73. Departmental myopia: the internal trade off between efficiency and innovation

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. 

 
00:03 
Dominic Hawes 
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. Hello again. This is the second part, act two, of a straight talking episode with philosopher and agency guru Blair Enns. In act one, we explored the conceptual conundrum of balancing efficiency and innovation in agency client relationships. Now in act two, we are shifting our focus to internal dynamics, where tension between departmental goals and overarching business objectives can also damage effectiveness. The division of Labour, a principal champion by Adam Smith, creates departmental specializations that, while necessary, can lead to siloed thinking. In effect, each department becomes an entity of its own and optimizes for its specific goals rather than collective success of the organization. This is departmental myopia.  

 
01:11 
Dominic Hawes 
So now we are going to go right to the root cause of this dysfunction to talk about why it's critical for top executives, especially CFO's, to recognize the tradeoffs between efficiency and innovation. We'll also examine the role leadership plays in balancing these competing interests to ensure the organization as a whole can innovate effectively while maintaining operational efficiency. Blair, at the bottom of the last act, you talked about how innovation often gets killed in organizations. And this isn't just restricted to the marketing department, of course, because the pursuit of efficiency is driving every department to their own goals, which by implication means they're not always working to those of the corporation. Tell me more.  

 
01:55 
Blair Enns 
It's not inefficiency that drives it. It contributes to the challenge. It's bounded rationality that drives it. It's the idea that, okay, I'm an individual working in a large organization, and I can draw a box around the large organization, but that organization is too big. I can't see my, it doesn't make sense to me. It's too much information to comprehend, to see myself as having to advance the goals of the organization. Therefore, the more meaningful box to me that I operate in is the box of the department. And it's not, well, in some ways it's a bad thing. But it's like, what else are human beings going to do? It's just been proven. We do this, there's too much context for the decision, so we narrow the context to a narrower box.  

 
02:39 
Blair Enns 
And in this case, almost every individual works to the goal of the smaller box. It's just too overwhelming for a junior person in some procurement, product, whatever department, accounting, whatever department they're in, to actually think that big, they can't get through their daily job. So we have to take this Adam Smith idea of this like division of labor and this specialism, and that's the way we work. And we hope that the tension that exists between all the individuals and all the departments and with the leadership of the chief executive, it's appropriately balanced. So the chief executive gets what they want. But within these battles, there are some battles that need to better adjudicated. And I think this battle between marketing and procurement is one of them. So who's responsible for this? Ultimately, I think it's a failure at the very top of organizations.  

 
03:33 
Blair Enns 
I mean, I think the CFO can do better at recognizing that the trade off of efficiency is innovation. But really CFO's aren't held responsible for revenue, they're held responsible for expenses. So at the end of the day, I will probably write a book on this in the next few years and it will be a book for CEO's, for chief executives, because until they understand the trade offs, they're going to keep issuing these dictates and wondering why the organization can't innovate.  

 
04:08 
Dominic Hawes 
It's a pretty depressing place to be in a market like it is at the moment because things are tough everywhere, right? So if you're a person whose glass is always half full, eventually you will be proved right eventually, because everything goes a little bit wrong occasionally. So if you're a procurement person who says that's too expensive. When the downturn comes, that power pendulum swings in your direction. It's like I told you that wasn't going to work. And it feels to me like in a market like this, they might have a lot more power because everyone's trying to control their costs. And so the marketer, whether you're an agency or in house, doesn't matter. A lot of that brand work, the long term work doesn't exist at the moment. Everyone's looking very, very short term.  

 
04:46 
Dominic Hawes 
It seems to me that in a market like this, the power, the pendulum, if you like, has swung a little bit more to procurement, maybe. How do you think the inefficiency principle or problem then impacts client and agency relationships? Ignoring procurement for one moment, I'm thinking about actually doing the work or the principle of the work.  

