Innoficiency in Your Agency
Blair has talked many times on the podcast about how innovation and efficiency are mutually opposable goals, and after presenting his first keynote on the "Innoficiency Principle" goes deeper into this idea with David.
Links
“The Marketing Procurement Problem”
“The Complex Battle for Margin”
“Five Levels of Pricing Success”
Transcript
David: All right, Blair, I don't know if I should say this, but I've arranged to play a game of chess while we're recording this in case you just go off on some long rant. Hold my attention buddy.
Blair: Dear listener, when I sent David the outline, he said, "I agree to the topic, but how do we make it not sound like a keynote where I'm just going to talk?
David: I'm the only one in the audience. I gently raise my hand and says, "When are the objections allowed Mr?"
Blair: We'll be taking questions at the end.
David: Then, "Oh, we ran out of time. Sorry. No questions." Well, you wanted to talk about the innoficiency topic.
Blair: Innoficiency problem, stemming from the innoficiency principle, which we've talked about many times before.
David: I thought, "Oh, we've talked about this a lot." Then I started to do a search and I realized, oh, we really don't have a full boundary episode on this. You and I have talked about it a lot, and I've heard you speak on it, but we haven't done it in a real concentrated form. I said, all right, you have my permission [laughs] as if you need it, to talk about this. Right.
Blair: I'm glad I do because I've touched on it in so many different places. One of the impetus for this is, I recently did my first keynote on the topic while you were busy doing this thing called MYOB. I hear that went well, by the way. I've done a couple remote talks. I've done one live keynote, I've published the post, I've launched another podcast that focuses on the marketing procurement problem, which is a function of this innoficiency problem, but I haven't had the chance to go deep into it.
I get a lot of pushback. In fact, Leah and I interviewed another procurement person yesterday, once again, I put the innoficiency principle to him and he rejected it. He said, "I don't think it's right." There are objections to it, and I want you to stress test this idea, and I'll point out where you're wrong in your objections.
David: Even before you hear them. I have three Mr.
Blair: Oh, do you?
David: Yes. I guess I could just be the prosecutor in this little thing, but I want to be the judge too. You'd let me know when objections are appropriate. Meanwhile, give us the big headline, and also when you started thinking about this.
Blair: The innoficiency principle is this idea that innovation and efficiency are mutually opposable goals. You cannot increase one without decreasing the other. That's the principle. The problem is to be ignorant of the principle and think that you can do both. Like you could drive a car in two different directions at the same time. I started thinking about this when I was writing Pricing Creativity. That came out in January of 2018, and I was working on that book for over three years.
The source of the thinking is Peter Drucker. Peter Drucker's, going back as far as 1963, started talking about managers who prioritize efficiency over effectiveness. My dad, who was a cop at some point, my dad was promoted into management in the police ranks, and he started taking business classes and then he would come home and [unintelligible 00:03:18] Peter Drucker so Peter Drucker was in my house from a very young age.
Then I forgot about him, and then I start listening to and reading Ron Baker, and he's always citing Peter Drucker. I've gone back to Peter Drucker about 10, 12 years ago, Drucker's idea of efficiency versus effectiveness. What Ron and his podcast partner, Ed Klaus, called The Effing Debate. I've always liked it, but it struck me that Drucker was off a little bit. He was playing up the alliteration.
Then you see other people who hatch onto this idea that there's a cost to the pursuit of efficiencies. Drucker called it effectiveness. Others talk about exploring versus exploiting. Everybody goes for alliteration to make this meme stick. None of them were ever quite right. When I was researching and writing about value-based pricing, it struck me that it's actually innovation.
It's innovation and value creation, and these two things are tied to each other, and we'll come back to that near the end, but it just struck me that innovation is the cost that you pay when you pursue efficiencies without being aware of the trade-offs. What you give up culturally in the organization is the ability to innovate. To me, that's a profound idea. The idea that these two things are at opposite ends of the spectrum and that it's in the nature of any organization over time to move towards the efficiency end of the spectrum, but if you are not aware of the trade-offs that you're making, you will blindly pursue efficiencies and you won't understand why it's becoming so difficult to innovate on the part of your organization and for the client. You won't understand it, you'll feel like you're caught in this forcefield of gravity or something. Unless somebody makes this principle obvious to you, you won't see that it's actually your pursuit of efficiencies, which is not a bad thing, but it's your blind pursuit of efficiencies that is costing you on the innovation and value-creation front.
