The Marketing Procurement Problem
Blair talks about his new podcast with Leah Power, 20% - The Marketing Procurement Podcast, in which they are speaking with marketing, procurement, and agency professionals about how to "procure" creativity without killing it.
Links
20% - The Marketing Procurement Podcast
Your Four Advantages Over an In-House Department
Five Levels of Pricing Success
Transcript
David C. Baker: Blair, this is a little bit awkward.
Blair Enns: Yes. Does it feel like I'm stepping out on you?
David: No, but it's like, hey, Julie, could you interview me for this podcast about our upcoming divorce?
Blair: Hold on. I'm not asking for a divorce. I just need to see other people.
[laughter]
David: You want me to feature your new podcast on our podcast? You realize that's a little-- [crosstalk]
Blair: I don't see a problem with that.
David: Well, obviously you don't.
[chuckles]
David: All right, so the point is you are stepping out on me and you're doing another podcast. If we just sent a survey out to people, what would be the most exciting topic you could possibly think of-- [crosstalk] [laughs]
Blair: This would not be it. It's pretty niche.
David: Yes. What is the name of this again?
Blair: It's people who have survived owl attacks. The name of this is 20%.
David: Okay, a little more, please.
Blair: You're going to ask what does that mean, and I would respond with, well, what does 2Bobs mean? I wanted another podcast that started with the letter 2. The subtitle, it's about solving the marketing procurement problem. This is a very niche podcast about what we are calling the marketing procurement problem. If you run an agency and you deal with procurement, I think you get a sense of what the marketing procurement problem is. It's how do you work with procurement and allow them to procure your services without killing them, without killing creativity specifically.
David: Oh, I thought you meant killing the procurement officers. [chuckles]
Blair: Yes, that too. I'm trying to save lives, David.
[laughter]
David: This has launched in a bunch of episodes already?
Blair: Yes, there's a few episodes, and then they'll trickle out from there every couple of weeks. It's called 20% - The Marketing Procurement Podcast. I'm doing it with a partner, Leah Power. I'll talk more about her in a minute but back to the name. I just finished up a Win Without Pitching Workshop this week. A participant in the workshop said yesterday, "It's funny, every client tells me my price is 20% too high." She actually said 25% too high, and I laughed and I said, "Well, I'm doing a podcast called the 20% Podcast because the joke is every single procurement person out there seems to be trained and conditioned to tell anybody who submits a proposal that their price is 20% too high."
David: [laughs] Whether it is or not.
Blair: Yes. The topic of that 20% discount almost always comes up in the interviews that we do, and if it doesn't come up, we make a joke about it.
David: There must be some science behind all of this on the procurement side of things. Obviously, our listeners are facing this a lot. I would be interested in asking you which kinds of firms are facing it more, but we can do that later. What is it that interests you? Is it really just that you're trying to help listeners deal with the inevitable procurement issue or is there something else going on, too?
Blair: I work with agencies, and I've often been asked to do any work with clients on how to get better at buying creative and marketing services, and the answer is no. I've been frustrated for years with, we'll get into this in a minute, this idea there's good procurement and there's bad procurement. In marketing procurement, I think it's still mostly bad procurement. We can talk about what that means. I think this problem is solvable.
I was speaking in Croatia a couple of years ago, and at the dinner afterwards, it was a big event, I was talking to a procurement guy, an ex-procurement guy that I know from London. We were talking about this problem. I said, "You know what? I actually think this is solvable." I think if a small number of us had public conversations about what's going wrong and how these three parties of marketing, so I mean the clients' marketing people who are our agency's clients, marketing, procurement, and the agency, so it's a three-way relationship.
If we could just have some public conversations about what's going on here, some of the poor practices, some of the poor understanding of the other parties and their objectives and constraints they have to work in, I think we can solve this problem. I think we can find a place for procurement at the table where they're not impairing what it is that they're buying by trying to negotiate the best price.