 
05:04 
Blair Enns 
This is where I think marketing and the agency are actually quite aligned. I would say agencies tend to be even more innovative than their marketing client counterparts. It's not like we're throwing efficiency out the window or under the bus. There is a lot of room for efficiencies to be gained in marketing in general and in the agency work specifically. But we, I think we need to make the distinction between kind of the rote, tactical, somewhat commodified work, high volume work, versus the creative thinking. There's what I call the procurement problem. I did a podcast for a year on it called 20%, the Marketing Procurement podcast, where we're trying to address the procurement problem. The procurement problem is a function of the inefficiency problem. And the question is, how do you procure creativity without killing it?  

 
05:56 
Blair Enns 
And it's really only the creative creativity and the innovation part of marketing. There's a lot about agency systems, marketing systems, and this amount just increases every year that is open to efficiencies. And I think procurement is quite right to go after those efficiencies. When the efficiencies start to kill the innovation, that's where it becomes an issue. If they want to buy thinking and creativity by the hour, the fastest way to commodify thinking is to sell it in units of time, units of doing. I had a client once, six partners ran this agency, and I was advising them on value based pricing, and they were one of the first firms I ever worked with that did not have timesheets. And I said, okay, what's the story there? You don't have timesheets.  

 
06:41 
Blair Enns 
And the managing partner said, well, one of our core principles is we never lie. And one of our partners, one of my partners is adamant that timesheets are lies. And I thought, oh, every timesheet I ever filled out in my agency career was a lie.  

 
07:00 
Dominic Hawes 
That's so funny. I literally had this conversation yesterday. It's like, if we make people do timesheets, we're asking them to lie worse than that, because actually, when people fill out timesheets, everyone goes, hey, we've got data. We can now make decisions based on it. You make decisions based on lies. Anyway, that's a separate conversation. So I think there's a responsibility at agency, what were talking about here with inefficiency and how that affects clients and agencies. I think it's the responsibility of agencies now to take that commodified the lower value work and try and find ways of making that as efficient as possible, even if that means not doing it themselves. Offshore, outsource, automate, AI, freelance, whatever you have to do, go to your client and say, see this bit of work? We want to make that cheaper for you.  

 
07:41 
Dominic Hawes 
But the quid pro quo is, you want us to be innovative, you need to pay properly or give us the time to think. And I think a proactive approach like that, in my world, I think that would work.  

 
07:50 
Blair Enns 
I call that stepping on the tactical to raise the strategic. Let's acknowledge that there's a lot of the volume work that you do that is nowhere near as valuable as the innovation stuff, the creativity and initial application of that creativity. So, again, this. This idea of inefficiency, it's an issue of culture. Where do you want your creative agency to be on the inefficiency spectrum? You want them to be way out over on the innovation end for the innovative work. But the rote, tactical, et cetera stuff, you want it to be separate. Right? So the idea that you would push that stuff out of the business or to other parts of the business that don't kind of contaminate the innovation culture, that makes a lot of sense. And I love the way you framed it. It's a trade off to the client.  

 
08:40 
Blair Enns 
Listen, okay, this stuff, we can do better. We can do cheaper. We're going to work with you to deliver all the efficiencies we can. We're open to your ideas. We're open to offshoring. We're open to AI. We're open to everything. Our people are going to work closely with your procurement people to drive the cost out of this. This part, this is the magic. We're going to get paid well for it. We're not going to sell it in units of time. And if you want our best work, we need freedom to fail, which means time, money, and all the elements that come with that. And that's the conversation we should be having with our clients. But instead, what we do is we come up with this blended rate, and, you know, we're not solely guilty of this. Every party is involved in making this happen.  

 
09:24 
Blair Enns 
We're going to charge more for the high volume, less valuable tactical stuff. The model back to. We need a better model. The model is to overcharge for the less valuable stuff, the high volume tactical stuff, and to undercharge for the area where we create value in the innovation, the strategic thinking.  

