With Morgan at the helm, Morgan Anderson Consulting will continue to emphasize its pioneering agency search services for marketers seeking the best performance from their creative, media, and digital and other marketing agencies.

Founded in 1987, Morgan Anderson Consulting created many “best practice” marketing communications standards in use today, including global agency compensation and benchmarking as well as other marketing search and stewardship innovations.

“Arthur and I have consistently sought ways to provide practical solutions, innovation, and relevancy for stewardship and search services to marketers,” said Morgan. “This transition in leadership will afford Arthur more time to pursue our global practice for Morgan Anderson International, headquartered in Switzerland, and continue his active role innovating new services for Fortune 500 companies. He will, of course, continue to advise Morgan Anderson Consulting and our marketing clients as well as innovate the assessment and evaluation of other professional services areas for corporate clients.”

“With Lee Anne Morgan in the principal leadership role, Morgan Anderson Consulting will once again provide its gold-standard creative, media and digital media agency search and selection services to leading corporations,” said Anderson. “Morgan Anderson Consulting will, likewise, continue its legacy services of agency compensation assessment and benchmarking to North America as well as internationally through Morgan Anderson International. We are working on new value-add services that address other professional service areas such as management consulting firms where large fee amounts are invested by corporations each year.”

Contact Information

Lee Anne Morgan: 212.741.0804
Morgan Anderson Consulting
54 Fyke Road, Catskill, NY 12414
lamorgan@morgananderson.com
Web Site: www.morgananderson.com

The agency commits to reviving a soccer franchise

Published: August 23, 2010

Anomaly’s Carl Johnson likens his agency’s brand development projects — including its latest push to revive the storied New York Cosmos soccer club — to long-term, stock market investments and acknowledges that without traditional client relationships, Anomaly couldn’t play in this entrepreneurial space. In fact, Anomaly funds most such ventures via its profits from retainer clients like Nike, Motorola and Sony.

The New York shop is among a still relatively small number of agencies pursuing such “skin-in-the- game” deals, which, when successful, can enhance the entrepreneurial reputations of executives known largely for making ads. By taking equity or a cut of revenue in these ventures, agencies such as Trumpet, The Brooklyn Brothers, Deutsch, Crispin Porter + Bogusky, Berlin Cameron United and Anomaly eschew traditional client compensation schemes and demonstrate a willingness to take risks with the potential for longer-term rewards.

“That’s what clients are asking agencies to do — share some of the financial risk. Lawyers do that,” said Arthur Anderson of Morgan Anderson Consulting in New York. “I think there’s a very large market out there . . . Wouldn’t [a client] rather have a skilled advisor who has some real skin in the game and hopefully will be motivated in large part by making you successful?”

Anomaly’s Cosmos venture is among its most ambitious, involving the establishment of a limited liability company, the creation of a 120-page prospectus, the wooing of investors and the recruitment of international soccer icon Pelé. Johnson, as CEO of the New York Cosmos LLC, is central to the effort and the intellectual property deal, which, for Anomaly, began a year ago with a meeting in New York with Cosmos rights holder Paul Kemsley and ultimately aims to bring the Cosmos back to life as a franchise in Major League Soccer.

The obstacles to winning a place in MLS are formidable. The Cosmos will need a stadium, at least $40 million to enter the league and much patience because the Red Bulls franchise in New Jersey has exclusive rights to the region until 2013, according to Johnson. And if the Cosmos gain entrance into the league, Johnson estimates that the team will need hundreds of millions of dollars to operate.

Then there’s the larger question of saturation: Can a market that already fields a dozen professional sports teams support a second MLS club? Johnson obviously thinks so, but Terry Lefton of Street & Smith’s SportsBusiness Journal isn’t as sure, particularly given that other teams are spread out across the U.S. and Canada.

“Their last four or five franchises have great buildings, really deep pockets and outstanding ownerships. So, just because you’re the Cosmos doesn’t mean a lot to me when you’re stacked up against those guys,” said Lefton, who covers sports marketing and sponsorships in New York. “You need to have good financing, a path to a new stadium and a really good plan.”

Right now, the Cosmos company is focusing on building credibility and reestablishing roots in the New York City area. In June, Pelé signed on as honorary president in exchange for a stake in the operation. (Anomaly also has equity in the Cosmos — described by Johnson as a single-digit percentage of the company. To date, the agency cost has been time: a core group of four or five top executives work on the project, with help from another three or four when needed. Johnson, for example, works 18-hour days, seven days a week to manage Cosmos-related business, his agency and key clients.)

Other Cosmos principals include Kemsley, as chairman; Anomaly brand strategy director Dan Cherry, as executive director of marketing; and d irector of soccer Terry Byrne, who has longstanding ties to players such as David Beckham.

Additionally, after an early round of fundraising, the Cosmos has invested in two soccer academies and purchased the annual Copa NYC tournament. Cosmos principals also are talking to New York City about providing soccer equipment and facilities for children interested in playing the game.

Of course, fundraising continues to be paramount, given the entrance and operations costs as well as the price of building a new stadium. Cosmos principals are eyeing Queens as a potential home, given the availability of land and that the borough is “one of the hotbeds of soccer in New York,” Johnson said.

Anomaly’s sports brand marketing experience has proved invaluable; the shop handles creative duties on Nike’s Converse and Umbro brands and provides marketing and business advice to the Manchester City soccer club in the U.K.

Such credentials were key to Anomaly earning the trust of Kemsley when the blunt U.K. real estate mogul first met the shop’s principals in August 2009. And, in sizing up the opportunity, Anomaly “felt that the potential of the New York Cosmos was huge,” Johnson said. “It’s a global play with significant external funding where we are central to the outcome and it’s in our wheelhouse of what we know. It really is bang-on. So, you can say with real confidence, we know how to do this.”

Story as published on American Public Media’s Marketplace click here for the online publication.

Published: October 26, 2009

BATAVIA, Ohio (AdAge.com) — As marketers squeeze every ounce of fat out of budgets, agency executives are decrying the power of procurement executives, fearing that as the discipline grows, marketing — already struggling to prove its value in an age obsessed with return on investment — could see quality nickel and dimed to death.

Yet the agencies that know so much about the CMOs, brand managers and marketing directors that are their clients are a lot less knowledgeable about the procurement people reshaping the business. Often, the assumption is that buyers of widgets and office supplies have been retasked to buy agency creative work.

As it turns out, those notions aren’t far off the mark. An Advertising Age review of LinkedIn profiles of hundreds of marketing procurement people found that only a small handful, fewer than one in 10, list prior experience in marketing or agencies or even marketing degrees in college. To be sure, not all marketing procurement specialists are inexperienced paper-clip purchasers. The country’s largest advertiser, Procter & Gamble Co., which began its first marketing procurement effort with about a dozen people in 1996, today counts 300 in the area globally. Ad Age also found several procurement executives with considerable marketing background and knowledge of the industry, commitment to the profession, and seemingly enlightened philosophies that the lowest price isn’t always the best deal.

Yet while marketing procurement execs seem to be in demand — Indeed.com shows a sharp increase in job listings for marketing procurement and sourcing candidates since the first of the year — there remains a widespread lack of marketing experience among procurement people.

Miriam Frawley, a principal of e-Diner Design & Marketing, New York, “was there at the beginning of aggressive sourcing” when she created a standard rate card for print production services at American Express. She was chosen to lead the effort at AmEx because she had the background in the industry, but she acknowledges that’s not often the case today. “The people doing a lot of the procuring today don’t really have experience in the business,” she said. “What’s happening now is that it’s all data-based.”

Dollar sense
Chuck Hatsis, president of Chicago-based Surge Consulting, who himself worked in marketing for Bank One before turning to marketing procurement, including on the corporate side with Nationwide Insurance, said that having marketing experience “allows you to make more enlightened tradeoff decisions.” But unfortunately, he said, it’s also relatively rare in the industry, which leans toward treating marketing services “like another category to be managed like office supplies and travel.” The tendency, he said, is to approach the job as a straight exercise in fee and cost reduction.

There’s also a good chance procurement people at the negotiating table may not want to be there much more than the agency people on the other side of the table want them there. In fact, many career procurement people would rather be buying equipment or commodities on the belief that they can more readily get quantifiable savings that will help them advance their careers, said one former corporate procurement executive who is now a consultant.

None of this is necessarily good for agencies or marketers. The result, he said, is that marketing procurement people are often younger, less experienced and highly motivated to make a quick hit by negotiating big, easily quantifiable rate reductions that they can then leverage to earn a more desirable posting.

