Tag Archives: performance monitoring

Are Advertising Agency Performance Assessments Disruptive?

4 Mar

disruptionThe answer to this question will be as diverse as the background and experience readers have with corporate accountability initiatives in general and marketing services agency audits in particular.  However, the question shouldn’t be whether or not these assessments of contract compliance or performance are disruptive but; “are they beneficial?” 

As a former agency account director and client side marketing executive, I have had the benefit of seeing the marketing accountability process from both perspectives.   As such, in my humble opinion, performance assessments and contract compliance audits are neither disruptive to the advertiser’s or the agency’s workflow, nor do they place any undue strain on the relationship.  Quite the contrary, in my experience performance monitoring and compliance testing serve to better align advertisers and agencies and more often than not lead to process improvements which are beneficial to both parties.

What is puzzling is that there are individuals on both the client and agency side that continue to rebel against the prospect of a comprehensive, independent assessment of their collective performance and adherence to the terms of the relationship.  After all, both parties were actively involved in negotiating their letter-of-agreement (LOA), which most likely contains a statement of work, an agency staffing plan, a schedule of charging practices, 3rd party vendor management parameters and a clause detailing the advertisers “Right to Audit.”   It occurs to me that accepting independent assessments is much akin to accepting the truth.  In the words of the 19th century German philosopher Arthur Schopenhauer :

“Every truth passes through three stages before it is recognized. In the first, it is ridiculed, in the second it is opposed, in the third it is regarded as self-evident.”

More importantly, there isn’t a member of the C-Suite in any client organization who is not wholly on board with the notion of accountability.  While not initially the case in the context of marketing, those days are clearly in the rearview mirror.  It is not uncommon for corporations to spend between 1.5% and 5.0% of their revenue on marketing.  Whether the goal is to build brands, create short-term demand and or to grow market share, marketing is an important component in the success of an organization.  Thus, it is imperative that executives have confidence that their staff, their partners and their 3rd party vendors are making good resource allocation decisions with the company’s marketing investment. 

Performance reviews and compliance audits provide a measure of control to an advertiser to ensure that there is transparency into the decisions being made with regard to their marketing investment.  These initiatives have the added benefit of providing a mechanism to review personnel, processes and resource investment on the part of the agencies so that adjustments can be made along the way to improving their return on marketing investment (ROMI).   Independent audits also yield an excellent opportunity for client and agency to engage in a candid, comprehensive dialog regarding the audit findings and recommendations which frequently contain normative benchmarks or industry “Best Practice” insights.  This type of approach fosters partnership and strengthens relationships.  Everything is on the table, no surprises, with the simple goal of identifying various means of improving performance.

From a workflow perspective, audits should not disrupt an agency’s critical role in the demand generation process.  Is there a modicum of time required of the account team and or the subject matter experts on the agency side?  Most definitely, but not at an onerous level.  Further, this can be an incredibly worthwhile investment of time if the agency is willing to provide feedback and share insights into the relationship and thoughts that they might have on changes that can be made to strengthen that relationship and in turn boost performance.  Other than those qualitative interviews, it is the agency financial team that is typically “on point” for providing the requisite data and or reports required to support the audit.  The nature of the information request is straightforward is typically detailed within the LOA and can be readily accessed from the agency’s financial system, thus requiring little administrative time… unless of course the agency has neglected their “housekeeping” duties along the way (i.e. lax time-of-staff controls, failure to reconcile fees, delays in reconciling 3rd party vendor fees, etc…). 

In our opinion, it makes sense for both parties to view the accountability process as a sound “preventative” care practice that can preserve the health of the client / agency relationship… not to disrupt it.  Marketers who invite an independent assessment of their performance and that of their agency network are embracing an excellent opportunity to showcase their commitment to corporate accountability and a desire to maximize ROMI.   

Interested in learning more about marketing accountability and how to implement the appropriate controls and transparency?  Please contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on this topic.

Marketing Accountability. Who Owns It?

3 Nov

marketing accountabilitySeems like a straight forward question.  And the answer is vital to the success of an organization’s marketing accountability initiative. 

From a functional perspective, should it be Marketing, Finance, Procurement or Internal Audit?  Should the CMO, CFO, CPO and or their lieutenants take the lead?  And of course the real zinger; “Whose budget will cover the cost of the initiative?”

Simple questions?  Yes, but with answers that have organizational implications that frequently pose significant impediments to fielding a marketing accountability program.  The reasons cited range from “We’re short-staffed” to “We want to do it, but budgetary constraints won’t allow for it this FY.”  Thus, for most advertisers, their marketing accountability initiatives are DOA.  It’s a shame when you consider the hundreds of $millions in marketing spend committed annually with little in the way of contract compliance auditing, financial reconciliation, performance monitoring or independent oversight. 