David: Is this another way to sneak up on the procurement discussion?
Blair: No, I mean, it is at the heart of why Leah and I launched 20% - The Marketing Procurement Podcast is because I see procurement is blind to this principle. I see procurement trying to drive efficiencies into the purchasing of creativity, which is upstream from innovation. That's why we launched that podcast. I actually want to talk about inefficiency in the agency. We've talked about procurement enough.
David: In a way, principals should be listening to this more through the lens of how they run their firm and how they think about efficiency and innovation and the mix there not so much, what sort of arguments that might make to procurement. There's some overlap, but we're talking more about how principals ought to run their firms.
Blair: Yes, this is more your domain than mine but it strikes me that in almost every decision that a leader of any organization makes, this inefficiency principle is baked into the decision. I think if you're just aware of the trade-offs, you might think a little bit longer or more deeply about the decision.
David: You just did a pretty significant keynote to some pretty significant firms. What was your reaction to it, I'm just curious.
Blair: Let's make the generalization and let's plot individuals on the spectrum but generalize and say you're either geared towards efficiency seeking innately in your personality, or you're geared towards innovation. I would generalize and call them innovators or optimizers. In an audience, that is primarily innovators, what almost always happens I find pretty small sample size so far is they actually intuit this. They get it, and they don't challenge it.
If you see yourself as more on the innovation end of the spectrum, and I tell you that the cost of efficiency is innovation, you can immediately think of examples you know in your bones this is right. If you are an optimizer, if you're more towards the efficiency-seeking end of the spectrum, you will reject this principle. I think one of the reasons that you would reject it, and so the short answer to your question, David, is it resonated with most people. I didn't hear it from anybody, any the optimizers in the audience that they had a problem with the principal.
David: The optimizers don't go to these conferences, they're back optimizing.
Blair: No, some of them were there. In fact, I had a great conversation with two partners in a firm who came up to me afterwards, and they were laughing. At some point, I pointed at one of them and said, "What are you laughing at?" They came up afterwards and they said, "We were almost crying. This describes us." Like their partners, and their life partners, like my wife and I.
I'm visionary and Colette is the integrator and you could generalize and say, "Okay, innovator optimizer." These two guys came up and said, "We're both of these. We're like the embodiment of these principles and it is the source of our struggle and our frustration." I said, "Yes, same with me, and my wife." My wife was standing there with me too.
David: [laughs] Nodding.
Blair: I think I've said this before, somebody's described this as a conflict. Thinking back to the episode that you and I did on the subject of Resolving Tension in Your Business. I channeled you and I said, I don't see this as a conflict, I see it as tension. The big takeaway for me in that episode that we did was your statement that not all tension needs to be resolved. Tension is what holds a bridge up.
We don't have to resolve all tension. To me, that was a profound learning. I think of this where we as individuals or as departments, or as organizations reside on the spectrum. I see as we're being held in tension. That is not necessarily a bad thing.
David: It's almost like two people arm-wrestling, the optimizer and the innovator, and the goal is not for one of them to win. Of course, this breaks down because then they both get tired at some point. The idea is that, if you move towards one side, you're moving away from the other side. I don't know if this is true, I'd be curious to know how you react to this but in the history, or in the evolution, I should say, of a firm, there might be different points at which it should move away from a perfect balance toward more one side more to the other side. Could you see that happening? Where at certain points as a firm evolves, they need to have a bias towards one for a temporary period of time?
Blair: For sure. Agencies or any new business is usually born in this burst of innovation. I don't know if I finished making this point, but optimizers reject the principle because their definition of innovation is different, where you are on the spectrum, this inefficiency spectrum will affect what you understand innovation to be, and so in the post, and we'll link to it, I provide the definition that I think is again a quite an insightful definition. This idea that innovation is the execution of a new idea that solves a market problem and creates value for both the customer and the company. That lasts part, something creates value for the customer and the company.
