Saturday, January 31, 2009

Fixing the Client/Agency RFP Process

This is a topic I've been noodling on for quite some time. I was finally compelled to flesh out my thoughts and post this after reading two recent articles in the trades about the SEM agency RFP process and deciding it was time to share my POV (which will run as an abbreviated version of this post in Wednesday’s Media Post’s Search Insider column).

Disclaimer: I'm now working as an independent consultant so the opinions here are solely mine and do not reflect those of the companies I’ve worked for/with. The scenarios I describe below are not specific to any particular agency or client, rather they are based on both personal observations and anecdotes shared with me by a wide swath of players in the space including firms I’ve competed against and marketers I’ve never directly pitched.

Broke as a Joke

Having participated in over 50 formal RFP’s during my tenure in the agency world -- ranging from full-service creative/media AOR pitches to SEM only -- and heard tales of many I hadn't been involved in from those on the front-lines, I can say unequivocally that the client/agency RFP process is broken. It's a model of inefficiency and ineffectiveness at a time when such attributes are the last thing marketers and agencies should be tolerating.

In fact, a recent survey of 184 client marketing execs showed consensus that the agency search process is “too time consuming,” surfacing such complaints as, “You’re told so many things that you’re not sure what to believe.”

Same Old Song and Dance

Here's a breakdown of the typical RFP process (and the drawbacks therein):

1. Client (either directly or through an agency search consultant) issues a brief and questionnaire to some 10-15 agencies they're interest in evaluating. The format varies -- I've received briefs as long as 15 pages and questionnaires over 100 questions. I've even seen RFP's issued with no brief. (Just guess what the business needs and scope of work are!) And, of course, there are the dreaded online RFP's where answers need to be submitted to spec (complete with character limits and no ability to use bullets, graphics, etc.) and agencies have to bid in real-time against each other to see who will offer the lowest price (as if they're selling pork bellies!)

2. Agency new business team completes the questionnaire with input from select senior client service and strategy personnel (who have to pull time away from their current clients throughout this process). Typically the questions fall into 2 buckets -- general questions about the agency that the new biz team can handle and questions about how the agency would handle the client's business that need to be customized for the client by folks in that discipline. The deepest thought is put into the cover letter that will accompany the response as it’s the one piece of material sure to be read in full. Meanwhile, the agency finance department works on a staffing and fee model to address the SOW and pricing Q's in the questionnaire having very little idea of what the client really needs or has an appetite for. (After all, the agency has only been thinking about this client's business for a couple weeks tops and has very little access to historical data.) Oh, and did I mention how many trees are killed (and additional costs accrued) printing and shipping 10 copies of the 60-page RFP response to the client?

3. Client (or, more accurately, the client's RFP committee which includes a cross-section of departments that have a vested interest in the decision) reviews all RFP responses looking for specific points that they (or their procurement department) have outlined on a "scorecard" to whittle down the agency list to 3-5 finalists.

4. Finalist agencies are given an assignment to demonstrate their approach to the client's business. They’re issued a more detailed brief and given a week or 2 to develop full-blown creative and/or media plans (that, mind you, become the intellectual property of the client once submitted) to present in person at the client's HQ. At this point agencies pull out all the stops, activating execs, senior client services personnel, and creative directors alike.

5. Client provides a Q&A session for all agencies to inquire about any vagaries in the brief and gather other required information to complete the assignment. Agencies send only top-level holding company execs for fear of tipping their hands to competing agencies about which agency brand and which individuals will actually be handling the pitch.

6. Client and agency attend a “working session” or “chemistry check” under the auspices of getting to know each other and the agency showing work in progress and obtaining client feedback. However, these sessions are typically accompanied by a list of capabilities questions the client would like the agency to address and, in order to check all the boxes, the agency creates a scripted presentation leading to one-sided dialogue.

7. Final meeting at client HQ. Agency delivers spec creative and media plans that immediately become the intellectually property of the client (accordingly, the best of which are likely to be executed by the winning agency, regardless of who it is) as well as revised staffing/fee proposals.

8. Client uses scorecards to determine front-runner and conducts lengthy meetings to try and reach consensus, leaving it to the CMO to intervene if needed and choose the winner.