The obvious question for stakeholders is: “Would you play it so loose if it were your own money?”  Probably not.  Truth be told, accountability is everyone’s responsibility and is a pillar of good corporate governance.  The tone is typically set by the CEO and over time, becomes part and parcel of an organization’s culture. 

From a marketing perspective perhaps the best model to consider is a multi-functional team of internal stakeholders from Procurement, Marketing and Finance with the source of funding being the marketing budget and the CMO serving as the leader of the initiative.  Why Marketing?  Because Marketing will be the primary beneficiary of the resulting process improvements, efficiency gains and financial true-ups that are typically realized as part of an accountability effort.  Further, while business results, brand building, strategy development, analysis and leadership are skills required of the CMO position, accountability and responsible stewardship of the organization’s marketing investment are vitally important elements as well.

In the end, the organization realizes a number of benefits that will improve the efficacy of its marketing spend, boost ROMI and improve the performance of their marketing services agency network:

  • Enhanced agency stewardship systems (i.e. contracts, compensation and evaluation systems)
  • Improved controls, transparency and reporting
  • Efficiency gains
  • Improved financial stewardship practices

So what are the critical components of a marketing accountability program?  At its root, it begins with the clear articulation of the organization’s business objectives, marketing goals and expectations of each stakeholder group involved in the marketing process.  One of the most critical stakeholder groups is the organization’s marketing services agency network.  A well-conceived marketing accountability program will help both advertiser and agency align resources with the organization’s goals.  In turn, these decisions will ultimately drive decisions regarding roles and responsibilities, deliverables, agency staffing, remuneration and the criteria that will be utilized to assess performance. 

Successful accountability management programs are not one-and-done propositions.  They involve implementing and executing a system which has an ongoing monitoring component.  Often times, this may include utilizing independent auditors to help instill the requisite feedback and control processes into the culture of the advertiser and each member of their marketing services agency network. 

Marketing accountability and the attendant activities associated with these initiatives (i.e. performance monitoring, compliance testing, independent auditing) form the basis for organizations to ensure that the millions of dollars spent on marketing are tracked appropriately.  More importantly, these actions will afford an advertiser the opportunity to drive each of the stakeholders that comprise their marketing supply chain to extraordinary performance.

Incenting Extraordinary Agency Performance

15 Oct

performance incentive compensationThe ANA’s 2012 “Trends in Agency Compensation” survey found that forty-nine percent of the advertiser’s surveyed utilized “performance based compensation” as part of their agency remuneration programs.  Further, of those advertisers using performance incentives, two-thirds noticed an improvement in agency performance.

However, like most issues, incenting extraordinary agency performance isn’t as simple as throwing more money at it.  A study by the 4A’s found that performance incentives accounted for approximately three percent of agency holding company revenues.  So it is highly unlikely that the implementation of a performance incentive program, in and of itself, will achieve the desired results when it comes to elevating agency performance. 

We believe that there are six keys to incenting extraordinary performance:

  1. Clear delineation of agency roles & responsibilities
  2. Alignment of agency resource investment with client  goals
  3. Establishing performance expectations for each agency
  4. Non-monetary incentives
  5. Incentive compensation
  6. Systematic performance monitoring

Based upon our experience, driving agency performance is a process which requires teamwork within the client organization and between client and agency.  Further, the process is one that relies heavily on non-monetary incentives to balance the relationship.   Non-monetary incentives include intangible relationship attributes such as; stability, communication, access and respect. 

Why are these attributes important to an agency?  For an agency to deliver extraordinary performance, it requires an investment of both strategic and executional resources and a commitment to assembling and retaining the best and brightest account team available within the agency to assist the client in achieving superior results.  An agency is much more willing to make that commitment if it is confident that it can realize a return on their investment.  If agency management senses that their insights and recommendations are desired and valued by the client, that they have access to and the respect of senior client management and that the agency is viewed as a valued partner rather than a vendor this leads to a stable relationship which has the ability to withstand the test of time.

Client-side procurement professionals have access to a number of tools that can aid and abet the organizations desire to generate a greater return on its agency network fee investment.  These include the following instruments and processes:

  • Clear, concise, client-centric contracts and statements of work
  • The inclusion of a “Right to Audit” clause within the LOA
  • Identification of a reporting and control process to monitor performance
  • Utilization of a 360° agency evaluation process
  • Customized agency remuneration programs for each agency

These tools are beneficial to both the client and agency teams in establishing expectations and creating a transparent environment which encourages both parties to discuss progress and address concerns immediately, rather than letting issues fester and become a detriment to the relationship.   