That is true innovation, but optimizers see anything new that leads to a new optimization as innovation, even if there's no value occurring to the customer, and that's why I think they reject the idea because I think where you are on the spectrum, and again this is-- maybe, in this case, an unhelpful or an unhealthy generalization, but if you're not very innovative, your idea of innovation isn't that profound, isn't that innovative. What passes for innovation for some people is actually quite disappointing.
David: Rudimentary. If we don't have a super deep understanding of this, then we might say that the typical client relationship follows that model where there's a lot of innovation at the beginning, and then you switch more to an optimization perspective. Then you lose the client because another innovator comes in and then they lose the client when they switch to optimization, it's like this big cycle, but the definition of innovation needs to be deeper than that.
Blair: Yes, it really needs to encompass this idea of value creation accruing to both parties. I want to give some love to the optimizers, the efficiency seekers out there, because you think of the beginning of an agency business or any other business where it's born in the supernova of an idea and it's chaotic and it's messy and it's late nights and everybody's working really hard and you're redoing things-- you're doing things for the first time.
It's fun, it's exciting, you have to be young for this because it's only fun when you're young and you have the energy to do it, otherwise it's just overwhelming. All businesses are born in this moment of innovation, so innovation is messy, it's exhilarating, it's chaotic, it's all potential, and in the beginning very little profit. Once you have market validation, the market says, Oh, yes, that is innovative, we will pay that, you're creating value for us, we'll pay you, it's win-win, you start to succeed, you start to grow, you have to scale.
If you want to turn that potential into profit, you need the efficiency seekers, and typically what happens in the agency or any other business, your first adult hire is a senior finance person, who comes in and says, "Okay kids, this is all great--
David: Stop that, give me your credit cards."
Blair: Exactly. We as owners of successful businesses, we never get to this place of consistent reward where it's like, okay, we are reaping the financial rewards of the value that we are creating. Not just creating cash flow to the business, but excess cash flow we're taking it out in the form of profit, that does not happen without the efficiency-seeking class, and the bigger the organization gets, the more of these people you need.
I could go down the entropy rabbit hole, but I'll try not to. The parallels between the waste that is created in a company as it grows and the entropy in a system, it just strikes me as the almost perfect parallel, entropy is basically unusable energy in a system. It's waste, and as an organization grows, there's more and more entropy and it takes more and more energy to fight the entropy, to fight the waste. You're in this battle of like, you're constantly battling waste because it's the nature of organizations as they grow to actually become more wasteful, but if you want to be profitable, if you want to reap the rewards and turn potential into profit, you need to battle that waste, but then you end up spending too much time fighting waste and you end up in a culture that won't tolerate waste, and you need waste to innovate.
David: The best example of this is Google or Facebook, so there's a really fun website called the Google Cemetery, have you ever seen it?
Blair: No. Of the dead ideas?
David: Yes. Exactly, Gcemetery.co, and I can't even name them, but the whole thing is 14, 15 pages of about 16 gravestones of things that they like Google Hangouts, Cloud Print, Fabric, Higher, Google Clips, Daly, Translator to Google [unintelligible 00:14:42] and on and on and on, hundreds of these, and at a certain point, an organization like that tries their best to bring the balance away from optimization towards innovation again, and they simply can't do it, and that's why they have to buy small companies. Then of course quick to kill them, and this is repeated over and over again. Now we're on a smaller scale, I'm not sure we ever enter that phase, but it's an illustration at the edge of how optimization kills innovation. Where you have large companies that who you would think they would be able to do this and over and over again, and then you hear a new announcement, it's like, ''Oh, whatever.'' That'll die in three years. It's fun to predict that. It's a good example of it.
Blair: I met a woman a few years ago while I was a couple years into this idea, maybe more than a couple of years, and she's an ex-Googler who left Google and went to do a research MBA on the question, why is it difficult for big businesses to innovate? Her one-word answer to that question was slack. They force all the slack out of the system, slack being waste in all of its forms. As the company grows, in the beginning when you're an innovative business and you hire that one grownup, they're the pained minority.