9. Client asks leading agency to sharpen their pencils on staffing/fees before notifying them that they’ve won and giving them the desired timeframe to ramp up and be live in market.

10. Client (and/or search consultant) provides little, if any, feedback to losing shops other than the 3 top-level categories of their scorecard in which the agencies didn’t measure up -- unless a prior personal relationship exists between agency and client (and/or search consultant), in which case the agency learns more than they should.

Update 5/8/09: I've illustrated the inane RFP process in an image-heavy PowerPoint I created for the Search Insider Summit.

Bitter, Table for 1

Yes, this is an overly-dramatic synopsis and, no, not every RFP goes down this way. To be fair, I have participated in pitches that were not mechanical and fostered deep mutual agency/client engagement and disclosure with reasonable timeframes and compelling assignments (and outcomes not based solely on price). Just going through one RFP that resembles the process above, though, is enough to make you a bit cynical.

Solutions, Not Problems

OK, clearly I wouldn't write this post unless I had some ideas for how we can fix this process.

First, a recap of the problems with the status quo:

1. Takes agencies away from current clients and drives up overhead costs while being forced to give away good ideas for free without having enough information to really know if their ideas are any good in the first place. Also makes it difficult for agencies to determine proper staffing, scope and fee levels due to limited visibility into client’s business needs, organizational structure and historical performance.

2. Clients don't get a good feel for how their business will be managed. In some cases, they never meet the folks who'll actually be working on their biz ("Sold you the dream, now here's the team"), not to mention, anyone with enough budget can come up with a shiny 60-page RFP response and fancy spec creative or dashboard demo.

You Gotta Give to Receive

I propose we flip the RFP ecosystem on its head and make the clients do the heavy lifting.

Imagine this -- clients agree to participate in a system whereby they get to interview each other about the agencies that they use (or have used in the past).

You heard me right -- RFP questionnaires aren't submitted to the agency... rather to the agency's current and former clients. Who better to answer these Q’s? And how else can you ensure that the information you (the client) are getting is factual and not just “pitch theater?”

Here are some Q’s that would be appropriate:

1. Why did you choose the agency?

2. How responsive is the agency?

3. How innovative is the agency?

4. Has the agency been able to scale your program quarter-over-quarter? Year-over-year?

5. Is the agency proactive in giving you new ideas and recommendations?

6. What was required of you (the client) to implement the agency’s recommendations?

7. What (if any) aspect of your (the client’s) organizational structure prevented the agency from doing its best work?

8. Is the agency’s reporting suite leading edge? Do they provide real-time access to data?

9. How many changes have you had in personnel servicing your account?

10. How many times in the past quarter did the agency miss a deadline?

11. What rates is the agency able to negotiate from media and technology publishers?

12. What is the agency’s compensation model?

13. How often has the agency tried to increase their SOW and fees? How often were those requests justified?

14. Why did you fire the agency? (if applicable)

In Peers We Trust

Another key component missing from the RFP process is how the considered set of agencies is developed. Too many clients simply choose from lists of top awarded creative shops or media agencies with the highest billings. These are only good criteria in a world where no other data points on agencies are available (which, of course, happens to be the world we live in today).

Sure there are the occasional 3rd-party agency evaluations that score shops on criteria like strategic planning and technology chops but their methodology is suspect and they’re too cumbersome to keep up-to-date (not to mentions, agencies often have to pay to play). And, while agency search consultants do a good job of keeping up on the hot shops, it's impossible for them to keep tabs on everyone.

As part of the simplification of the RFP process, we need to create an agency ranking index based on the most important criteria of all -- client satisfaction.

I’m a big fan of the Ultimate Question as a way to cut through all the clutter and get to the heart of how good a job a company is doing. Responses to the question, “How likely is it that you would recommend this company to a friend or colleague?” tell us more about that company than any exhaustive questionnaire or fancy demo ever will.

We need a system whereby all agencies are required to create a 3rd-party audited list of current and former clients including duration of engagement (ie, number of years under contract) and breakdown of service offerings. Then, each quarter, a 3rd party asks all clients to anonymously rate their agencies on the Ultimate Question. The resulting list would be sortable by agency service offering and client category and be made available to the general public for a nominal fee (to cover the survey hosting costs).

This model is really nothing more than a peer rating system for agencies -- not unlike Yelp for restaurants or eBay for merchandise sellers. Just as LinkedIn is the Facebook for business, I guess I’m suggesting a review site for marketing communications agencies. I firmly believe in the power of transparent and self-policing communities.

Ask Not What The Agency Will Do For You, Ask What Have They Done For Others

Another upgrade to the RFP process that I propose is to do away with spec creative and media plans and instead have agencies present actual case studies of work completed for other clients -- and have those other clients actually co-present with the agency.

Sure, case studies are usually part of the process today but they don’t go deep. Instead, the profound insights are saved for solving the problems of the client conducting the RFP. Marketers should be as interested in the actual results an agency has delivered and the process by which those insights were generated. This, along with the client-to-client interviews, should tell them everything they want to know about what they can expect from the agency in question.

Granted, it’s a bit of a stretch to get clients to take the time to help their current agencies win more business but, if you were a current client of an agency that was just RFP’d for another client, would you rather have your senior team members pulled off your biz for the pitch duration or dive deeper into your own biz to merchandise success to date for a case study?

Try Before You Buy

The fourth major disruption, er… improvement that I’d make to the RFP process is to install a 3-month trial period whereby client and “winning” agency get to work together before determining scopes of work and fees.

This will help us overcome what Malcolm Gladwell has called “The Quarterback Problem.” In his recent article in the New Yorker, Gladwell describes how difficult it is for NFL scouts to predict how good a college quarterback will be once he gets to the professional level. There are just too many variables that go into what makes a good quarterback and the college game is so much different than the pros. He adds, “There are certain jobs where almost nothing you can learn about the candidates before they start predicts how they’ll do once they’re hired.”

I think you could also call this “The Marriage Problem.” How a person acts throughout the courtship, dating, wedding, and honeymoon phases are not always a good indication of how strong a partner they’ll be ‘til death do them part.

These situations are certainly analogous to the Client/Agency RFP process. Often times, very little of what an agency demonstrates during the pitch is indicative of how they’ll act as an agency of record. The Ultimate Question ratings are one step towards overcoming this challenge. Another, more radical, notion would be to allow agencies and clients to wait until after the honeymoon is over and they’ve consummated their marriage before finalizing their vows.

How would this work? Rather than include SOW and fee negotiations in the RFP vetting process, clients should outline upfront exactly what work they want done and what they are willing to pay for the first 90 days of the engagement. Likely, this period will consist of transition from old agency and delivery of initial creative and/or media strategy and other outputs like reporting dashboards (that, today, are included in the RFP process). First 90-day SOW and fees would be non-negotiable and agencies could choose to opt-out from the RFP at the outset if they’re not agreeable.

Then, after the RFP process plays out and a winner is chosen, that agency delivers on said SOW and collects fees accordingly. During that time, it’s able to better assess the true intricacies of the client’s business and develop a proper long-term SOW, staffing, and fee proposal. Meanwhile, the client is able to determine if the agency is truly worth its salt. At this point, with both parties fully armed, negotiations commence.

If agreement cannot be reached between agency and client after 90 days on go-forward SOW and fees, an industry-standard severance fee is awarded to the agency and all deliverables remain the property of the client. The client then begins the RFP process anew or just finds a shop willing to execute the other agency’s concepts.

Break it Down, Charlie Brown

So the new RFP process would work like this:

1. When interested in conducting an agency review, client combs the list of 3rd-party audited agency ratings and service offerings, choosing 10-15 shops it wants to consider.

2. Client issues short brief outlining current situation and detailed SOW and fees it is willing to pay for first 90 days of engagement (transition plus initial creative/media plan). Agencies have the opportunity to opt in or out.

3. Client chooses 2-3 clients to interview from each agency that opts in -- ideally, they'd select a mix of short and long-tenured current clients as well as a former client to get a well-rounded picture of how each agency performs.

4. Client schedules 30-minute calls with each of the selected clients to ask some of the Q’s outlined above. (Yes, doing the math would make this as long as a 23-hour process. But I'd argue that's less than if they actually read 60-page RFP responses word-for-word from each of these shops.)

5. Client narrows down list to 2-3 finalist agencies and chooses 1 client from each agency from whom they’d like to see a full-blown case study.

6. Client issues a more detailed brief to finalists including background on the company, brands, products, challenges, budgets, etc.

7. Finalist agencies and selected client co-present case study and highlight application to potential client’s business.

8. Client picks winning agency and transition commences.

9. After 90 days, client and agency negotiate fees for duration of engagement. (Recall that first 90-days fee is pre-determined at outset of RFP process and, if agreement can’t be reached, agency is awarded severance and there’s a parting of ways.)

10. Client and agency live happily ever after ever.

True Win-Win

Outside of agency search consultants (who risk becoming disintermediated unless they adopt this new process and find a way to continue to add value in it), everyone wins with this new system. Here are some specific reasons why my proposed RFP process would benefit clients and agencies. (I know, just what this post needs… another list!)

Advantages to Clients

1. Takes the BS out of the process. Decisions made on real successes (and failures), not spec work or salesy RFP responses.

2. Provides “skin in the game” and makes clients an indispensible part of the process.

3. Fosters connections among the client community which can lead to valuable cross- learning and networking opportunities.

4. Updated agency rankings (via Ultimate Question) give “real-time” visibility into current shop’s relative performance (and showing if the grass really is greener).

5. Co-presentation of case study shows true agency/client chemistry. It will be obvious how much that client wants to see its agency win.

6. 3rd party audits keeps agencies honest as far as taking on conflicting accounts. (You know what they say --“2 is a conflict, 3 is a specialty.”)

7. Protects clients from having to disclose historical performance and other confidential information until new agency is under contract.

8. 90-day “grace period” gives client clear visibility into how good a fit the agency is in “real-world” situations.

Advantages to Agencies

1. Closes feedback loop. Agencies will know where they stand at all times relative to client satisfaction (based on Ultimate Question ratings).

2. Giving clients what they want/need (rather than size of media billings or number of creative awards won) will earn a place in the considered set when RFP’s are issued.

3. Doesn’t require spending time or money delivering inane 60-page RFP responses or developing actual solutions for potential clients until they’re chosen as the winner (and start getting paid for said work).

4. Keeps personnel focused on current clients and allows them to dig deeper into ones selected for finalist presentations (as they build the case studies).

5. Allows for proper scoping of work and fee setting by giving agencies 90 days to learn the client’s business and truly understand their needs, intricacies, and quirks before having to negotiate.

The Flip Side

Clearly, my proposed model is not perfect. There are some hang-ups including:

1. All clients would need to participate. This wouldn’t work if half of an agency’s roster of clients refused to be interviewed or co-present a case study.

2. Issues with client confidentiality. More and more these days, the competitive lines are blurring. Some clients would not be comfortable sharing their case study with even tangential competitors. (Who doesn’t eBay compete with?)

3. Clients might have ulterior motives and not want their agency to win new business (ie, some clients enjoy being the big fish in a small pond). Accordingly, they’d be enticed to ding their agency on the Ultimate Question or in RFP interviews to ensure that they continue to command the agency’s full attention.

4. Agencies that are in “turnaround mode” will have a difficult time winning new business as their Ultimate Question ratings sag. Put another way, previous experience is not always the best indicator of future performance. (See my Malcolm Gladwell reference above).

5. Agencies that have fewer clients will have skewed Ultimate Question ratings. Although, I’m sure someone smarter than me can figure out how to normalize the data.

6. Moving the fee negotiations until after the business is awarded and managed for 90 days could create problems.

A. Clients could become “agency hoppers” -- switching religiously after getting fresh thinking and planning. (Although I’d argue the system would be self-regulating with agencies opting out from pitching such clients and the severance fee being a deterrent -- not to mention, switching only gets you new ideas and plans, not actual execution… I don’t know many clients that can afford to go a few quarters without implementing a program).

B. Agencies could skimp on their end of the bargain and deliver shoddy work and collect the 90 day fee plus severance. (Although, again the system would self-correct as their Ultimate Question score gets dinged).

7. Puts incumbent agencies in lame duck situations over the 90 day transition period until the new agency is up and running. Although, this wouldn’t be much different from the way things are now. (And improving their Ultimate Question rating should be a constant motivator.)

Feel the Burn

It’s unlikely that my model will see the light of day anytime soon. Currently, clients hold all the power in the RFP ecosystem and, with the walls falling down around them right now, the pain they’re feeling is not in the agency selection process, it’s in declining revenue and increasing pressure from the C-suite to deliver results. I could argue that these issues are inextricably linked but I’ll save my breath.

My hope is that this post will spark some discussion and, when we emerge from these dark economic times and truly reinvest in client/agency relationships, we’ll think long and hard about the most important part of any client/agency engagement -- how it begins.

Baby Steps

Meanwhile, here are some practical things clients and agencies can do to infuse some rigor and reason into the current RFP process:

Clients

1. Check references -- don’t just ask for them. I’ve been required to submit references on at least 75% of the RFP’s I’ve submitted. I can count on one hand the number of times I’ve heard from my references that someone actually called them.

2. Provide access to historical data. Take the guesswork out of the equation for the agencies. Allow them to dig in to your actual numbers and see if they can draw correlations and uncover opportunity.

3. Give longer lead times. I know your business moves at the speed of light but any agency that has the resources available to drop everything to work on your RFP is probably not an agency you’d want. (After all, what are they going to do once you’re a client and the next RFP crosses that agency’s desk?)

4. Be upfront about what you expect in terms of scope of services, reporting frequency, account staff seniority, etc.

Agencies

1. Be selective in the RFPs you pursue. Knowing how extensive they are, you can’t chase them all.

2. Don’t create scripted presentations for chemistry checks and work sessions. Use those meetings as intended.

3. Be upfront when talking about who will be working on the client’s business. If you don’t know or they aren’t hired, just say so.

4. Save room in your annual budget for RFPs. It’s a cost of doing (and winning) business right now.

5. Consider hiring (or allocating) strategy resources solely for RFPs. That way, you don’t have to pull them off client work when the time comes to pitch.

6. Focus more on presenting concrete case studies with proven results than speculative creative and media plans.

How ‘Bout a Revolution?

So who’s with me on my quest to fix the Client/Agency RFP process? Are there any clients out there willing to RFP their biz under these guidelines? Are there any agency folk willing to submit to quarterly 3rd party audits?

Not sure I have aspirations to become an agency search consultant but depending on the response I get to this post (which somehow surpassed 4,000 words so, if you’ve made it this far, please go one step further and drop a comment), I may just move in that direction.

Let’s see if we can’t collectively crowdsource a better Client/Agency RFP process to replace this crazy game of poker we’ve all been playing.

9 comments:

Anonymous said...

Amen! Amen! Amen! And throw in a hallelujah for good measure.

Doug Davila said...

Aaron,

Well thought out post.

A couple of things I have seen in my time doing agency biz dev:

1-Purchasing often approaches professional services the same way they buy pencils. There's a role for them, just not as big as they think it should be.

2-A trial assignment could be the same as the 90-day test.

3-Clients should release the names of all the agencies who made it past round one.

4-The Q&A conference should be private. If an agency doesn't know the right questions to ask, that's their problem.

5-If a client starts with more than half a dozen agencies selected for round one, they don't know what they are doing or a consultant is padding their fee by creating activity busy work. Who wants to go through 20 videos or RFIs?

More to come...

Doug Davila

Aaron Goldman said...

Great points, Doug. Thx for weighing in.

Your point about consultants padding their fees is one I've been struggling with for some time. One one hand, there's a place for an outside 3rd party to add value by bringing some structure and rigor to the process. On the other hand, the more complicated and cumbersome they make the process, the more their services are needed. So it's sometimes hard to tell what's driving them.

Bob Gilbreath said...

This is an outstanding post with many well-needed ideas. I've been on both the client and agency side and agree with 99% of what you say here.

Do we need your model? Yes

Are clients ready for it? Probably not, as they would have to admit past mistakes, and how to you drive awareness and general agreement to the approach?

Are agencies going to embrace it? Probably not, as they, too, would have to break old habits. I also believe most agencies receive and/or are afraid of being rated poorly for all to see. This is an industry with 90% sizzle and only about 10% steak.

That said, please contact me and my agency if you move this further as we're ready for it!

Bob

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Jack Smith said...

There's a role for them, just not as big as they think it should be.
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