All of which is contributing to a growing reservoir of industry horror stories about procurement practices — like the large package-goods company that annually demands its global agency of record cut fees by 5%. That’s actually an enlightened view according to others, who report demands for 20% fee cuts this year have been the norm. Beyond that are bold negotiating stances ranging from requests for detailed salary information to a demand, reported by an executive of one digital agency who’d already completed an assignment for a major marketer in one country, to retroactively cede global intellectual property rights for no additional fee.

Ms. Frawley cites a recent client who, in a request-for-quote process, noted that her hourly rate was higher than the average, but her hours required were lower. Though that still resulted in a lower cost than other competitors, she said the client’s procurement person still asked that she lower the hourly rate.

Ms. Frawley, who now also consults for Morgan Anderson Consulting at times, said she’s not going to be lowering the rate and will probably lose the pitch.

New systems
The more sophisticated marketers with more experienced procurement people and larger brands — the companies that tend to send people to Association of National Advertisers finance conferences — are gravitating more toward compensation that is based on upfront-negotiated value of the work, something found in the new compensation models of Coca-Cola Co. and P&G, Mr. Hatsis said.

Their systems also tend toward less micromanagement of agency work, he added. “If I can get the result I’m looking for and the agency is able to staff it with junior people and do it in two rather than four weeks, I don’t want them to have to artificially add manpower. If they can make a higher margin and get the results faster, that’s higher value to me.”

Value, of course, is in the eye of the beholder, and the value of procurement executives themselves, might also be coming under scrutiny. Some in the industry say procurement people themselves are also starting to get the squeeze as corporate staffs that bulked up in recent years began thinning ranks.

A system where someone can say ‘yes’

Kim Kraus, who as strategic relationship optimization manager at P&G has led the charge to overhaul the company’s agency compensation model, has never been in a marketing job per se, but she’s spent nine of her 21 years in P&G procurement working on marketing services.

Beyond that, she did get her undergraduate degree in marketing at Ohio State. That’s far from making her an expert, she concedes. So when she began her second tour of duty in marketing procurement seven years ago, she spent a month as an intern at Saatchi & Saatchi and other Publicis Groupe agencies.

“I’ve also done two- or three-day deep dives at other agency types,” she said. “It’s great to see what they do, but I also like to see how clients behave with them. I learned more in my assignment at Saatchi about the things clients do to them, or cause, vs. what is it we buy.”

She spent about three quarters of her time shadowing clients other than P&G (non-competing), she said. P&G people tended to be more immersed in marketing than some of the other marketers, which helped. “Where we were hindered,” she said, “was that we had a lot of people who got involved.”

That was part of the impetus for developing the brand franchise leader model, in which a P&G general manager is in charge of the brand equity and agency relationship on a global level and a broader system that outlines who’s in charge of other elements.

“You’ve heard the saying ‘Lot’s of people can say no, but nobody can say yes,’” she said. “We tried to move toward a system where one person could say yes very clearly.”

Focusing on value and innovation

Three years ago, Stewart Atkinson was in charge of manufacturing laundry detergent for Procter & Gamble in Europe. Three months ago, he took charge of the company’s $7.5 billion advertising budget (including around $1 billion in agency fees), which constitutes the biggest media outlay on earth.

Recently tapped as manager-global marketing purchases, Mr. Atkinson, 52, assumes responsibility for media and other communications purchases and P&G’s media agencies. In that role, he replaced Bernhard Glock, a career media and marketing manager who left P&G as VP-media last month. Mr. Atkinson has a dual report to VP-Global Purchases Rick Hughes and Global Brand-Building Officer Marc Pritchard.

While he’s never been in a marketing job, Mr. Atkinson has been involved in marketing procurement at P&G off and on since its earliest days, in the mid-1990s, as part of the original group that looked to get its hands around the giant marketer’s spending. He’s also been part of global management teams in the U.S., Europe and Asia that deal extensively with marketing issues.

“It’s different than being in the marketing area, but it is where you put the discipline and rigor and process into place for the category general manager to bring the product innovation and marketing messaging in a way you can take it to market,” Mr. Atkinson said.

He’s not, he said, approaching his new job with an agenda to blindly cut costs. “It’s really about the value that gets created, and that starts with how you’re able to out-innovate the market,” Mr. Atkinson said.

Chemicals vs. marketing
His most recent experience on marketing services procurement was centralizing and streamlining how P&G purchases shopper-marketing displays, programs and agency services, including customization by retailer and chain.

Before that, he spent years buying chemicals for laundry detergents, doing deals with contract manufacturers for new oral care categories and setting up some of P&G’s earliest efforts in buying and selling supplies and products on the internet, in addition to a stint as a human resources manager.

He acknowledges some big differences between those things and buying media or marketing services. With industrial chemicals, “you’ve got a long history of how work gets done,” he said. “Things are clearly specified. There are very disciplined forecast processes in place, so you’re dealing with knowns. In marketing services, it’s less known. Therefore the skills of being able to [really] define what you have to buy are that much more important. Internal relationship skills carry a premium. Some people are able to make that shift, and some people are not. … A lot has to do with dealing with ambiguity.”

Buying media may not really be as complicated as it’s made out to be, and has probably become more complicated than it needs to be, he believes.

“This is after 90 days of getting engaged with it,” he said. “Everything on the outside looks very complex. I really think there are a few simple things I’m beginning to understand that we can look to more clearly define. And then in terms of building scale, bring the right parties together in the right way. I’m just not sure we’re doing that as well as we could right now.”

He’d like to get media decision-making closer to P&G’s businesses and brands, he said. “I just came back from a lunch with one of our media AORs and that was the whole topic — how can we get our agencies more in touch with the brands and the business leaders so we can think more clearly what the priorities are. … We just have to bring everyone closer to the consumer.”

One might expect a less-than-enthusiastic reception to bringing a procurement person into a role once headed by a marketing person. Mr. Atkinson said he’s not seeing that. “If you can demonstrate you’re creating value, perceptions change rather quickly,” he said. “I feel like our relationships are good, and they’re getting better and better every day.”

Procurement: learning the language

The growing number of marketing procurement specialists also go by a growing number of titles. Here’s a field guide to some:

STRATEGIC SOURCING: A k a in Procter & Gamble parlance as BBSS, for brand building strategic sourcing.

PRODUCT SUPPLY: Some marketing procurement people are attached organizationally to the manufacturing and logistics organizations, sometimes also known as “product supply.”

STRATEGIC RELATIONSHIP OPTIMIZATION: It’s not just about buying, this title points out, but about getting the most for the money.

FINANCE: Many marketing procurement executives are part of corporate finance departments.

MARKETING OPERATIONS: Procurement is a big part of the operation.

INDIRECT PROCUREMENT: As opposed to “direct procurement,” usually applied to goods, “indirect procurement” often refers to services, ranging from lawyers to ad agencies.

Published: October 5, 2009

For all of marketers’ obsession with digital, and smart talk about media taking a more central role in marketing, the agency-world economy still looks a lot like it did 50 years ago: The Don Drapers of the word, aka the top creatives on Madison Avenue, still charge clients far more than other agency roles.

According to a survey from the 4A’s, large agencies with more than 500 employees reported that their chief creatives in 2008 billed clients $964 an hour. That’s more than double what an executive media director at a media agency bills (a midrange high of $392) and what a senior-most person at a digital specialist agency charges (an average of about $400 an hour).

It’s a wide disparity that seems destined to change. “It’s a legacy of Madison Avenue and the days of the creative director at a traditional agency being the most valuable player that gets the biggest salary,” said Tom Bedecarre, CEO of AKQA. “That’s shifting because the role of traditional agencies is changing–media isn’t there, and often times interactive skills aren’t there.”

The survey–the first on labor-based rates the 4A’s is sharing widely–represents a rare look into how much marketers are willing to pay their agencies, even in the throes of a recession, and it shows that the Big Apple remains dominant. A chief creative based in the New York Metro area billed an average of $751 an hour last year–more than double the average of what a chief creative in other parts of the Eastern U.S. or in the South bill, at $319 an hour. In the central part of the country, a head creative billed an average of $420 an hour, and in the West, an average of $461.

Even so, the $964 average for creatives generally beats what the lead attorney on Chrysler’s bankruptcy, Corinne Ball of the New York law firm Jones Day, reportedly raked in this summer: In the frenzied first month of the bankruptcy, during which she worked an average of 15-hour workdays, including weekends, Ms. Ball billed the automaker $900 an hour, according to Reuters.

Still, for some huge shops, that’s chump change: The survey cited the mid-range high for a top creative at a big shop at a whopping $1,420 an hour (“mid-range” means after the top 20% had been shaved off the numbers).

More than 230 agencies, including Crispin Porter & Bogusky, BBDO, JWT, MediaVest, Y&R and Carat were represented in the survey. They reported hourly rates billed to clients in 2008 for some 130 positions across 14 service departments, such as creative, media services, account planning, research and print production.

Of course, hourly billing rates are just one metric. Arthur Anderson, of Morgan Anderson Consulting in New York, points out that “inherently, hourly rates are not transparent, they are opaque. Just comparing the amount of the hourly rates doesn’t tell you what it’s made up of . There’s a profit margin built in there, salaries and overhead, so it’s just the tip of the iceberg.”

Still it’s a helpful tool, and especially when you consider that–despite mega marketers such as Coca-Cola experimenting with value-based pay arrangements for their agencies–labor-based billing is still the predominant method of agency compensation today.

Experts say the numbers track with agency labor-compensation trends for several years. “Typically, the creative folks make the most money on per-hour basis–though sometimes a really good strategic planner will be right up there too–followed by account services, then media services tend to be the lowest paid,” said David Beals, president-CEO of Jones Lundin Beals.

To be sure, some of the gulf in pay between senior creatives and other roles is partly due to the legacy of the ad business. Despite the growing importance of media agencies, they are still playing catch-up with creative shops. “There’s no question media agencies are becoming more important and more valuable to clients as the media landscape becomes more complex,” said Lee Doyle, North American CEO of Mediadege:cia. “However, creative and ad agencies started out at the top of the food chain and we are still working our way up that food chain.” Mr. Doyle added that agencies share part of the blame for making the work look too easy and not conveying the complexity of what they do for clients.

Some industry observers think agency economics are ripe for upheaval–though the changes won’t come fast. “Prices won’t reset overnight, but I think over the next 10 years you’ll see a change in who makes what, and who is perceived as having the big ideas,” said Russel Wohlwerth, principal at consultancy Ark Advisors.

He added, “The industry is in a state of flux and the value  proposition of different marketing firms is going to change–what the creative agencies are worth now and what they’re worth ten years from now may be very different … there’s a high likelihood that the relative value of each kind of marketing firm will be rejiggered.”

Contributing: Michael Bush

Published: September 14, 2009

BATAVIA, Ohio (AdAge.com) — Agency performance evaluations are becoming almost universal among major marketers, but they are far less likely to be conducted for digital, PR, direct and multicultural marketing agencies, according to a survey of members of the Association of National Advertisers.

But for creative agencies — especially those with large accounts — the heat’s still on. Though performance reviews have been around for ages, they’re taking on added importance for creative shops as pressure builds in a tough economy and more marketers link them directly to agency compensation. Case in point: Procter & Gamble Co. and Coca-Cola Co., whose new compensation models incorporate performance reviews into their compensation formulas.

The ANA survey, fielded in cooperation with marketing-services firm Mktg, showed that 92% of marketers with sales of more than $5 billion annually have review processes, vs. 74% of smaller firms. Overall, of 117 marketers participating in the survey, 76% said they have a formal evaluation process for traditional creative agencies and 68% have one for traditional media agencies, but only 47% do for digital agencies and 25% have one for direct-marketing, PR and multicultural agencies.

Not evaluating other disciplines on a similar format and same timeframe as the creative agencies is a mistake, said Jim Stengel, former global marketing officer of P&G and now a Cincinnati-based marketing consultant.

“What we tried to do at Procter,” he said, “is have everybody on the same schedule. So when I sat down with John Wren or Martin Sorrell or Maurice Levy I had the entire holding company [evaluations] and not just the ad agency or media agency.”

Accountability
P&G has always evaluated all its marketing-services shops on a similar timeframe to the lead creative shop. Under its newer “brand agency leader” model, which CEO Bob McDonald said last week would be rolled out to brands covering “at least” 70% of P&G sales by the end of 2009, only the lead agency gets a performance evaluation, but it’s evaluated based on performance of the entire marketing-services lineup and in turn is responsible for evaluating the sub-contracting shops.

The increasing application of performance evaluations to agency compensation largely reflects a desire from marketers to get accountability for the work, said Arthur Anderson, principal in Morgan Anderson Consulting. It also gives marketers a way to solve problems short of changing agencies, which he said is “a very drastic, expensive solution.”