They're the minority class. You've got all the creative people running around, Ooh, we'll do this, we'll go this way, et cetera. You've got this one person initially fighting, trying to implement systems and software, and then as you grow, that person gets more power. They hire more people, they implement more systems, and what used to be the pained minority becomes the governing class, and then the innovators become the pained minority.
David: I know we're not talking about procurement necessarily, but can we just stop and think about this as it applies to the sales process? You have this big fortune 5,000 that wants to hire you, and they're either hiring you because you're great optimizes, they just want you to do lots of stuff, or they're hiring you because you are innovators. Maybe both. Could be both together. This is the big advantage that you have, is that you are not trapped in their systems, but here they're trying to buy you as an optimizer, but what they really need is an innovator.
Blair: The very culture of how they buy innovation destroys the innovation itself. It's really helpful for the listener to understand and just to remember, you made the point earlier that at some point, like culturally, companies can't innovate. They only acquire it, and the reason they can't innovate is because this innoficiency principle is an issue of culture.
The culture is the understanding of how we operate around here and companies have a culture of waste tolerance. Everybody understands in every organization that they work in or they lead, maybe the leaders don't understand it as well as the people who report to them, but there's a certain tolerance for waste for inefficiency.
In innovative organizations, there's a high tolerance for waste and in efficient organizations, there's low tolerance for waste, and innovation is inherently wasteful.
If your company culture will not tolerate waste and you're growing and growing, then innovation never comes from within. You acquire it. That's why the holding company agencies, they acquire startups. That's why Google acquires startups. Going on a little bit of a tangent here, I think Amazon might be the most successful example of a company who has grown large and able to retain pockets of innovative culture because they see themselves as a federation of startups.
They take the cash from the really large, efficient profit-generating businesses like AWS and FBA. They take the cash that throws off and they reinvest it in these startup ideas. I haven't seen the Google Cemetery, but I've seen the equivalent for Amazon. It too is pages and pages and pages. What they do, I imagine, is they let these startup units operate like startups and they are not infected, sorry to use that word, by the culture, the efficiency-seeking culture of the mother-ship, or the largest entities in that ship.
They actually keep the cultures separate. This seems to be easier to do when the founder is running it. Now that Jeff Bezos has handed the reins to Andy Chassy who ran AWS, and I would imagine AWS has a really efficiency-seeking culture. I think the trillion dollar question for Amazon is going to be, is it in Andy Chassy's nature to drive efficiencies into the other places of the business? I suspect it probably is.
David: That would be my guess too.
Blair: I suspect this is the slow beginning of, not the end of Amazon, but of the normalization of their growth.
David: What Amazon does differently is that they have a mix of internal innovation and then buying innovation. Things like Ring and eero and so on, but the biggest difference is I think they try just as many things, but they kill them faster. They're not afraid to kill them.
Blair: That's, you're not letting sunk cost bias take over your thinking. You're okay killing it and then starting the next one, killing it, and starting the next one. That's really wasteful. There are a lot of company cultures that just do not tolerate that, most of them, in fact.
David: Getting this back on track here, let me just read this. The inefficiency principle states that innovation and efficiency are mutually opposable goals in any reasonably functioning organization. One cannot be increased without decreasing the other. Then the inefficiency problem is to be ignorant of this principle and to think an organization department, or individual can increase either innovation or efficiency without decreasing the other it cannot. Efficient innovation is an oxymoron. Talk to us about why optimizers reject it in real precise points here.
Blair: If we start listening to the objections, the first one comes from optimizers. They reject it because of their definition of innovation. They'll say two things. Number one is they'll say, "Well, efficiencies is often the outcome of innovation." That's absolutely correct, but it does not invalidate the principle. Efficiencies is a form of value creation, it's one form. Efficiencies can be the outcome of innovation, but innovation is not the outcome of efficiencies, except, and this is the other objection I hear, in short-term one-off incidents.
Like, you and I have talked many times about the value of constraint-driven exercises, so if we're trying to solve a problem and I impose a constraint on the problem, like time or money, et cetera, it's entirely possible. In fact, I would say likely that in the right context, that constraint will actually trigger some breakthrough thinking on your end, and it will allow you to innovate. In one-off circumstances or situations, constraint-driven exercises can drive innovation, but a culture of constraints is an entirely different thing. A culture of constraints does not drive innovation at all. It has the opposite effect.
