Robbie Vitrano is Principal of Trumpet, a “brand studio” that does strategy, content, digital, design and media.
He has an interesting post titled “Marketers, Agencies, It’s Time to Play Nice in the Sandbox.” Here is what he has to say with respect to agency compensation:
We know the root of the problem is the cost-based compensation model, thanks to comp-ikaze (VeraSage Institute Founder) Ron Baker. Following the lucre has spurred bad practices and a deteriorating relationship because it focuses on the wrong things: “efforts, activities and costs. It does this at the expense of the right things—outputs, results and values. It misaligns the economic incentives on each side. The client pays whether the agency adds value or not, and the agency is paid a fixed amount regardless of the value it creates.”
Wow, I’ve never been called a “comp-ikaze” before, but I like it!
Robbie goes on to discuss the importance of agencies owning their own intellectual property, a concept that the 4As has been working on, as well as some innovative agencies such as Anomaly:
Next, we need to have a conversation about intellectual property, revenue share, performance-related fees and, gulp, equity. Yes, that is hard to do. Yes, that is what must be done. I mean, assuming you want to end the moaning and do it right. Everybody says they want to. Do you have the guts? Well, do you?
I also love how Robbie quotes one of my heroes, the Austrian economist Joseph Schumpeter, famous for his lyrical line, “creative destruction”:
This disconnect is perhaps a result of fear. When we kill the fear, we’ll make room for innovation and optimism. To bludgeon Josesph Schumpeter’s famous economic principle, “creative destruction,” to get something new, you have to lose something old. I vote it be fear.
I second that vote. Fear is what largely keeps both agencies and marketers mired in the mentality that time equates to value. It’s the wrong theory of value, as we’ve proven over and over. But fear of having a discussion over value is what is perpetuating the status quo.
We hear it all the time. Value is subjective. Different people within the marketer value agencies differently. How can we measure the value? On and on it goes.
Our response: so what? Yes, value is subjective, very difficult to define, let alone measure (I doubt if it can be measured; it has to be judged). We’re not talking particle physics here.
But I do know how not to discuss value: talk about hourly rates, FTEs, and overhead costs compared to spurious benchmark data of dubious compensation consultants. You’ll never get to value looking at this data.
Sure, this stuff is easily measurable. So what? It has nothing to do with results and value. As they say, it’s easier to count and cost the bottles than it is to describe the wine.
I recently read a new Peter Drucker book, which is actually a collection of his older articles. In the chapter “What Is a Business?” he says this:
There is only one valid definition of business purpose: to create a customer.
Because its purpose is to create a customer, the business enterprise has two—and only these two—basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are ‘costs.’
Read that again, especially you agency folks.
How in the world did you ever get the idea that what you do is a commodity? You are a vital part of any organization’s value-creating capability. Why you think you—of all the PKFs we deal with, from accounting to IT—are commodities is one of the world’s eight wonders. Oh sure, your customers want you to think that, but they don’t believe it. At least not the astute ones. Agencies are an integral of any company’s social capital.
Robbie then mentions Anomaly in this context:
Recently I was talking to a couple of agency people, including Mike Byrne, partner-creative chief at Anomaly, about goals. One guy said he wanted a shortlist of great clients. Amen. But Mike threw paper to his rock and said, “I don’t want any clients, just business partners.” Damn. Isn’t that the right idea? Commit to the possibility. He’s talking about sharing risk and reward—bringing cultural insights, communications processes and products together with another’s entrepreneurial vision, manufacturing expertise, distribution might or R&D skills to develop a business idea. Help it build momentum and attain cultural influence.
I only have one exception with Robbie’s post. He says the client-agency relationship has to be reinvented. Together.
I disagree. I think the onus is on innovative agencies to offer their customers real choices in alternative compensation. I’ve written before that sellers, not buyers, change pricing paradigms. Agencies can’t abdicate this responsibility by waiting for marketers. They must innovate themselves. Anomaly, Crispen Porter, Ground Zero, among others, are already leading the way.
It doesn’t take comp-ikazes, it takes creativity along with the willingness to take risk—the source of all profits. Innovative agencies will lead the way, eventually changing the compensation paradigm based on one that rewards value over efforts.
I have a strong feeling Trumpet is one of those agencies, based on the thinking behind Robbie’s post.
In the meantime, I and my colleagues at VeraSage will continue our “comp-ikazes” role until we reach critical mass.
Thanks for the new moniker Robbie!