To Procurement and Our Clients: Beware the Pyrrhic Victory

If public relations professionals had their equivalent of the physician’s Hippocratic Oath it would likely be something like “Do great work for clients every day.” That presumes fair business models which allow outstanding work to be funded.

However, from my seat at the head of the Council of Public Relations Firms and as a CEO of a major global communications firm, I think 2013 is going to go down as the year when procurement reached a tipping point that our clients will ultimately regret.

There is a disquieting trend in the market today: radical fee reductions without reducing the scope of work is an acceptable outcome and may actually be a sign of great management. One can’t rightly blame hard-working procurement people; cost reductions are at the core of their purpose. But we can address a process that seems to have accelerated to an ungoverned, hazardous degree, and without regard for so-called “collateral damage.”

Moreover, the procurement process itself – and the data underlying it – has become fundamentally opaque, which is ironic in this era of must-have transparency. No procurement official feels the need to actually show their math and most notably their “benchmark” data. It’s simply good enough to say they have such data, that your fees are (fill-in-the-blank) above the benchmarks, and let the hair-cutting begin. It appears to be an exercise in establishing pretense and then seeing how feebly agencies defend themselves in a market where there may actually be an abundance of PR providers who will in fact make a deal that they – and their clients – will later wish never existed. In the end, there’s really little room for discussion once procurement has taken control of the scene.

Another more nefarious force is in the mix, as well. Management consultants -- which PR firms are competing with more and more successfully -- are first in line with their C-suite clients offering products and promises that are intended to drive down agency fees, fees that are often already deeply discounted. It’s good work if you can get it. After all, it’s not often you can hobble your competition and get paid loads of money to do it. So what are the potential unintended consequences of these cost-plus arrangements? For one, loss of talent. Our clients are unanimous when they demand the very best talent, and quite rightly. Superior talent is the best predictor of superior client service. Really astute clients know that within our industry, and indeed within our firms, there is a market for the best talent. Such people are highly mobile and vote with their feet all the time. They are well aware that a great work environment (read: where the best talent wants to work) is composed of many elements:  training, mentorship, tools, product innovation, industry and practice leading-edge thinking, compensation, benefits, stimulating work, great clients, and so forth. Of course there is a cost to all of that. It takes money to be great.

Yet in the current wave of cost-plus reviews, the elements of a great firm for some reason don’t qualify on the “cost” line or are grossly under-represented. Suddenly there comes a split in concepts: “there are costs we (procurement) will allow, and all the other costs are just your costs of doing business, and, by the way, it’s up to you to figure out how to pay for them or maybe you just don’t do them at all.” It’s completely arbitrary, but in these negotiations, stubborn “because I said so” posturing seems to overwhelm prudent models for sustainable excellence.  No one is really looking out for the client’s mid- to long-term interests. It’s all about saving money now. What does the client end up with? I fear if we continue down this path, we will begin a downward spiral, an unwise and forced deflation in our industry that may make agency services less valuable and less effective and, ultimately, of less true strategic help to clients. The movement strikes at the very heart of what makes public relations so powerful: talented people applying great insights and intelligence on behalf of clients. And thus far, the cost of that talent shows no sign of plateau or decline. In fact, talent costs continue to march skyward.

So how ready are agencies to walk away from a one-time great client and the entire history of breakthrough work they’ve delivered? And in a desperate bid to simply keep talent and cover some of their costs can they really afford to lose the revenue, even if it actually costs the firm money to service the client? Unfortunately, it seems more agencies are surrendering than resigning.

If this is a “win” for the client, then I’m afraid we’ve lost the plot.

Once upon a time there was an unspoken contract between clients and agencies: we will give you our best people and our best efforts, and in return you will show concern for the welfare of our partnership. The reason was simple: a healthy, thriving firm that can invest in talent and ideas and tools is a firm that will help clients win in the marketplace.

The current destructive trend – and let’s hope that clients and agencies reassert themselves to moderate it – is making the client/agency relationship a dance of quiet desperation, where agencies live on the thinnest of margins if they exist at all. To make ends meet, agencies (independent and otherwise) will find themselves hollowing out their core, eliminating the things that make them great. And one day I fear we will wake up to find that our most talented people have chosen more rewarding industries and they will walk away. Once the dilution of talent in our industry begins, it will take years to overcome.

No one on the corporate or agency side should stand idly by and let this happen. Our objectives are aligned like never before. If the value-delivery of the agency partners is hobbled by draconian cost cutting, it does not bode well for the sustainability of strong corporate communications departments which already are defending their positions from the encroachment of other corporate or marketing functions.

That means corporate communicators and agencies must find powerful ways to express their value in bottom-line terms. Doing that well is the ultimate defense to those programmed to know only the cost of everything and the value of nothing. So what do we do? Doing nothing is an option for the damned. I propose a joint working session between the Council of PR Firms and the Arthur W. Page Society where this topic can be discussed in a frank and open manner, and where we can arrive at the core issues together.

Agencies will, of course, continue to defend themselves in their exchanges with procurement departments everywhere. But the real stakeholders are the client organizations, and anything less than a parley on this topic with clients would be missing the point.

Dave Senay, President and CEO, FleishmanHillard 
Dave Senay is president and CEO of FleishmanHillard. He is the chairman of the Council of PR Firms, a member of The Arthur W. Page Society, a committee-member of The Seminar, and an accredited member of PRSA.