David: Right. Well, you've interviewed lots of people, you've had lots of other conversations, you've been doing research, and so on. One question I've always wondered about is, is the industry that we serve have a unique relationship with procurement, or is it pretty much that way across all the professional services? Does the legal profession hate procurement as much as we do?
Blair: It's a good question. I actually don't know because I don't know anything about what happens in the procurement of legal services. I always see there's this contrast in the procuring of-- and not just marketing because there's lots of room for efficiencies to be found in clients' marketing departments and in the agencies that they hire, but specifically for me, the problem is when you try to procure creative in a more efficient manner, you end up killing that creativity. We talked about this in the Inefficiency Principle podcast episode. I think we did an episode on that, didn't we?
David: We did, yes, a while ago.
Blair: We talked about it there. For those who haven't listened to that episode, I've coined this term, the inefficiency principle and the inefficiency problem. Inefficiency, I've taken two words, innovation and efficiency and put them together, and the inefficiency principle is this, innovation and efficiency are mutually opposable goals. You cannot increase one without decreasing the other. The first time you hear this idea, you'll reject it but I would encourage you to listen to the episode to dive deeper into it.
In the creative professions, creativity is the idea part of innovation. A procurement department who thinks, "Okay, I'm going to take this really creative agency that the marketing department wants to hire and I'm going to extract as much savings from them as I can." They don't care about the impairment on what the agency has to do to be able to deliver these ideas under these cost constraints.
The solution is always well, we put cheaper people on it. If the client beats the agency up on price, when it comes to the first part, the magic part of the engagement, the solution is we put cheaper people on it. It then follows that the quality of the creativity and the innovation that would stem from that has this downward pressure on it. Procurement doesn't see the problem that way. In fact, I would go so far as to say most of them don't care that they're impairing that which they're buying because they are incentivized and tasked with delivering savings, and that's the crux of the problem here.
Does that happen in the legal profession? Probably. I don't think it's as pronounced, but to me, I see the marketing, and specifically the creative part of marketing, and then I see the procurement of what's known as direct goods, like the raw materials that go into making the product. I see too many Fortune 500 companies and smaller obviously, who are taking those direct goods procurement methods, applying them to the marketing and the creative services that they're buying, impairing what it is that they're buying, and not caring.
David: I am picturing this room with 50 people, 25 procurement officers, 25 agency principals having a debate that you and I are moderating. I just think that would be so interesting because it's this mysterious-- When I was thinking about this topic today, I was trying to think of what's something that's comparable to this.
The first example that came to my mind was, I've got a private health insurance plan, so there's me, the patient, there's the doctor, and then inevitably, whenever there's anything that costs money, we have, they don't call them procurement, they call them something else, but the doctor has to get permission from a desk jockey to say, "Yes, he's had three spinal surgeries. We do need to do this MRI," and sometimes they say, "No, you don't need to," and then there's this- it's like, this is weird. The same thing is true with procurement. I don't know that they have that same power, but is procurement getting any better at this? Are they understanding the rightful role they should have or is it still a shit show?
Blair: Well, it depends who you listen to. If you go to the marketing procurement conferences, and I've gone to one, and my partner--
David: How was that? Oh my gosh. Was that exciting?
Blair: Oh, it was fascinating. I signed up under a real name but a different company, a holding company name so I was there incognito. It's interesting that most of the people on the stage, not all, most of the people are in the category of what I would call good procurement. They're dedicated marketing procurement people so they're not procuring just marketing and other services or direct goods. They're dedicated to procuring marketing, so the company has to be big enough. They sit in the marketing department, or they have a background in marketing so they understand marketing and they're able to work with marketing, and they've got this really forward looking idea of what it means to procure marketing and creativity.
The stage tends to be dominated by the small number of good procurement people. You'll hear, when the listener starts listening to the podcast and the interviews that we have with people, all these procurement folks - we've interviewed procurement people from some of the world's largest companies - they all paint this vision of what marketing procurement looks like, and then Leah and I push back and say, okay, great vision. How real is it today? Most of them admit that it's a very small minority. They're a bit aspirational in wanting to get to this place where procurement really is tasked with value creation and they all speak about value creation, but most of the value creation is in savings.
