency differently to the others.
Simple, inspiring stuff but perhaps open to challenge when you introduce the role of an intermediary into a pitch process. Traditionally their role is to neutralise the environment for the agencies competing and limit direct access to clients. It certainly makes Blair's 'concession gaining' somewhat more difficult.
The prize for job title of the day went to Dan Bennett - a Choice Architect at Ogilvy Change. Dan's view centred on how we actually make pricing competency and. Understanding people, Dan argued, unlocks a number of levers for helping agencies and their clients make a shift to new commercial engagement models. From leveraging social norms to make the "new" feel "safe", to understanding who's the right person to lead the discussions, to creating scarcity in new models - there were many tips for the hungry crowd. His most pertinent however was about language. Do we need some new language to shake off the baggage of our old models and set us up for success? Good luck to the copywriting contingent who get this brief.
You can't have a debate around agency remuneration without involving the P word, and that's where Tom Kinnaird stepped up. After many years as a client procurement specialist, Tom took the unique step into the agency world to lead WPP's procurement and it wasn't long before he realised something - agencies are woeful at negotiation and don't understand how to deal with professional procurement specialists. Until we do, Tom argued, we'll continue to suffer at the hands of these skilled assassins. Tom's piece was littered with great insights into how to better handle negotiations with procurement. A healthy dose of scepticism, an understanding this is a game, the deployment of "ethical drift", and seeing where the role of procurement fits into the decision making process. However, if one message rang loud and true from Tom, it was about the power and the use of the word NO. Not something heard much in agencies these days but Tom's argument was simple; if you don't say no, then your client will just keep asking. But when do you say no? Tom's simple guide was if you say no and the client then has the problem, then it was the right time because it places the power in your hands. And how? Tom's view is that you say no often by saying yes and navigating a negotiation to other options and possibilities. Simple stuff but as Tom was at great pains to land - it's not currently being taught enough in agencies. We must get negotiation training included in our core development plans across our businesses, not just in management teams.
After an interesting and insightful panel talk, the final stage was given to Frederico Bolza from Sony Music. A self proclaimed muso who got into the business because he simply 'loved bands', you'd be a fool to underestimate the value of Frederico's experiences. The music business is also facing a fundamental challenge to the very core of its commercial model and Frederico was there to explain how the industry is innovating to stay relevant and alive. No longer able to rely on physical sales and distribution, they are reinventing the value chain for their businesses and artists, deploying innovative new tools to develop strategies and an ecosystem around their assets that drives new opportunities for revenue and value capture. It was a stark lesson for agencies to think differently about what they do or could do for their clients. If the music business can do it, why can't we?
In summary, a hugely insightful and diverse perspective on the current challenges that we're facing as an industry. Amongst the practical advice though there were some significant themes I took from a very well spent morning:
- We're a creative business but hugely uncreative in our thinking and approach to how we're paid by our clients.
- We can't expect things to change for us. We have to innovate, try things, invest and learn from making mistakes. Change has to come from the ground up, not the top down.
- We must have a hard look in the mirror to see if we're equipping our people and teams with the right skills to significantly up our capabilities around pricing, negotiation and commercial acumen.
- We have to take responsibility for this in all aspects of the agency, not just the finance team. Lead from the front by CEOs but also create a culture of accountability across our businesses from the top to the bottom.
- We can learn more from other industries as to how they've overcome similar seismic issues as globalisation, digitisation and convergence continue to dominate modern business.
Well done and thanks to the IPA Commercial Leadership Group for a great session that I left feeling upbeat and energised. So much that I signed up for a negotiation skills course that very morning - I'm almost looking forward to my next procurement conversation.