 
09:47 
Dominic Hawes 
Right at the outset of the first act of this episode, I talked about the agency versus in house issue and how unhelpful the whole debate is. But if the misalignment between external partners is commercially damaging, so is internal misalignment. That's one of my key takeaways from the conversation you just heard. Let me paint you a picture. Imagine you're in the manager's dugout of your favorite footy team. That's soccer for our transatlantic unicorners, you're two one down, playing away, and there's only a few minutes left on the clock. Your team needs inspiration and fan power to lift their spirits for the draw. A chance starts right at the far end of the ground. And you think, this is it. If our away fans can muster a unified voice, we might just raise the game and steal that point.  

 
10:39 
Dominic Hawes 
But then another group in the stands starts a different chant. And then another, and then another. And now you've got four different charts coming from four different parts of the stadium. The home fans have gone quiet. They don't need to lift their team. They can see that you're confusing yours, so they're saving their energy for the victory celebrations. Your team loses pace instead of lifting their spirits. You've echoed the way they played. No teamwork, different game plans in different parts of the field, no united playbook. And just before the whistle goes, another ball sails past your keeper and you've lost. And so it is in our businesses, if we silo ourselves and chant our own tunes, we confuse our customers. Our competition doesn't even need to show up to beat us. Our dysfunction helps them for free.  

 
11:37 
Dominic Hawes 
So the principle of division of labor, that age old doctrine from Adam Smith that we've mentioned a couple of times today, well, in many ways, it's become our modern day paradox. It brings order and specialization, yet fosters silos, can suffocate creativity, kill competitiveness, and create confusion. Now, I think Blair's insights compel us to rethink our roles as leaders in marketing. We are the voice of the customer. We must make sure everybody understands the importance of singing the same tune, of working to the corporate goals, not our own. Let's get back to Blair. Blair, we ended the last scene looking at client agency relationships and the inefficiency and the ways that agencies can help solve that problem. Part of the issue, I think, is that we don't set relationships up in the right way in the first place.  

 
12:30 
Dominic Hawes 
And the sales process, just like the commercial models, therefore, was kind of flawed. Now you're writing a new book about what you call four conversations, a new model for selling expertise. Tell me a little bit about the book. And, of course, the four conversations.  

 
12:43 
Blair Enns 
So the book is basically our training program in a book. So you've had team members go through our training. They'll read the book and recognize that this is the workshop. I went through even more detail. The four conversations are the probative conversation, the qualifying conversation, the value conversation, and the closing conversation. Now, that's our model. A model is a view of the world. It allows you to organize complexity. My book opens with the line all models are wrong, some are useful. So I'm not saying that every sale is exactly this linear and discrete series of four conversations. That's not the case at all. But it is helpful to think of it that way. So each conversation has a different objective, and then there are different frameworks for navigating to that objective.  

 
13:35 
Blair Enns 
And then there are principles that any expert should embody as they use the framework to navigate to the objective.  

 
13:41 
Dominic Hawes 
When's the book out there and where can people get it?  

 
13:44 
Blair Enns 
The book will be out in September of 2024. We're shooting for the first. It might be the 30th. Remains to be seen. It will be available initially on Amazon.com, dot co dot UK comma, and all the Amazon marketplaces in the three different formats of hardcover, ebook and audiobook. A lot of these people have ingested a lot of theory on value based pricing and other forms of innovative pricing and have a very hard time pulling it off. And my answer to them, the reason I kind of side is like 22 years in, I'm still having this conversation, is you cannot decouple the topic of pricing from the topic of selling. The relationship begins. The power dynamics begin even before you're hired in how these two parties come together.  

 
14:33 
Blair Enns 
So if the way you get business is waiting for an RFP or a tender to come in, or for you to be invited to the pitch list, and then you crank up the pitch machine and respond, you are powerless. You have no power in this relationship. So you're asking me a question of like, how do I push back on procurement in year three? The answer started way back in the beginning. You gave away all your power right at the beginning. And you're asking me like, how do, three years later, how do I claw back some of this power that I so willfully handed over three years ago, there's no easy way to do that.  

 
15:13 
Dominic Hawes 
No. And that it's not a great relationship for either party either. You know, the, what I love about the approach and getting the relationship right from the start is it focuses both sides of the commercial deal on the bits that they get most value out of. So if I'm an agency and I'm coming into it because I'm either extremely creative or very expert in the market or an expert in a technique or something, and I'm focusing on that bit of my expertise, and I'm selling the value of that and the relationship or the conversations, your process is lining that up from an agency point of view.  

 
15:46 
Dominic Hawes 
I know that I'm putting my best foot forward, but from the client's point of view, there's also a benefit in having those series of conversations too, because you very quickly work out who is an expert in what they're doing and who isn't an expert in what they're doing. And those people that interested me, I think I have this a lot. Like the agencies go out and produce this 35, 40, 50 slide credentials deck where they just talk about themselves for about an hour and then at the end of it they say to the clients, have you got any questions? And at no point have they actually thought about what's going on in the client's head. Like you're in the room because they've asked you to be. So they must know something about you.  

 
16:21 
Dominic Hawes 
And so if someone talks about themselves excessively rather than the success of the work that they've done or is questioning if I'm a client, is questioning me about my business because they're running a proper process, I think from a client, that's where they should be picking up their signals on who's good and who's not.  

 
16:41 
Blair Enns 
Yeah. The sale is the sample of the engagement to follow. You can learn so much from how both parties behave in the sale and the roles that both parties will play are established in the sale. So if you're the polite, compliant rule follower being wait to be told what's going to happen next in the sale, then the understanding is you will be the polite, compliant rule follower in the engagement. That completely neuters your ability. Not completely, but it seriously diminishes your ability to be innovative. You don't have the stature in the relationship to say, no, no, it's not. We don't work that way. We're going to push like, we need more time, we need more money. And you have to come up with that time and money or whatever the example is.  

 
17:20 
Blair Enns 
That's a little bit of a glib example, but here's what we need to do this well, you need to set those terms. A friend of mine has this great line. He says the prospect's mind is malleable. The client's mind is fixed. By the time that both parties agree together, you both have an understanding and let's focus on the client. The client has a very definite idea of who you are and how you will work together based on what you have modeled in the sale. And if you are always responding, it's brief and respond. Lobbying over the fence, one way communication at a time and there's no actual proper conversation. What does that say about you? What does that say about your neediness? You're always in convinced mode. Our model is the four conversations. Nowhere in those four conversations is there a pitch conversation.  

 
18:12 
Blair Enns 
The con, the frameworks for the conversations are mostly about the questions that you need to ask, and then you let the client ask the question. So, you know, this credentials meeting that would slot into a qualifying conversation? Probably. So. A qualifying conversation is a vetting conversation. Both parties are vetting each other in a qualifying conversation. The seller, agency accountant, financial planner, whomever, dog Walker has a list of criteria against which they are vetting the prospective client. And the client has a list of criteria against their vetting the seller, in this case, the agency. So what agencies do is they don't have any criteria, right? They go in presenting, transmitting, and not receiving information about questions they haven't even been asked yet. I mean, sometimes those questions have been asked in a ridiculous document. That's another story.  

 
19:06 
Blair Enns 
But at the time the agency is asking questions, they are communicating like a needy vendor. They are transmitting and not receiving. There's very little actual, open, honest, two way conversation where when one party has an objection or a concern, they feel like they can bring it up and the other party will take that objection or concern on face value, not get defensive, not go into coercion mode and actually have a conversation that is almost completely absent in the way agencies and clients come together.  

