Search results for 'production hubs'

Are Advertisers Fully Realizing the Benefits of These Production Trends?

2 May

digital production managementPerhaps one of the more significant trends within the advertising industry in the last decade has been the advent of digital asset management platforms and the continued move toward the decoupling of creative development and cross platform production.  

These innovations have resulted in a number of meaningful benefits for advertisers including; the ability to maintain consistent brand standards across the globe, minimizing required production lead times and reducing expenses in this area.  Agency holding companies to have been the beneficiaries of improved efficiencies tied to their horizontal strategy of creating in-network production centers to serve clients across their network of agencies.  There have been numerous reports from agencies indicating that this de-coupled, centralized approach to advertising production can generate savings for their clients in the range of 20% to 50%. 

There is another trend which is positively impacting production efficiencies… “offshoring.”  Ironically, the practice of offshoring is not talked about quite as openly or as often between advertisers and agencies.  Considered a global best practice in the digital production sector, the ability to leverage an advertiser’s digital asset repository from anywhere in the world has fueled the rise of digital production hubs in markets such as Bogota, Colombia, Sao Palo, Brazil and New Delhi, India.  The reason is straight forward.  These markets provide access to a growing talent pool of digital production specialists, while offering comparatively low labor costs that can be as much as 70% below that of North American and Western European markets.  

In our agency contract compliance auditing practice we review numerous client-agency agreements complete with agency staffing plans, labor and studio rate sheets and direct labor cost work-ups.  Of note, it is rare that these documents provide any transparency into an agency’s use of in-network production centers or their utilization of an offshoring strategy.  Rather, we see agency overhead and direct labor rates by function, which reflect more traditional staffing models and costs affiliated with U.S. creative hubs such as New York, San Francisco and Chicago.     

The obvious question to be asked is; “Are advertisers fully participating in the efficiency gains related to these practices?”  Based upon our experience, too often advertisers do not have the requisite transparency into this area to assess the extent to which any realized production efficiencies are flowing through to their bottom line.  As the twentieth-century U.S. architect and engineer, Richard Buckminster Fuller once said: 

“None of the world’s problems will have a solution until the world’s individuals become thoroughly self-educated.” 

Interested in learning more about your true production costs?  Contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com to schedule your complimentary consultation on this important topic today. 

 

Turnover: Temporary Anomaly or Omnipresent Reality

26 Feb

 

 

agency compensationChief Marketing Officers come and go every twenty-three months or so. The average Client-Agency relationship tenure is thought to be around three years. So has anyone really noticed that average ad agency turnover is reportedly running between 28 – 30 percent? 

In an industry where change and upheaval have become constants, the agency talent crisis has likely not received the attention that it deserves… outside of the agency community. Clearly, this is a dynamic that agencies in general and agency HR executives specifically are acutely aware and are trying to address. After all, in a service business that is highly reliant on talented professionals with diverse skill sets to create and deliver their product, the talent challenge cuts to the heart of agency sustainability. 

During the fall of 2014, Digiday published an article entitled; “Anatomy of an Agency Talent Crisis” which suggested that entry-level salaries were one of the primary challenges in attracting college graduates to even consider a career in advertising. In light of the 4A’s annual talent survey findings, which found that “most entry-level salaries” for agency personnel “were between $25,000 – $35,000,” most agency insiders understand the challenges in attracting and retaining top tier talent. 

The question, which has not been addressed is; “Why aren’t agencies paying more to secure top college graduates?” If a capable young person armed with a college degree can earn a starting salary of $70,000 by going to work for Accenture, McKinsey, Booz & Company, Adobe, Google or Microsoft then it stands to reason that advertising agencies must close the salary gap if they hope to attract their fair share of talent. As the American inventor and businessman, Charles Kettering once said: 

“We should all be concerned about the future because we will have to spend the rest of our lives there.” 

Importantly, this is a decision which the agency community owns. Their ability to pay higher salaries to attract young graduates is not hindered by the fees being paid by advertisers. Unfortunately, many advertisers have little exposure to many of the agency “worker bees” deployed on their account, spending most of their time interacting with more senior “point people” such as account directors, creative directors or senior media planners. As such, advertisers may have little transparency into the high turnover rates being experienced within the agency community. 

That’s not to say that advertisers aren’t paying a price from a learning curve perspective, which can affect the caliber of an agency’s work or the number of iterations required to generate satisfactory outputs. 

What is intriguing when looking at the fully-loaded hourly rates being charged by agencies, is that there appears to be plenty of room to increase compensation for junior to mid-level personnel. 

There are a couple of issues which impact an agency’s willingness to free up funds to address the pay scale issue. The first is the growing salary disparity between entry-level personnel and senior executives. One need look no further than the 4A’s own 2014 talent survey, which found that in the same year in which entry-level personnel were earning on average between $25,000 – $35,000, they had an agency report a $1,000,000 base salary for a Chief Creative Director position. 

Additionally, agency holding companies are growing and require resources to fuel their expansionary appetite. This growth comes largely via acquisitions of specialist agencies and investing to support in-network horizontal integration strategies which have spawned the birth of digital media trading desks and the creation of global cross-platform production hubs

Ultimately, market dynamics will force the agency community’s hand when it comes to a reapportioning or prioritization of resources to address the competitiveness of their salary offerings. Smart agencies will move to address this issue, recognizing that the lack of success in recruiting top college graduates combined with 30% staff turnover rates, is clearly not a formula for success.

Money Must Grow on Trees

21 May

digital mediaIronically, shortly on the heals of the Association of National Advertiser’s (ANA)  “Agency Financial Management” conference where the ANA presented survey results suggesting that for every dollar spent on digital advertising, only fifty-five cents made it through to the publisher comes the following announcement from PwC and the Internet Advertising Bureau; 

“Internet advertising revenues hit $42.8 billion in FY 2013, up 17% from $36.6 billion in 2012.  Internet ads brought in 7% more than broadcast TV ads.” 

Confused?  Wait.  Given the rise in programmatic buying within the digital marketplace (up 43.4% according to eMarketer), consider the following finding from another recent ANA survey conducted with Forrester; 

Of the client-side marketers surveyed for the study on the topic of programmatic buying, “29% said they’ve heard the term, but don’t have a clear understanding of it” and 12% said they were “completely unaware of programmatic buying.” 

In light of the lack of transparency, limited marketer understanding of this space and no uniform measurement standards, the continued double-digit growth of digital media certainly seems an oddity.  In fact, it is difficult to come up with a sound rationale to support the share of advertising spend represented by digital at this stage of the media’s development.  The term “potential” comes to mind, but the lofty spend levels for digital are more likely being driven by marketers’ fear of “being left at the station.”  Unchecked, this trend poses serious reputational and financial consequences for marketers.  In the words of M.W. Harrison; 

“The waste of money cures itself, for soon there is no more to waste.” 

That said if the desire to spend heavily on digital media is burning a hole in marketers’ proverbial pockets, perhaps it makes sense to focus on improving the transparency and controls surrounding the financial stewardship of an advertisers investment in digital.  

A good place to start from an accountability enhancement perspective is with a sound master services agreement between the client organization and its digital agency partners (which likely includes most of an advertiser’s agency network).  The integration of contract language and reporting requirements governing the agency’s use of affiliate organizations such as trading desks and offshore digital production hubs, agency staffing, media delivery verification and I.P. infringement indemnification should be viewed as integral controls in an age of patent trolls and media arbitrage.  Unfortunately, in our agency contract compliance practice, it is not atypical to find that legacy agreements or lapsed agreements are in place, creating an element of risk and uncertainty. 

Additionally, advertisers may want to consider the use of independent contract compliance and performance monitoring consultant that can work with their marketing teams to provide training and insights along while improving the transparency surrounding the organization’s digital media spend.  Without some layer of financial protection and performance vouching, it is difficult to categorize the money being allocated to digital advertising as anything more than discretionary spending.

 

 

 


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