Just face it, savings is a form of value creation but the good ones really are interested in and concerned with the state of the relationship between their client, the marketing department, and the agency, and they don't want to get in the way and impair that relationship. They don't want people to waste money. They want agency folks to follow the rules on the financial side, but they don't want to create chaos. They don't want to create animosity, they don't want to get in the way of the agency earning profit, but again, they're the minority, but they tend to be the ones that dominate the stage.
I'll even say that the people that we've interviewed tend to be in that camp of good procurement. These people are showing up. Most of them are doing their best to actually live up to these ideals, but then when we push back and have a conversation about what's going on around you with your peers and others in procurement, they very quickly admit procurement as a profession, especially when it comes to procurement of marketing, still has a long way to go.
David: You mentioned when we started this episode about how you feel like this problem is solvable. I think it is too. You and I are nobodies in that world so I'm not sure if it'll come from us, but it does strike me that not only would solving this problem help agencies, it would help clients too because they would get better work without knocking people on the head and discouraging them and making it so adversarial.
The closest I've come to this was, this was years ago, probably 15 years ago, where I was hired by Toyota to help them find an agency. I was essentially the external procurement advisor, and it was a really good experience. Maybe because it was Toyota, I don't know, but they developed this RFQ RFP thing and they said, "Any suggestions on this," and I pushed back on lots of things and helped them understand that really by asking some of these questions, they're eliminating some of the best work they could get. They were very receptive to that and they actually were eager to find the right agency in the right way.
Cost was still an issue. It had to be a part of the equation, but that wasn't all of it. What surprised me the most about it was how just some concepts just on the edge, just out of their normal reach, were so welcome to them. It makes me think that the people that you're interviewing, some of them have the right motivations, but they don't have the tools yet to understand how it impacts some of the people on the other side or the other side of the desk, so to speak.
Blair: I don't mean to paint this entirely as procurement's problem. I do think there is a big problem in the world of marketing procurement. In the first couple of episodes before Leah and I interview anybody, we talk about the problem itself and we talk about our biases. It's also clear that agencies don't know how to talk to procurement. They don't know how to deal with procurement. Across the 12 interviews that we've done so far, there's so much great insight into how people might consider dealing with procurement.
Now, as somebody who teaches selling, including how to deal with procurement, I think some of the advice that you hear in the interviews is really helpful, and some of it I might actually advise to do something a little bit different, but it is really interesting to me to hear the point of view of procurement people. I'll point out here, some of the best interviews are with people who have run marketing procurement, and even higher, at some of the world's largest companies who are no longer in procurement, who have gone on to either be consultants that do other things, who can speak more freely.
I was just listening to an episode of somebody who's currently running marketing procurement at one of the most famous companies in the world. We all listened to the episode afterwards and said, well he said nothing. He said absolutely nothing, so we can't use it. He just could not put himself on the spot. Could not.
David: He was a politician. Didn't say anything.
Blair: Yes, but most of these people, especially the people who have moved on, man, some of the things that they share I've known to be true but have never heard a procurement person say them. Here's an example, one that just really was a mic drop moment where he said, "My procurement brethren aren't going to be happy with this but you should know that by the time it gets to an RFP, most of the time, we know who we want to work with."
David: Right, which is something you've talked about before too.
Blair: Yes.
David: Hey, before we go too much further, tell the audience a little bit more about Leah, your partner in this, and her background and the role she's playing in this too.
Blair: Leah Power is a Canadian. She lives in Toronto. She is the vice president at the ICA, which is like the Canadian 4A's. ICA stands for the Institute of Communication Agencies in Canada. All of these national organizations like the ICA, the IPA in the UK, the 4A's in the US, they all roll up to now a global organization. I always forget is it Foxconn or Foxcom or something like that. Leah's going to be pissed at me for forgetting the name of it.
I've had conversations with the people who run that organization as well and they do a thing called Pitch Watch. Her background is agency operations. She's worked for some of the larger holding company-owned agencies, some of the more famous ones in Canada and in the US. I've done some training for her organization years ago now. When I first really got an appreciation for the work she does was I went to ProcureCon Marketing, the conference, where Leah was really the only voice there representing the agency and she was up on the stage speaking. She was in panels, she was pushing people.
There she was kind of in the lion's den, having these direct conversations, one-to-one and on the stage, and not just beating people up, not just pushing back, but having constructive conversations with who I saw at that time as the enemy. She goes to all of these conferences and she's like, I wouldn't say she's necessarily the lone voice, but she's certainly one of the few voices and the strongest voices representing the agency's side of the marketing procurement relationship.
David: Talk to me about the clash of cultures. There's no question that heads of agency or people in sales, and when we say agency, we also mean digital, creative, PR, all of that. There's no question they dislike procurement but why do they dislike procurement? Where's the cultural clash here coming from?
Blair: When I think of the largest agencies that I've worked with in an advisory or training capacity, a lot of them they're used to working with procurement, they have pretty good relationships with procurement. These tend to be holding company-owned agencies or really large global independents. They're just used to operating at that world where their own organizations are large enough and bureaucratic enough that they have a respect or an acceptance of the fact that you have to have all of these bureaucratic systems and processes in place.
The reality is you get to a certain size, you do have to have these systems in place. I think the core culture clash when it comes to the marketing procurement problem is when you get these large clients who are highly bureaucratic and bureaucracies are there to keep too much power from accruing to any one individual. It's a necessary thing when you get into large companies and government, et cetera, we need bureaucracy to slow things down and reduce the likelihood that one person is going to have a massive screw-up, like spend a whole bunch of money on the wrong thing or even do something corruptly.
The systems are necessary in certain cultures, but in an entrepreneurial organization, like an independently owned agency where the founder is still at the helm of the company, that is an entirely different culture. In a bureaucratic culture, you get different departments are optimized to the goal of the department. I've talked about this before, anytime you optimize a subsystem, you sub-optimize the greater system. I'll just generalize. Marketing is optimized towards innovation. Procurement is optimized towards efficiencies, and you get this tension, this battle, so you get departments fighting each other.
To me as an entrepreneur, when I encounter somebody in a large company who is pursuing the goals of the department at the cost of the greater goals of the organization, at least that's how I think about it, I find that unbearable. It's like me coming back to my small business and seeing that the person who runs Department X is like, "No, this is how we do things in Department X, and I don't care what the consequences are to the other department or to the greater company."
David: You're talking about the procurement department here that's sub-optimized but doing something that's against a larger entity's interests.
Blair: Procurement is optimized towards savings no matter what the cost, what the ramifications are to the other departments or the greater organization. As an entrepreneur, I can barely stand that idea. You can hear when I talk about it, it just drives me crazy. Now, I also understand that large organizations have to work that way. That's why I would never work in a large organization, and if I did, I probably wouldn't last.
David: Yes, I can verify that.
Blair: That culture clash of being an entrepreneur and like, "Hey, we're all pulling together here. Hey, you over there, what are you doing," you can't have that in a large company. I'm not an agency owner but pretend I am. I'm an entrepreneur and I'm looking at a department do something that is taking the organization in the wrong way, that's just an unforgivable sin.
David: Two other things that complicate this too as I just observe it from the outside, it's like sales is hard for people. I hear people say this in their own words. It's like if you can solve the sales problem, you can solve everything else. We'll figure out the people, we'll figure out the processes as long as we solve the sales problem. Here we think we've solved the sales problem at a micro level with a particular opportunity, and then somebody steps in at the end. We have no relationship with these people, they absolutely do not want a relationship with us, and it's like, oh, there's two sales cycles all the time. That's one part of it.
The other part too is the whole David and Goliath thing. When you have a large global agency or a massive independent like you referenced earlier, that's one thing, but a 40 or 50 or a 20-person firm, you already feel outnumbered. It is like going to court and the other side has seven lawyers and it's just you representing yourself.
Blair: With your Uncle Carl.
David: [laughs] I'm dying to fast forward a few years and see how procurement is better because of the impact of this podcast. Maybe that's expecting too much but I do feel like these are real people that are missing a part of the story and I think this is going to be a really interesting podcast. What does it mean to solve the marketing procurement problem? Diving in and getting a little more specific here, what are the big goals to help solve this?
Blair: It's a great question. What are the specifics that this podcast might accomplish if we do a really great job here? I think number one is just everybody understands each other better. I would like our audience, our 2Bobs audience here, agency folks, I would like them to better understand where procurement is coming from. I'd like them to better understand how to have conversations with procurement. I think that's goal number one.
Number two, and I say this in the first episode, I really want to call bullshit on bad procurement practices. I want to call them out and I want the good procurement people to call out the bad practices as well. It's interesting. We're having a hard time getting bad procurement people [chuckles] on the podcast. I'm asking people for stories and I'm saying, "Hey, can you introduce me to that person?" Nobody wants to do it. We'll get somebody who just thinks their job is to extract every penny of savings possible from this agency. They see it as a battle, et cetera. We will get, but we haven't had that so far. So far, we've got people who are either good or polite.
David: Have you offered to interview people incognito with voice masking technology? [laughs]
Blair: Oh, we could do that. We've interviewed some agency people, we've got some people from the marketing side of the relationship. We've got some people who have been on all three sides, marketing, procurement, and agency. It's interesting. I would really love to get one interview of the opposing point of view that I think is representative of all bad procurement. Now, having said that, who wants to step forward and say, "I'll be the poster child for bad procurement."
David: Somebody who's about ready to retire.
[laughter]
David: The first one was everyone understand each other better, which if it stops right there, that would be enough, right?
Blair: Yes.
David: Then the second thing is calling bullshit on bad procurement practices but you said something just a second ago that surprised me. It's not just you and Leah and pissed-off clients, it's actually procurement people. That was interesting to me. I hope that happens where they're just saying, listen, this isn't good for the profession, folks. There are some points here that we ought to look at and we could do better. Then what's the third thing you're trying to solve with this?
Blair: I want the people above marketing and above procurement, I mean the CEOs and the CFOs, I want them to better understand this idea of the inefficiency principle and the tradeoffs. This article that I've been writing for five years on the inefficiency problem has finally dropped. It's about 3000 words. We'll post a link to it in the show notes. I really hope some CEOs and CFOs ultimately this article finds its way to them because I want them to better understand the tradeoffs they make when they're exerting pressure across the organization to pursue greater efficiencies. I want them to understand the trade-off when it comes to procuring creativity and innovation. That might be my biggest loftiest objective. That might be a bridge too far, but you're asking me what I'm shooting for, that's what I'm shooting for.
David: It's like before we have the bomb disposal crowd go in there, let's stop for a minute and see if we can find anybody cheaper or faster to do it that's on par with the same goal, or let's have the rain dancers be a little more efficient when they come out. [laughs] Sometimes it's just what you think about the concepts of procurements, like that seems a little crazy, but we just accept it. Well, I don't accept it, but they do.
Blair: Ron Baker has this great line. I think it's every time you go over a bridge, your heart should be warmed by the fact that it was built by the lowest-cost provider.
[laughter]
David: All right, so goals, everyone understands each other better, that's noble. Someone call bullshit on bad procurement, both inside and outside, and very lofty, CEOs and CFOs better understand the trade-offs because they're the ones that procurement is answering to eventually so that makes perfect sense to me. What's next?
Blair: I think just two other quick subpoints of things we've already said before. Agencies learn how to talk to procurement. I really want agencies to listen to these conversations, better understand them, and take some of the advice that's offered to them on how better to talk to procurement. A word of caution, I wouldn't take all of the advice, but I think most of the advice that is coming from these procurement folks is really good advice.