Change in an advertiser’s marketing services network is expensive and can create risks.  Considering the relatively short tenure of a CMO, 23 months according to Spencer Stuart and the decline in the length of client-agency relationships (estimated to be less than 3 years, down from 7+ years in 1984) action must be taken by the client organization to mitigate those risks.  It would certainly appear as though the reduction in CMO tenure is contributory to shorter client-agency relationships.  Too often when we learn about a “changing of the guard” in the marketing C-suite this is followed by the announcement of an agency review.  

In order to break this cycle change for change sake, client organizations should view their marketing services agency networks as a “corporate asset.”   This perspective can positively shape the client’s agency stewardship approach, involving a multi-functional team comprised of representatives from across the organization.  The shared corporate responsibility for nurturing the growth and contribution of the marketing services agencies can elevate the asset value of the network while directly supporting the CMO’s demand generation and brand building efforts. 

A “well-oiled” agency network operates more efficiently.  Combined with a contract compliance and performance monitoring program the approach can lead to extraordinary performance and enterprise savings.  Consider the results of a recent study conducted by the procurement outsourcing group Proxima which surveyed 300 London-listed companies.  Their research found that; “a one percent reduction in non-labor costs could boost average annual earnings before interest, tax, depreciation and amortization by 3.6%.”

If you’re interested in learning more about how your organization can incent extraordinary agency performance, contact Cliff Campeau, Principal at AARM at ccampeau@aarmusa.com for a complimentary consultation.

Performance Integrity

18 Jun

In the world of athletics, independent performance assessments are the rule.  In baseball, umps call balls and strikes, in tennis linesmen determine whether a ball is in or out, in football referees call out players for rule infractions.  Given the competitive nature of athletic competition at all levels and the economic impact performance integrity can have in collegiate and professional sports, it is unfathomable to think that the governing bodies overseeing these entities such as the MLB, USTA, NFL or NCAA would allow athletes to self police their contests. 

Is business any less competitive?  When companies consider the value of a point of market share, the impact of positive sales on earnings-per-share or the investment level being made in marketing as a percentage of their selling-and-general-administrative expense the answer would most certainly be “No.”  So why is it that when it comes to marketing performance integrity, self-assessment is the rule rather than the exception? 

In business, as in sports, there are winners and losers.  There are several characteristics that impact whether an organization can be categorized as a “winner.”  These characteristics include, but are not limited to, a company’s market position, year-over-year sale’s increases, customer loyalty/satisfaction and return on shareholder equity.  An organization’s marketing investment and the resulting performance of that investment largely determines an organization’s in-market success.  Given the potential impact marketing has on company performance, don’t you believe that stakeholders (i.e. Share Owners, Board of Directors, Senior Management) would want to insure the integrity of that “performance?” 

Perhaps it makes sense for business to take a lead from their sporting organization counterparts and commit to the independent performance assessment of their marketing partners as a mechanism for optimizing this important investment.  This is certainly not a foreign concept in business – just as public corporations are required to utilize independent auditors to vet the accuracy of their financial statements it would be reasonable, and make good sense, to apply this concept by engaging 3rd party agency contract compliance and performance auditing firms to assist in assessing the efficacy of one’s marketing spend.  The learning and any resulting financial reconciliation related to the audit process would yield dividends on multiple fronts well into the future.  In the words of one of America’s founding fathers, Thomas Paine: 

“Character is much easier kept than recovered.” 

The practice of engaging agency compliance auditors to provide a fair and balanced look into the performance of an organization’s marketing agency network is relatively commonplace in Europe.  This movement has also been gathering momentum within the world’s largest advertising marketplace… the United States of America.  Employing independent auditors is not done to impugn the character of the agencies whose compliance and performance is being evaluated.  Rather, it is performed to validate that the advertiser has, in fact, the appropriate legal, financial and governance controls, fraud detection and performance monitoring processes in place and that the reporting and subsequent level of transparency which it affords the company are satisfactory.  

Given that we started this article with a sports reference, it is only appropriate that we end with a pearl of wisdom from one of major league baseball’s most accomplished players, Hall of Famer Yogi Berra: 

 “You can observe a lot by just watching.” 

Interested in learning more about the benefits of agency contract compliance and performance audits?  Contact Don Parsons, Principal at dparsons@aarmusa.com to schedule a complimentary consultation today.

%d bloggers like this: