72. Transforming agency relationships: From outputs to outcomes

PLEASE NOTE: This transcript has been created using fireflies.ai – a transcription service. It has not been edited by a human and therefore may contain mistakes. 

 
00:00 
Dom Hawes 
Today we are going to lance a boil that's been plaguing the marketing world in recent years. It's the dysfunctional, inappropriately framed and interfered with relationship between a brand marketer and her creative agency. The very best marketing and the very best creativity come from long term, mutually beneficial relationships between brands and their agencies. Over the last eight years, the commercial side of those relationships has started to fail, both for the marketer who often ends up getting something different than they bought, and the agency who ends up having to do something different than they sold. And remember, the very best marketing is founded on relationships, commercial relationships. However much you like each other, it's the commercial stuff that gives equanimity and resilience. It's the commercial alignment that creates the environment, and it's the commercial results that delivers a platform for future success.  

 
00:58 
Dom Hawes 
Today, we're going to explore how to make those relationships thrive. Welcome to Unicorny. This is a podcast about the business of marketing, how to create value, and how you can help your business win the future. And I'm your host, Dom Hawes. Today's guest is somewhat of a hero for many on the agency side of the marketing business. Hes a big thinker, hes highly philosophical, and he is a straight talker too. Today we meet Blair ends, co host of my favourite podcast, Two Bobs, and co host of another great listen 20%, the Marketing Procurement podcast. Hes the author of two books, win without pitching and pricing creativity. And all of his work is focused on making agencies sell more profitably. So why the hell does this matter to you?  

 
01:52 
Dom Hawes 
Well, because remember, the very best marketing comes from long term, mutually beneficial relationships between brands and their creative agencies. Because that's how the work gets done. Because if Blair can explain the issue agencies face when they sell to you, it gives you a better and more controlled approach to buying. Because as the 20% podcast tells us, procurement hasn't yet worked out how to buy creativity without killing it. Now, my premise today is that the interests of the best agencies and the best brands are perfectly aligned. They're not adversarial in any way that providing the relationships captured in an equitable commercial agreement together you will go far. So this isn't about whether you use one of our agencies, it's about all agencies. We're looking today at how you build the very best relationships to deliver the very best outcomes for your business because that is how you create value. 

 
02:49 
Dom Hawes 
Hey, Blair, how are you today?  

 
02:54 
Blair Enns 
I'm pretty good, Dom. Really happy to be here.  

 
02:56 
Dom Hawes 
Very pleased to have you here today. We're going to be talking about agency. Literally just before went on air, were saying, oh, that's interesting, because most of our audience actually are in house marketers. And so it's like, oh my God, why is this relevant? And I think, look, the reason, of course, is it's in everyone's interest that there is a healthy, productive relationship between the two.  

 
03:13 
Blair Enns 
You would think so.  

 
03:14 
Dom Hawes 
You would hope so. I don't think I've met an in house marketer yet that isn't at least slightly interested in what goes on agency.  

 
03:22 
Blair Enns 
I think agencies are really aligned to the goals of the brands that they serve. In some ways, that relationship is an easy one, and in some ways there's a lot of baggage and a lot of kind of history that we need to rethink and some new modeling we need to do. I think things get complicated once procurement gets involved.  

 
03:38 
Dom Hawes 
I think you've hinted at the issue we're going to start with right away, which is the commercial model as it currently stands between client and agency. And I've listened to some excellent output that you've created on your other pods, but I wanted to bring that to our audience. There are big issues with the model, the way commercial model works. Part of that, I think, is how agencies sell, not least the pitch process, which is massively broken. It's the subject of your manifesto and partly also, of course, procurement's role and how they force agencies into certain types of behavior. Let's get back to where I started, the commercial model between client and agencies. I said, it's broken. Do you agree? And if so, what's the problem?  

 
04:11 
Blair Enns 
I would respond with, well, what is the commercial model?  

 
04:14 
Dom Hawes 
You want me to explain how I see it, right?  

 
04:16 
Blair Enns 
You could. Or you could see it as a rhetorical question. I know commerciality isn't just about pricing. Pricing is only a component of it. But I've written a book on pricing, and I'm fond of saying I think the biggest mistake in pricing is the idea that there is one right way to price. Let's just extrapolate a little bit. I think the idea of the commercial model needs to go out the window. My book is called Pricing Creativity. It's a double entente, but what it means pricing the creativity that you're selling, but also getting creative in pricing. And I think what I would like to see, and you're seeing some of it now, but I would like to see more creativity in the actual commercial model, delivery model, business models of agencies.  

 
05:01 
Blair Enns 
And I think we are so far past the idea that there should be one model. It's not exactly a thousand flowers blooming. I don't think there are a thousand commercial models, but I think there are all kinds of different commercial models that are worth exploring for agencies. And of course, it can't just be in the agency's best interest. As the margins have been kind of eroded away over the years and decades. It's got to serve the client too. So it's got to be. I hate the phrase win, but it really does have to be win for both parties.  

05:31 
Dom Hawes 
My starting point with it is, with regards to the commercial model, is that we tend to measure the wrong things. Right? Agencies tend to measure their success by their outputs. And I think there's a misalignment between many agencies and their clients. That and AI, I think, for me, has really brought this to the fore because everyone's talking about, oh, I can make my stuff much quicker, faster, more efficiently. And actually it's not about the stuff, right? It's not about the websites or the materials you're producing.  

 
05:56 
Blair Enns 
Hey, you can use AI to make this stuff much faster, quicker. Therefore, My Price should go down, right?  

 
06:02 
Dom Hawes 
That's exactly what they're thinking. And actually, of course, what the business wants is the business outcome that they wanted in the first place. Increased margin, new customers, whatever it might be. Reduction in cost, of course, matters, but it doesn't matter as much as those things. So I think for me, part of the reason the model's broken is that agencies need to be focused much more on the impact they have on their client's business, not just the output of the work they do for them.  

 
06:26 
Blair Enns 
I agree, and that's really easy to say. And when you say it to a room full of agency owners or leaders, they'll nod and say, no, we're actually really focused on outcomes. And I can prove to them through an exercise that they're not. It's not a glib thing. It's actually very difficult to shift your focus away from selling inputs of time and materials to actually become focused on value creation for the client. Like, you can say all the right things, but you've effectively, the agency and client together in lockstep, have kind of created this prison cell of narrow thinking around agency commerciality. It's kind of a simple transition that needs to be made.  

 
07:06 
Blair Enns 
The transition of going from thinking about solutions and costs of solutions and marketing, marking up the price of cost of solutions, to thinking about value creation and pricing based on value. And I don't mean to open the pandora's box of value based pricing. It's too easy for too many people on both sides of the table to dismiss that idea. I'm just saying, forget about how we price. Can we agree that you are hiring us, you the client, are hiring us, the agency, to create value. And everybody will nod to that and not mean it because we are in this prison cell of selling inputs.  

 
07:41 
Dom Hawes 
And that's being driven, certainly an enterprise, by procurement. Yes, we've got some hell stories about procurement. We've been stuck in procurement with one potential, I say potential, 14 months agreeing the contract.  

 
07:54 
Blair Enns 
It's unbelievable, isn't it?  

 
07:55 
Dom Hawes 
Everything's changed, right? Since we agreed were going to work together. The whole world has changed. The contract's just getting approved and like someone's going to come and go, you know that program, let's start it now.  

 
08:06 
Blair Enns 
Your marketing client is going to look at the contract that you signed and say, this isn't what we talked about, this or my situation has changed. Like it's absolutely ridiculous. Like who's being held accountable for this?  

 
08:19 
Dom Hawes 
I mean, no one. And you'd think that if they had budget assigned ready to go in a market and then it doesn't get deployed for 14 months, there must be a business, there isn't a business impact. There was no need for the budget in the first place. Right.  

 
08:30 
Blair Enns 
Sometimes I cannot believe the conversations that we have in this industry around the ridiculousness of how creative services are bought and sold. It's absurd. From the first moment, from the moment of the pitch to the moment of the finalizing of the contract and going through procurement hell to it's like, well, this isn't what I wanted to buy from you, mister agency. Well, this is what your procurement people bought for you, madam client. So let's figure out how to work within these ridiculous constraints. What are we doing?  

 
09:02 
Dom Hawes 
I feel desperately sorry for many of the in house marketers who are trying to wrangle their way through this. They have a program they want to produce, they've got work they want to get done, they know how they can add value, but their hands are being tied. And then everyone's being forced back, as you say, to the input argument, rather than outputs, outcomes.  

 
09:18 
Blair Enns 
Somebody needs to be the adult in the room. Somebody needs to have the conversation, somebody needs to grow a spine. I think everybody's to blame here. And I think the party who gets let off the hook a little bit too easy is the client side marketing person. Because the client side marketing person knows that when they say, okay, you're the agency we want to work with. Now I'm going to hand you over to procurement. Brace yourself. They know that this divide and conquer approach is going to yield something that is not ideal for anybody except procurement. Procurement is going to sacrifice the goals of marketing, and they're going to significantly impact the ability of the agencies to survive over the long term. And they don't care.  

 
10:06 
Blair Enns 
There's a counter argument to this, and the counter argument is I'm making a big generalization and painting all procurement people with the same brush. Guilty as charged. I have interviewed one of my podcasts lots of very good enlightened procurement people. They become enlightened after they leave the job, though. When they're on the job, they say, we're interested in value creation, but really they're motivated by incentivized for and rewarded for cost reduction.  

 
10:35 
Dom Hawes 
Look, it's one of the issues, I think, that's hampering the harmony between agencies and their clients. And we all know that the best work, the best results come from long, productive, mutually beneficial relationships. 

Let's take a quick breather to consider where we've got to so far. I told you Blair was straight talking. It's clear that the traditional commercial model between clients and agencies is kind of fundamentally flawed, and there's a growing volume of content on LinkedIn based on exactly this premise. If you want to dig deeper, I thoroughly recommend looking up two episodes of the 20% podcast featuring Caroline Johnson from the business model company. Or if you haven't already done so, read Michael Farmer's Madison Avenue makeover for a ringside seat as Caroline worked with Matt Baxter from Huge to transform that agency.  

 
11:32 
Dom Hawes 
And I'm going to link both of those on the show notes which you can find at unicorny .co.uk Now what we're talking about today isn't easy. Blair highlighted the significant friction caused by procurement practices that prioritize cost cutting over value creation. That friction often leads to commercially strained relationships between clients and agencies because both parties feel trapped on a treadmill focusing on the inputs, things like time and materials, instead of thinking about the real impactful business outcomes. Now, if you're a CMO or senior marketer and you see the need to break free from this cycle, honestly, I'd like to talk to you because I don't have the answers. But I do know that both in house marketers and agencies want to be more commercial, want to contribute directly to positive business outcomes, and want to be solving problems together.  

 
12:24 
Dom Hawes 
So if that's you, I'd love to talk to you. Let's talk about it together. You see, to me the shift from briefing outputs, then buying by inputs, to a single focus on outcomes. It's not just a nice to have, it's an essential for aligning the agency's contribution to real business objectives. And by focusing on value creation, people like me ensure our agencies are not just delivering the work, you know, the stuff, as creative and effective as it might be. Instead, agencies want to be seen and live as true partners in driving your business forwards. To do that, we must also recognize and manage the inherent tension between efficiency and innovation. Efficiency, often driven by procurement, aims to eliminate waste and streamline processes. But as Blair pointed out, innovation requires a degree of freedom to experiment and of course, fail from time to time.  

 
13:21 
Dom Hawes 
And if that tension isn't acknowledged and carefully managed, it can stifle the very creativity that we all need to stay competitive. So together, as agency leaders and CMO’s, we need to frame our commercial relationships in a way that values both efficiency and innovation. That means advocating for fair compensation models that reward contribution, creativity and collaboration, as long as all three are aligned with and contributing to our strategic goals. It also means being willing to challenge some of the procurement norms that may inadvertently stifle innovation. And that is where we're going to go next. From an agency point of view, actually, and I learned a lot through reading books, your books, and also one of our people's being one of your courses. And there was something that really struck me about the conflict between efficiency and innovation.  

 
14:16 
Dom Hawes 
And there was one agency in our group, and I was beating them up to be more efficient. But that's not the nature of the work, that's not how they get their results, it's not who they are. It was one of those damascene moments, like it's, oh, God, we're kind of ruining this agency. We're forcing them to be these kind of efficient robots. And by the way, some agencies are really good at it, and they love being super efficient, very productive, no waste at all. But others, they just need to hang around and think a little. And I think, for me, that was a big change moment. And then I noticed that you've actually coined a phrase for this. Now, inofficiency, there's a principle and a problem. 

 
14:49 
Blair Enns 
The inofficiency principle. So I've combined the two words of innovation and efficiency states that innovation and efficiency are mutually opposable goals. You cannot increase one without decreasing the other.  

 
15:04 
Dom Hawes 
And what's the problem?  

 
15:05 
Blair Enns 
The problem is to be ignorant of the principle and think that you can increase both at the same time.  

 
15:12 
Dom Hawes 
And that is the problem. I had exactly that Funny enough. 

 
15:14 
Blair Enns 
It's not like efficiency is the enemy. You put innovation and efficiency as two end points on the same spectrum. When people are hearing this for the first time, creative people, I don't just mean people in the creative department, but highly creative people whose superpower is to bring a novel perspective to a problem. They intuit this, they hear it and go, yeah, that makes sense. I'll make the generalization and break the world into two different groups. There are innovators and creative people are. I put them into the category of innovators, and then there are optimizers. And so business process people, systems people, linear thinkers, accountants, engineers, tend to. It's a generalization. Tend to be optimizers, finance people. Not always it's a generalization. When innovators hear the inefficiency principle, they intuit. They feel it in their bones. Oh, yeah, I get this.  

 
16:05 
Blair Enns 
They maybe haven't thought of it this directly before. Optimizers reject the principle. Those optimizers who listened to it went, nah, this doesn't make sense. And they've got their reasons for rejecting it. And the big reason they reject it is their definition of innovation is really just efficiencies, improvement. We're not sharing the same definition of innovation. So optimizers will go, oh, I can think of times when we increased efficiency and that the resulting output was an increase innovation. And usually the increase of innovation is some form of innovation that saved them money. For this definition to make sense, I had to arrive at, like, what is the definition of innovation? So let me. I've got to read it here because it's been a while since I looked at it. I referenced an innovation consultant, surveyed 15 other innovation consultants on their definition of innovation.  

 
17:00 
Blair Enns 
I took the commonalities from their answers, and I put together this definition. Innovation is executing an idea that addresses a specific challenge and creates value for both the company and the customer. So there's newness in the idea or the execution. There's execution, not just the idea. So it's not just creativity. There has to be the execution. There's problem solving. That's another component. And the last component is it creates value for both parties, value that accrues to both parties. So if that's the definition of innovation, and it's the best definition of innovation I've ever encountered, then what you will see, and we all know what efficiency is. Efficiency is the elimination of waste, doing more with less, and the reason these two things are at the opposite end of the spectrum is innovation is inherently messy and wasteful.  

 
17:52 
Blair Enns 
When you take all of the slack out of a system, slack in time, money that you spent that maybe you didn't have to spend, freedom to fail, that is the big one. And you need time and money to fail. When you take all that out of the system, you change the culture of an organization. So on this spectrum of innovation one side, efficiency on the other side, you can place every individual somewhere on that spectrum. You can place every organization somewhere on that spectrum. All these entities resist intention between these two endpoints in the spectrum. And if you want to become more innovative in your organization, you have to embrace the idea that yours is going to become a more wasteful organization. Now, young, fledgling creative studios tend to be really innovative and highly inefficient, right? So they're so inefficient.  

 
18:45 
Blair Enns 
They're like this nebula of energy. But they're never going to make any money until the grownups join the business and bring some systems and processes. And now, okay, now they become profitable. Now they start to scale. Now more grown ups, more optimizers, more efficiency seeking people join. As organizations grow, the optimizer class starts to outnumber the innovator class. The innovators become a pained minority, and it becomes a cultural issue. This is a cultural problem. As organizations grow, they tend toward the efficiency end of the spectrum. They push the innovators out because the innovators need, like, they need oxygen to breathe. They need room to create in time, money, and freedom to fail, and it becomes a cultural issue. The most innovative people leave, and you end up with this, like, highly optimized efficiency machine that isn't very innovative.  

 
19:47 
Dom Hawes 
Yeah, that's kind of sounding familiar. It's not just a problem with in house creative departments, either, is it?  

 
19:53 
Blair Enns 
It's the house problem with in house marketing departments. It's the problem with agencies. It's the problem with the larger organizational Clients. 

 
20:01 
Dom Hawes,  

Because everyone starts out with, you know, we're going to be innovative and creative and do great work, and then we, like, squeeze the life out of them as they grow.  