The last point is I want all parties, marketing, procurement, and agencies to understand that it's in nobody's best interest to buy thinking in units of doing. It just doesn't make sense. You want some ideas, you want some innovation out of this organization, so you pay for it by the hour and you think you're going to drive efficiencies into the process by grinding on the hourly rate or the number of hours. It's absolutely ridiculous.
That's another lofty dreamy goal. If everybody could understand that there are marketing services where it might make sense to be purchased by the hour. It almost certainly does from a client point of view, but there are some services where you just shouldn't go there. It's not a healthy procurement practice to atomize the creation part of the engagement with an agency, the magic part into hourlies and try to get the best hourly rate where the procurement person is saying, "No, you need to give me a rate," and the agency is saying, "Well, we don't charge by the hour for that stuff. Why would we?" They push back, "No, I have this spreadsheet, you need to give me a rate." It's ridiculous.
David: [laughs] Anybody who's had kids or been around people.
Blair: [laughs] That would be most humans.
David: We're really good at getting around any regulation, right? I remember working with a firm in Cincinnati and one of their clients was P&G. This was a packaging firm. [chuckles] I was looking at their rate card and I noticed that they had no listing at all for account management, and I thought, "Oh, like what's going on here?" Then their charge for design graphic design was $435 an hour.
I said, "Talk to me about what's going on here," and they said, "Well, P&G," I don't know if they still do it, but back in the time, "They don't allow us to charge for account management so we just billed it into [chuckles] the creative piece." Did somebody in procurement think this was a win? That we know-- It's just a little crazy. Oh my gosh. All right. Give us some ideas of the episodes that you're dropping, the kinds of things that you're talking about.
Blair: I'll just give you some key moments that come up in the first dozen or so episodes. I mentioned this confession on the RFP. There's more there on that subject on when procurement issues RFPs, what they're looking to accomplish when they issue RFPs, how you can tell if this is a real RFP or an unreal RFP. It comes up in more than one interview, but there's one interview in particular.
There's a bunch of episodes where all the procurement people refer to their agencies as our agency partners.
[laughter]
Blair: I'm always saying, I wrote an article called You Don't Really Partner With Your Clients, and I've been saying for years, that's a bullshit label. It really means a likable vendor. At some point, somebody said, our agency partners and then without prompt stopped and said, we call them partners. [laughs]
David: But they really aren't.
Blair: But we call them partners because they like to be called partners. [laughs] I just gave that away
David: May I suggest that you need to record all these episodes before you drop any of them because as soon as the procurement people hear these things, they're going to quit being interviewed by you.
Blair: Yes. I'm really curious once the procurement community, assuming they're interested, gets some exposure to this, what the next round of interviews looks like. We're dropping them in a season, so there's roughly a dozen episodes. There might be a couple more we squeeze into Season 1 and then we're going to let them ripple out there into the marketing procurement community and see if we get any meaningful feedback and see if it leads to some conversations that we haven't had yet. I don't just mean the same conversations with different people, different conversations. I'm looking for different procurement people to come out of the woodwork with different points of view.
David: Yes. Well, you've wet my appetite for this thing. I'm looking forward to listening to it.
Blair: Well, if I can get somebody excited about marketing procurement that is not in marketing procurement, that's a win.
David: That is a win, yes. You could just close up and the better this podcast is, the less likely it will ever continue because the better these episodes are, the more word's going to get out, and the fewer actual people you're going to get on there to confess all these things, this great.
Blair: It's going to be so niche, it's going to be a fraction of 2Bobs audience and even the total addressable market's going to be smaller. It's pretty niche, but again, I feel like this is a solvable problem and this is the beginning of my attempt to try to solve the marketing procurement problem.
David: When you were a little boy, did you tell your mom and dad when they asked what do you want to be when you grew up?
Blair: One day I want to solve the marketing procurement problem. Oh son, don't be foolish. Try to be an astronaut instead.
David: Yes. Well, thanks, Blair. This will be great.
Blair: Thanks, David.