Increased use of evaluations to impact compensation may also be linked to another trend identified in the ANA survey — growing use of two-way or 360-degree evaluations in which agencies evaluate the client, now used by a majority of companies in the survey.

The agency’s evaluation of the client isn’t likely to directly impact the fee, Mr. Anderson said, but it does at least give agencies an opportunity to change things that impact their performance and ultimately compensation. “If there are some blockages in the relationship,” he said, “they can get it on the table.”

Though the evaluations and compensation may be linked, Mr. Stengel said he found it better not to talk about them at the same meeting. “The evaluation [meeting] is about how do we do better together,” he said.

‘Repercussions’
Regardless of whether compensation is directly linked, there “have to be repercussions” from reviews, he added. “I tried to make it clear that … if you’re in the danger zone you have to improve these things or there will be a warning and then action on the account.”

One new tactic the ANA survey evaluated is now used by 13% of respondents: having agencies evaluate one another. Certainly, there’s been no shortage of that over the years, at least informally among shops vying for work within large, multi-brand marketers, but some marketers are now institutionalizing that process.

“The idea behind it is good,” Mr. Stengel said. “But you always have to take it with a grain of salt.”

__________________________________

Five tips to make agency evaluations work

Respondents to the ANA’s survey and industry experts suggest the following steps for making agency evaluations productive:

1. All marketers, even those with small budgets, should conduct formal agency reviews regularly.
2. Use a consistent format for all agency types, though specific questions can be varied.
3. Present results in person.
4. Have clear corrective action plans with due dates and assigned “owners.”
5. Try to eliminate game playing and politics. “Sometimes junior people feel that if they come down too hard or too soft on an agency there will be career repercussions,” said former P&G Global Marketing Officer Jim Stengel. “People need to see that when they provide honest feedback, there won’t be negative repercussions.”

Published July 6, 2009

NEW YORK Creative agencies generally have free rein and a wide field to choose from when hiring production companies. But in the current era of compulsive cost control, this is changing. One large global marketer is rewriting the rules for the hiring of production houses with an eye towards exerting more control and reducing costs, with another said by sources to be making a similar move.

The companies, Procter & Gamble and Reckitt Benckiser, are in the process of pre-selecting production houses that its agencies will be expected to use. P&G confirmed its new process; London-based Reckitt, whose lead global creative agency is Havas’ Euro RSCG, could not be reached for comment, but sources said the company was heading down a similar path.

Each marketer is conducting its search in stages, with P&G, for example, looking at pre-production firms first, followed by production companies and then post-production facilities, said sources.

Essentially, these advertisers are seeking to reduce the number of production companies they employ overall.

“Yes, we do want to reduce the number [of production companies], but it’s really about getting the best quality and the most efficiency,” said a representative for Cincinnati-based P&G, whose creative agencies include Publicis Groupe’s Saatchi & Saatchi, WPP Group’s Grey and Omnicom Group’s BBDO.

The rep further described the shift to establishing a roster of production companies as an “evolution” in how P&G operates, adding, “We’re always looking at how can we do business better, how can we be more effective and efficient.”

P&G, which last year spent $8.6 billion on global advertising, would like to slash its total from an estimated 125 last year to 30, said sources. Also, the packaged-goods giant wants to lock in the prices it pays for everything from lighting and labor to stage expenses and the mechanics of a shoot. Sources said that such prices would be set for two years.

In return for agreeing to these pricing arrangements, the selected production companies would achieve “preferred vendor” status. Agencies working for these brands would then have to choose from among those production shops.

The companies chosen are not likely to be guaranteed a specific quantity of work, leading some to liken such pre-selection to getting a union card rather than achieving meaningful business security. (That’s not to say they’re not interested.) Some 70 production houses are believed to have received an RFP from P&G last month.

P&G and Reckitt, whose global ad spend last year is estimated at $1.3 billion, still expect their creative shops to manage the production partners, including the processing of their bills, according to sources.

P&G previously set limits on the types of production houses that agencies could use. For example, it has deemed firms that shoot in 35mm film as too expensive, according to a source.

But this move goes further to reduce choice.

As one source put it, “The agencies are on board with these plans because they have to be. But they hate it.”

The P&G representative said the company hoped to set its roster in the fall. P&G’s procurement department is leading the selection process.

P&G’s creative agencies recommended production companies at the start of the search, but will not be involved in the final selections, according to the rep.

Reckitt is said to be working with London-based MurphyCobb & Associates, a production-cost consultancy, which did not respond to requests to comment.

Sources expect both clients’ new roster approach to hiring production companies to take effect next year, after the rosters have been set.

Production-cost consultancies, which also include Ernst-Van Praag in New York, Bird Bonette Stauderman of Westport, Conn., and Admaniax Consulting Group in Los Angeles, have spurred clients in recent years to question what production companies charge for their various services, said Arthur Anderson of Morgan Anderson Consulting, who expects the trend to continue.

Matt Miller, the president and CEO of the Association of Independent Commercial Producers, thinks a focus on commodity costs misses the essence of what production companies provide.

“It’s not about what a light costs. It’s about how you’re going to use a light in a production,” said Miller. “The ingenuity of production isn’t the cost of the lumber, the nails and the lights. It’s about how you approach it and what you do with it. So, the idea of looking at the cost of items and saying, ‘All right, we’re going to pick people based on that’ is [misguided].”

Furthermore, Miller questioned the practicality of setting prices on goods and services whose costs may fluctuate depending on the vicissitudes of the marketplace. “They’re asking companies to agree to a cost structure that is not real,” Miller said. For example, labor costs may change because of the terms of collective bargaining agreements, he noted.

Some sources also wondered if a shift toward pre-selection by major clients will create rifts within the historically tight-knit production community.

Competitors, for example, regularly recommend each other for jobs if they’re unable to take them on. Now, with some companies making client rosters and others not, “it’s going to become far more cutthroat,” predicted one source.

Miller does not expect that communal dynamic to change. However, given the global influence of a marketer the size of P&G, many sources expect other clients to follow suit.

The heads of production at agencies, said one source, are “just going to have to deal with it.”

Published June 7, 2009

NEW YORK There’s no shortage of major marketers taking a hard look at agency compensation. InBev Anheuser-Busch has shifted away from retainer relationships and extended the time it takes to pay agencies. Coca-Cola has made agency profitability solely contingent on meeting performance metrics.

Now, Unilever is asking roster shops to accept less profitability up front, and questioning the hourly rates that agencies charge and whether it should extend the time it takes to pay its bills, according to sources. Some of the terms, such as payment timing — currently at 30 days — are negotiable. But Unilever, which last year spent $7.2 billion worldwide on advertising and promotions according to its annual report, has told its agencies that the new upfront profit margin of 5 percent is not, said sources.

Previously, the base margin was 10 percent, with the opportunity to earn more via a bonus if certain performance metrics were met. Now, roster shops will have to hit such performance measures just to maintain their previous margin. As such, Unilever, like Coke, though not as acutely, is shifting more toward performance-based compensation. Unilever’s major creative agencies were notified of the margin change in March, and it was retroactive to Jan. 1, according to sources.

Given that Unilever’s creative shops cut across four holding companies — WPP Group, Interpublic Group, Omnicom Group and Publicis Groupe — the impact of the margin change alone is significant. What’s more, sources describe the cut as “structural” and therefore unlikely to revert to the previous percentage even when the economy — and Unilever’s business results — rebounds. As one agency CEO put it, “Once things go this way, they tend not to come back again.”

While Unilever’s drive to slash agency costs comes during a downturn, that’s not necessarily the driving force. Rather, sources point to the influence of new Unilever CEO Paul Polman, a former CFO at Nestlé who replaced Patrick Cescau as the packaged-goods giant’s top gun this year. Before Nestlé, Polman spent 27 years at Procter & Gamble, originally in finance roles and lastly as group president for Europe.

“He’s there to shake up Unilever and to shake up the status quo,” said one source.

Said another: “He took a look at the overall marketing costs and believes that too much is being spent on fees and production” costs. “He has got benchmarks from Nestlé and P&G.”

When contacted about the rationale for changing aspects of its agency compensation, a Unilever rep said only, “We don’t usually comment on our remuneration policies.” Likewise, affected agencies including Ogilvy & Mather, Lowe, DDB, JWT and Bartle Bogle Hegarty, declined to comment.

Executives from roster shops and their holding companies are said to be involved in the compensation talks, which are ongoing and date back to the end of last year. Unilever global CMO Simon Clift is playing a leading role on the client side at the direction of Polman, said sources.

One source characterized the talks as collaborative, noting that agency pushback on payment timing may result, in some cases, in keeping it at 30 days, though Unilever this year has raised the notion of extending it to 60 or 90 days. That said, sources acknowledged that agencies these days have little leverage with major marketers, short of resigning the business — not really an option in an ever-shrinking marketplace.

To some, the situation is paradoxical.

“Clients have never had a higher demand for big ideas, greater creativity and innovation,” said a source. “At the same time, they have never been more prepared to treat everything we do as a commodity.” The source added that the trend “has been happening for a while, but the intensity of it now … is just pervasive.”

The trend leads some sources to suspect that certain clients are using the “wet blanket” of the recession as an opportunity to extract further concessions from agencies. “It has happened a lot,” said an agency CEO. Some clients do it “because the business needs it,” while others use the “moment to stand on the shoulders of an agency to push down.”

Lost in the focus on agency costs — and in particular the base profit margin — is the concept of value, according to Arthur Anderson of Morgan Anderson Consulting in New York. “Clients are under pressure, tremendous pressure. They are trying to contain costs without loss of quality in advertising work,” said Anderson, who described the syndrome as “cost containment with loss of value.”

That, of course, puts the onus on agencies to demonstrate value and differentiate themselves from others. Such efforts may be lost on client procurement executives, but shops will continue to make the case. As one agency CEO said: “The only leverage that you have in any service industry is that you have to be very good and you have to be such a valued resource” that clients can’t do without you.

During tough economic times, the marketer-agency lexicon is increasingly about “streamlining,” “savings” and “efficiency.” Meanwhile, “collaboration,” “effectiveness” and “value” often take a back seat. Balancing the former (Yin) with the latter (Yang) is wise. Absence of balance is shortsighted, if not reckless.

Balancing fiscal stewardship equally with attitudes and behaviors that embrace value and collaboration (not to mention trust) becomes even more important during difficult times when everything – dollars, people, time invested – must work harder, better and smarter. Seeking this elegant balance differentiates marketers whose brands are strong, enduring and successful from those whose perspective and vision are focused only on the immediate short-term gain of dollars, cents and metrics.

“On-Boarding” is a performance management tool to ensure that both client and agency achieve efficiency and productivity in their work practices, management processes and guidelines for the partnership. On-boarding opens a “dialogue” that supports transparency and a mutual understanding and agreement on critical strategic initiatives, priorities, plans and respective issues/needs. It is, above all, a communications tool, and we’re all in the communications business and should know how to do this. How interesting it is, however, that we are not always the best communicators amongst ourselves and our partners, although we are with our external target audiences and business stakeholders.

The On-Boarding process is a solution. The benefits are best found at the outset of a new year with an existing agency, to re-set an existing relationship if it seems to be getting off track, or with a new client-agency relationship at the very inception of the partnership. At its essence, it is a diagnostic and communications tool. One irony is that the longer an agency relationship has existed, the more important is on-boarding. That’s because fissures and inefficiencies that have become embedded in the relationship over long periods of time are not easily observed and, therefore, seldom self-correct.

On-boarding is a facilitated process with key client and key agency stakeholders participating. It takes place best at a round table as opposed to across a rectangular one. It need not take long-a single day can often be enough.

The objectives of on-boarding are:

1) To allow the voices from both the client and the agency to be heard on “what is working” and “not working” in the relationship.

2) To surface “same understanding” on key issues in the forthcoming period, whether it be work practices, scope of work, staffing plan, management processes, 360-degree evaluation, etc.

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‘On-Boarding’ For More Productive Agency Relationships
by Arthur Anderson, May 8, 2009

3) To resolve gaps, conflicts and misunderstandings with reliable facts, unbiased opinions and actionable solutions that are agreed upon or negotiated by client and agency.

4) To establish formalized “partnership guidelines” (whether the relationship is with a new or existing agency), which include clearly defined roles, responsibilities, near- and long-term strategic initiatives and related action plans and the hierarchy of responsibilities.

5) To come to mutual agreement and closure on the single strategic imperative for the brand.

Critical to achieving equitable agency compensation, incentive frameworks and fair metrics for measurement of performance is the ability to dialogue with candor, transparency, mutual respect and understanding. While these are well-worn words, today they hold more importance and weight than they have for many years. Dialogue is communication. And an open, clear channel of communication is the one factor that leads to resolution, solution and results. All the rest falls in lock-step behind this classic leader.

Editor’s note: This is the fourth in a four-part series.