 
20:09 
Blair Enns 
It is on both sides of the fence. If you think of, let's take clients and let's. We're generalizing here. The marketing people and the marketing department is more towards the innovative side. Right. They are trying to create value, and that is, there's a lot of creative ideas. There's stuff that doesn't work, breakthrough thinking, et cetera. Procurement is trying to reduce waste. We have these two different departments within the same organization that are at vastly different points on the inefficiency spectrum, and they want different things. And here's one of the things that I've come to realize after thinking about this problem for a few years, and it's a profound realization for me. Individuals in large organizations are optimized to the goals of the department and not to the goals of the organization.  

 
20:56 
Blair Enns 
There is only one individual in any organization who is optimized to the goals of the organization, and that is the chief executive. Everybody else is trying to pull the organization to their end of the spectrum. Procurement does not care that they are killing innovation by driving the costs out.  

 
21:19 
Dom Hawes 
Thinking about inefficiency, one of the things that strikes me immediately is that marketing departments are all told they need to be creative. They and their agency partners need to be innovative, do something new, do something that's going to move the dial for us, create value. So if ROI is your metric, that is a measure of efficiency, not a measure of innovation.  

 
21:39 
Blair Enns 
It's a measure of both, I think, and it's such an obvious question I haven't contemplated too deeply. I think it's a measure of both. It's a function of both. But if you're trying to increase ROI, nobody would push back against measuring ROI. If you're constantly trying to improve ROI, you need to accept that it gets difficult. You're starting to kill innovation. You know, I said, this is a cultural problem. So let's just think about this. So marketing is being told, no, you need to innovate faster and let's back up. Not even marketing the market. So it's a publicly traded company. The stock is in decline. It was a growth stock. It levels out. It's in decline. Effectively the shareholders are saying to the board, you need to start innovating. You're no longer creating value. You're now just in optimization mode.  

 
22:32 
Blair Enns 
You need to start innovating. The board says to the CEO, you need to start innovating. The CEO says to marketing, come on, people. I don't know what's going on there, but we need to start innovating. The head of marketing says to the marketing department and the agency, we need to start innovating. We need to find, we need to create new value. And their procurement comes along and says, wait a minute, not so fast. Yeah, yeah. You need to, you need to innovate, but we have to do this efficiently. The market demands it. The board demands it. The CEO demands it. The marketing department demands it. The agency tries to comply, procurement says, no, not on my watch. That's the problem in a nutshell.  

 
23:17 
Dom Hawes 
And there you have it. The traditional commercial model is flawed, with procurement practices often prioritizing cost over value creation. We've already covered a lot of that content when I took a break at halftime, so I'm not going to go over that again. And for the sake of clarity, I really don't want to be seen as a procurement basher. Our agencies have worked with some truly inspirational procurement people over the last few years. There really are some best in class examples of professionals out there who know exactly how to procure creativity without killing it. But then again, there are the others. In a recent case, after a competitive pitch process shortlisted three agencies, were given access to a portal where the client's procurement department had set up a dutch auction.  

 
24:05 
Dom Hawes 
Basically, they said, if you want our business, tell us how low you're prepared to go to get it. And worst of all, the CMO had absolutely no idea they were going to do this. And when he found out, OMG, was he embarrassed. Now, I'm sure you've got your own horror stories too, so let's leave that there and carry on. Now, Blair's concept of the inefficiency principle is really interesting, too. So I'm going to stick a post it note over my desk to remind me that innovation needs space and time. I'm going to speak to those agencies who are naturally innovators about ideas for new commercial frameworks that let them be their best. And I'm going to speak to as many procurement pros as I can meet to understand how businesses like yours and businesses like mine can come together more effectively.  

 
24:54 
Dom Hawes 
That means I'm going to need to do some fieldwork, some research. So if you've got a procurement pro you think I should meet, why not introduce to me? I'll share my findings with anyone and everyone who makes an intro. So there you go. It looks like I've got loads of takeaways from today's show, but actually it kind of looks more like a to do list. What did you take away? Find me on LinkedIn and I'll see you next time for more. Blair ends insight. You have been listening to Unicorny, the antidote to post rationalised business books. I'm your host, Dom Hawes. Nicola Fairley is the series producer, Laura Taylor McAllister is the production assistant, Pete Allen is the editor and Peter Powell is our scriptwriter. Unicorny is a Selby Anderson production.