Transforming the Effectiveness of Madison Avenue’s Scope of Work Management -- to Drive Improved Performance
Ten Problems and Ten Corrective Steps
Credit: Charles Barsotti, The New Yorker, The Cartoon Bank
The SOW management system has become more complicated and dysfunctional since the financial crisis of 2008. The shift to digital and social advertising has not helped.
TEN PROBLEMS
1. Since 2008, ad spend nearly tripled, increasing by 291%. The number of advertising outputs per agency creative increased more than 10-fold. The U.S. economy grew by 31%. Nearly half of the top fifty advertisers — 42% of them — failed to grow their combined sales by more than 2%.
2. In too many cases, Marketing has not been successful at driving brand growth. Marketers have focused on cost reduction, along with Procurement. Finance, by contrast, has implemented financial engineering steps to grow share price and increase shareholder value. Marketing needs to get back into the game.
3. Today’s SOWs are designed to “cover in all media possibilities” rather than “solve brand problems and drive growth.”
4. Media and creative SOWs are developed unilaterally by advertisers and given to their agencies for execution.
5. Advertisers change their agencies frequently, viewing them as service providers who are meant to work at low cost rather than participate as strategic partners.
6. Agency fees have lagged the growth of their SOWs. The price of agency services has declined dramatically, forcing agencies to downsize. Senior headcounts have been reduced; agencies have become more junior to execute the massive volume of digital and social outputs.
Source: Farmer & Company client data. Price is in current dollars (inflation removed). An SMU is a unit of SOW workload. It is about the same size as a typical original TV spot.
7. Chief Marketing Officers (CMOs) have lost credibility in the process, and their tenure has become relatively short.
8. Agencies have become more risk-adverse and service-oriented, fearful of losing their clients.
9. This “SOW management system” is not achieving its inherent goal, which is to increase brand growth and increase shareholder value. The system has become dysfunctional.
10. Fixing the SOW management system requires CMO leadership and initiatives – agencies cannot drive this on their own. However, agencies must embrace and support the required changes, even if the initiatives stretch their downsized capabilities. Agencies must reinvest in senior talent while AI enters the picture and eliminates many junior positions.
What kind of CMO initiatives are required? TEN CORRECTIVE STEPS
1. Articulate a revised “SOW Mission.” “SOWs must be designed to solve brand problems and drive brand growth.” Abandon the notion that brands must participate in all available media channels. Instead, seek focus and effectiveness for the recommended media spend, media mix and creative outputs.
2. Articulate a revised “Relationship Concept” for media and creative agencies. “Agencies will become our strategic partners, engaged to help us achieve improved brand performance.” Engage agencies on a long-term basis, with relationships expected to continue as long as value is being created. Expect and require agencies to analyze, articulate and debate the spend and content of SOWs, based on the brand problems that need to be solved.
3. Articulate a revised “Creativity Concept” for media and creative agencies. “Creativity is a tool, along with technology and other capabilities, designed to help us achieve our brand performance objectives. Creativity is not an end in itself.”
4. Transform agency remuneration from “man-hour billing” to “SOW billing,” with agencies paid on the basis of agreed outputs rather than on guesses at man-hours. This requires major changes in the way SOWs are developed, documented, measured, and quantified. Full disclosure: Farmer & Company has a ScopeMetric® system that supports SOW measurement and billing. The recommended output for pricing is our ScopeMetric® Unit — SMU. Agencies should price their work on the basis of “Price per SMU.”
5. Share your Brand Strategic Plans (BSPs) with agency partners. Ensure that the BSPs contain historical and current data about the performance of individual brands in their competitive marketplaces. If brands used to perform appropriately, but performance has since deteriorated, outline the hypotheses or reasons about why this has happened.
6. Require agencies to submit their own views about what the media and creative SOWs need to contain. Begin the SOW planning process early enough so that both Marketing and its Agencies can review, discuss and debate the content of forthcoming SOWs. If proposed SOWs are “too expensive,” cut back on the number and type of outputs.
7. Jointly review SOW performance at regular intervals, and modify, with joint participation, the nature and content of SOWs. Any remuneration changes from revised SOWs can be dealt with at the end of the fiscal year.
8. Improve briefing and approval processes to eliminate unnecessary rework and delays. Require agency partners to document and identify ongoing problems with briefing and approvals. Upgrade briefing templates and reduce complexity of approval processes. Increase organizational accountability to achieve and sustain efficient processes.
9. Reward agencies for sustainable improvements in brand performance by letting them increase the prices of their outputs over time. Performance-based bonuses rarely work, since they are never budgeted, and disagreements over “who was responsible for what” can poison relationships. Agency price increases for outputs, by contrast, can be proposed and agreed on in a rational way. Like management consultants, agencies should be well-paid if they deliver improved performance.
10. Communicate these initiatives to advertiser C-Suite executives, clarifying that Marketing is striving to improve shareholder value by focusing on topline growth rather than relying on cost reductions. Provide routine progress reports on Marketing’s achievements with its ad agency partners and the improved Scopes of Work.