 
19:51 
Dominic Hawes 
Well, unicorners, that was the amazing Blair ends. We started by confronting a hard truth, the traditional commercial model between clients and agencies. Well, it's basically broken. Procurement often prioritizes cost cutting over value creation, leading to strained relationships and a focus on inputs, things like time and materials, rather than measurable business outcomes. Blair reminded us that as cmos and agency leaders, our mission is to create partnerships, mutually beneficial commercial relationships framed correctly to drive real value. Blair's inefficiency principle is a stark reminder that while efficiency is essential, it shouldn't come at the expense of innovation. Certainly not in this industry. Actually, probably not in any industry. Later this season, we're going to meet Professor Bensau from the INSEAD business school. His life's work is helping businesses create a culture of innovation.  

 
20:52 
Dominic Hawes 
And Ben agrees with Blair, by the way, that efficiency and innovation should never bedfellows. But he's created a framework for businesses to have both. Subscribe now so you don't miss that episode. Anyway, back today. Creative work thrives in environments where there's freedom to experiment. And of course, occasionally fail. The balance between innovation and efficiency strikes to the heart of the relationship between an agency and a client. The only way to align agency expertise with a client's strategic goals and expectations is to reframe the commercial relationship so that innovation is rewarded and routine is optimised. Our role as leaders on both sides is to ensure that this balance is established and maintained. And we also discussed the systemic challenges within organizations. Bounded rationality and departmental silos these issues aren't confined to marketing or procurement. They permeate every department.  

 
21:50 
Dominic Hawes 
And the answer, again, in my opinion, lies in leadership, the root cause of bounded rationality and the departmental silos isn't Adam Smith's division of labor. It's the relentless pursuit of efficiency and the over indexing on short term results, just as it is, by the way, between agency and client. So what are the solid takeaways from today's conversation? Well, firstly, we should all be aiming for value driven and value defined relationships. So think about how to shift from transactional to transformational relationships with your agencies. Focus on value creation over cost cutting and efficiency to deliver impactful business outcomes. Now, I'm not sure anyone yet has a repeatable or easy answer to this, but as I said earlier, if you want to think or talk about it, so do I. So let's talk. You can find me on LinkedIn next up.  

 
22:43 
Dominic Hawes 
Imprinting the inefficiency principle will stop it becoming a problem. Create environments where your teams have freedom to experiment and fail, understanding that it is essential for fostering creativity and growth. The army used to have a saying that was burned into brains at basic recruits, and it was this. You can make any mistake you like, they said, but only once. Psychological safety is how we express a blame free approach to learning on the job. These days, making mistakes is an essential part of learning. It's part of trying to improve. You may also have come across the maxim, if you're not making mistakes, you're not trying hard enough. What I love about the inefficiency principle is that it helps teach our teams that there's a trade off. We knowingly sacrifice efficiency at times to seek innovation.  

 
23:27 
Dominic Hawes 
And until you hear Bensau's approach, that I think is the best that we have now, I'm not going to bang on and on about breaking down silos today. That's not a new debate. But the root cause, certainly how Blair described it, does bring something new. And as marketers, I know that we all feel those silo walls very acutely. Now, Duncan Danes spoke to Rachel Fairleigh a few episodes ago about a totally different way of resourcing marketing activities which breaks silos from the inside. That episode is definitely worth a re listen and that is linked on the show notes at unicorny dot co dot uk dot.  

 
24:04 
Dominic Hawes 
So we started out talking about agencies and it struck me while I was writing the links in our post production stage that if we think of agencies as just another department of our own organizations, the solution to the commercial relationship isn't that different to the solution to silo smashing. Every agency says we want you to see us an extension of your own business. Well, maybe now is the time for all of us to focus on how we might make that happen. You have been listening to Unicorny, the antidote to post rationalized business books. I'm your host Dom Hawes. Nicola Fairle is the series producer, Laura Taylor McAllister is the production assistant, Pete Allen is the editor and Peter Powell is our script writer. Unicorny is a Selby Anderson production.