David: That is a very important distinction because when I first heard you talking about innoficiency, I was bouncing it against some of the other stuff that we've talked a lot about together. We did that revenue 2.0 thing, and we had a whole section on constraints and how constraints can really enhance creativity. The way you phrased that makes a lot of sense to me because that was one of the big questions, and I'm going to give you a passing grade on that one.
Blair: C plus.
David: It was the one I was going to raise around constraints. It's the idea that, oh, there's a difference between occasionally using constraints to enhance innovation and then having a constant culture of constraints, which is different. That's a very important distinction.
Blair: Those are the two big objections that I hear. One that efficiencies can be the outcome of innovation, that's true, but it doesn't invalidate the principle, and the other is that, well, I can think of examples where we had to be efficient and the outcome was innovation. I acknowledge that that happens. We use that to win without pitching all the time. A culture that does not create innovation, it sucks the oxygen, which is freedom. Freedom to fail, freedom to waste, sucks the oxygen out of the room that the innovators need.
When the culture moves to one of efficiency-seeking as it naturally does over time, one of the things that happens is the real innovators leave because they can't survive in a culture of efficiency-seeking. The irony is the most innovative people that we know-- I just got a note from somebody yesterday creative director and agency I worked with 20 years ago. One of the most creative people I've ever worked with just retired last night.
I was thinking back about this guy and I didn't spend much time with him, but 20 years later he struck me as one of the most creative people I have ever worked with. A person like that left to their own devices without some efficiency seekers around reigning them in would never be profitable. They would destroy the firm pretty quickly.
David: We see this tension when you're raising a human. There needs to be some rules, but there needs to be lots of freedom, freedom to fail. I could just see this in all kinds of different areas. Can we tie this into value pricing?
Blair: Yes.
David: Then I want to raise an exception or two to this whole thing or an objection or two. Talk about value pricing.
Blair: The topic came up when I was researching value-based pricing. In this idea of innovation being at the opposite end of the spectrum of efficiency. Then the secondary part, that this is really an issue of culture, what the organization will tolerate. One of the challenges that I've run into in the last few years since pricing creativity came out is people trying to implement value-based pricing, but struggling with translating top-line growth, which is pretty easy to do when you change your pricing strategy to bottom-line growth.
I wrote an article on this, and we did an episode on it, is called The Enemy Within, where I was talking about how the systems, and I would reframe it and say, the efficiency-seeking culture of the organization does not allow you to take that top line success and translate it into bottom-line success. It's because all of those systems that you put in place to create greater efficiencies and force you into a labor arbitrage business where you're basically selling time, your focus is on optimizing the sale of time as opposed to actually true value creation, they get in the way and they make it difficult to translate higher revenue into profit.
It's a bit of a rabbit hole that listeners can go back and listen to that episode, or they can read the post that I wrote on it called The Complex Battle for Margin. We'll post links to both of those in the show notes. Back to your question, let me make another generalization. You can have a culture of innovation-seeking or a culture of efficiency-seeking, you can have a cost-based culture when it comes to your pricing, or you can have a value-based culture. Where you're setting price based on your costs, or you're setting price based on the value to be created.
We've talked about this in the various episodes of this podcast where we've covered value-based pricing, I've written a book about it. If you think about how in the typical agency that's running a labor arbitrage business where basically you're buying time in bulk, in units of like 1600, or 1800, in the form of annual salaries, and then you're marking up that time and selling it in smaller units. That is the pricing model of most agencies. That's a cost-plus model.
You're in a sales conversation, the client starts talking about what their problem is, you being a subject matter expert, you think, "Okay, I've seen this before. I've seen the pattern." I know what your problem is, I know what the solution is, I know what the price needs to be. Here's another mistake that's made. Cost and price are the same thing in your mind. It's like, I know what it's going to cost us, therefore, I know what I need to charge you because this is how we do things here.
When we build websites like that, they're $200,000, and in your mind, you're conflating price and cost. The question of value, you're basically saying to the client, if it's worth it to you, you'll pay it. In that model, in that efficiency-seeking cost-based model or cost plus model, you start with the solution, I know what the solution is, then you move to cost and price and you don't make the differentiation. Then the question of value is like, "Well, if it's valuable to you, you'll pay the price."
Now, if you flip that around and we think of a value-based culture, which to me is an innovation-seeking culture. Let's go back to our definition of innovation. Execution of a new idea solves a market problem, creates value for the customer and for us. If your focus is value creation, then you will price based on value, and you will flip that order that I just gave you before. You'll start with the client, you'll find out what it is that they want. You'll uncover the value to be created. "Okay, so this vision you have if we help you realize this vision, you're going to make $10 million a year in net new profit."
Now you have value to be created, then you set price based on value, that's known as value-based pricing. You say, "Well, if we could help you create $10 million a year and net new pricing, would you pay us $5 million or $3 million, and listener, don't read anything into those numbers, but you set price in that moment based on the value to be created. If you get to some agreement, "Yes, maybe I might pay you $3 million if you could help us create $10 million," then you go back to your team.
You've gone from value to price. Now you subtract profit, let's say it was $3 million, and you want to take a million off the table. Now you have costs, you go back to your team and you say, "Here's what the client wants to be true. Here's the value we could create." You have $2 million, so the price is $3, the cost is $2. You have $2 million to come up with solutions. Then they come up with solutions, you go back to the client with those solutions.
That is a complete reversal of the value chain wherein a cost-based business, you start with the solution, you conflate price and cost and the question of value is like an open question, you don't actually even address it. In a value-based innovation-seeking culture, to me in my mind, they're the same things. You start with the value to be created, then you move to price, you subtract profit, now you have cost, now you have to think about solutions. In any industry that has undergone a pricing transformation, this fundamental flip has taken place. When yours is an efficiency-seeking agency where all of the systems are around effective hourly rate and you're conflating price and costs. If you sell something for 2X what you previously would've sold it for that 2X, that extra, let's say it was 100,000 you sell it for 200,000, there should be 100,000 that goes right to the bottom line. All of your systems make that extra $100,000 available as cost to be spent therefore your people spend it. Sorry, that's a big long rant.
David: Yes, it struck me as you were describing the typical pricing mindset that we have is it's very defensive. We've set the bar pretty low so we go into pricing thinking, "Okay, first goal, don't lose money here. Next goal, make a margin." It's very defensive and it's based on like you said, hours, inputs, and so on.
Blair: Yes. It's coming from our costs as opposed to coming from the value that we might create for the client. Therefore, in a cost-based culture, our focus is on efficiencies. It is not on innovation. A culture of innovation is a culture of value creation, and if you are not placing the value to be created for the client at a higher level than your cost or what the solution might be. If you're starting with the solution and not what it is that the client wants and the value to be created for the client, then you're going to struggle with making value-based pricing work for you because the culture of your firm has gone too far to the efficiency end of the spectrum.
Like I said, from the stage a couple of weeks ago, you're not going to go to hell. It's not a bad thing. Anybody who was in the room that I was speaking to, if you were in the room, you were by definition a successful firm.
I'm not saying you're doing it wrong. I'm just saying that in any efficiency-seeking firm, you're at a level of success that a lot of your peers would love to be at but you're trapped at that level, and you think it's a law of physics or the universe that you can't get beyond that.
There's a world of like multiples where firms make multiples of what you do in a smaller size because they're starting with value. They have a culture of innovation and value creation. We did an episode called The Five Levels of Pricing Success, and I said the first level is labor arbitrage. The second level is maximum efficiency. It's the highest expression of labor arbitrage, and my point is it's a trap. The longer you're there deepen the clutches of these efficiency-seeking systems that served you so well early in your business, the harder it is to get free of the clutch of those systems, the harder it becomes to move to that world beyond.
We all want to grow. We want our successful businesses to grow, and the owners of successful businesses still in some way feel trapped. It's a nice place to be trapped in but it's not a requirement that everybody thinks about innovation and value creation and value-based pricing this way. I just want to point out there's a whole other world out there.
David: I think the people listening to this they're torn inside between these two things but where they get in trouble is when they rightfully pursue innovation on behalf of a client but the client isn't paying for it. There's almost this innate desire for creative firms. They're frequently caring more about the results than the client does. The client is checking a box many times and here you are accepting a challenge and taking it on more personally than even the client does.
You can tell your team, Hey, we only got 40,000 for this identity. Sorry, or this MVP, native mobile app's going to have to-- We got 105,000 on this folks. It's like nobody listens to that. They're still going to do what they think is the right thing with the right thing for the client, and that's where they get in trouble because they're operating on the basis of an innovation model. The client only wants to pay for an efficiency model, and then they wake up and somebody like me comes in and says, oh my God, you're leaving so much money on the table.
Then they clamp down on the efficiency side which is not the right response. What they should do is start getting clients to pay them for the innovation side rather than clamping down on the efficiency just because they aren't making as much money. Right?
Blair: Yes. It feels like a big messy trap, doesn't it?
David: Yes. Just because we're about out of time, I'll just tell you what my objections, these are not my personal objections. One of them is, but they're more how I think people hear this if they're in a defensive position about how they're running their firms, and that's part of the problem but when they hear this they might take it to an extreme. I couldn't help but think about Mozart and Saudi Airi working for Emperor Joseph II I think, or whoever it was just like, "Okay, you're going to be my musicians, and there are no boundaries." It's like, "You're going to perform for me. I don't have any expectations, I just want to get credit for hiring somebody not putting," and is like, if you take that to an extreme, then you end up with just a big mess. You've been very clear about how there needs to be more of a balance between these two.
If people hear this and they take it to an extreme, they think, "Oh, my God, it's unlimited everything, there's no hours." They're not understanding that we still have to maintain a healthy balance between these two things and that that balance might change a little bit from time to time based on the client or based on where you are in the evolution of a firm. Would that be fair?
Blair: Yes, absolutely.
David: The other one that really hit me I was like, "Why is this bothering me so much? I understand it intellectually." Then I started to think about, I think our listeners probably are aware of my work on the room one and room two, I just use really simple metaphor stuff. The room one stuff is the thinking, it's the innovation is the creativity. The room two stuff is the implementation. It's easier to understand this, if you see that okay, there's room for efficiency and implementation.
You have an SEM person who's going to do a really creative media plan, that's innovation. There's no benefit in not switching to efficiency when you go to actually implement that media plan. It's like both of these things exist together at different places.
Blair: Absolutely. I'd beat up on procurement a lot over the last few years but I have to keep making the point that in the procuring of marketing services, generally, there's a lot of room for efficiencies. I do not begrudge procurement or anybody else for going after those efficiencies. I don't think it's a mistake for an agency to seek efficiencies in a certain part of their business. That part might actually be by volume, dollar volume, or headcount, the largest part of their business, that's not a mistake, these are actually things you want to do.
We need to recognize going back to this old default, again, of this idea of magic or logic. Well, look most creative firms are in the business of both. The magic, that stuff that is where the innovation happens, we need to allow for a culture of innovation, we need room to iterate, et cetera. Therefore, we shouldn't be pricing it by the hour, these people shouldn't operate under the same constraints that other parts of the business do. We need to think about that internally, and we need to think about having that conversation overtly with the client and procurement in particular.
There's always room for efficiencies in most aspects of the business. Even in the pure innovation side, there has to be some constraints, there has to be some guardrails.
David: I don't want a general contractor doing the architectural dreaming, but I don't want the architectural dreamer to be my general contractor either.
Blair: It's a great way to think about it.
David: I want crazy innovation, but then I want constraints around how much it's going to cost me when we build this thing.
Blair: It's a balance. I sometimes feel like I'm being seen as throwing efficiencies and efficiency seekers or optimizers under the bus, and I'm not I'm just saying back to the principle, every decision you make there's a trade-off, make the decision with your eyes wide open, understand that that efficiency seeking tool that you're going to implement, it's going to have a cost on innovation somewhere. I'm not saying it's not worth that trade-off, just be aware of what the trade-off is. Open your eyes.
David: This has been great Blair. Thank you.
Blair: Thanks, David.