We are not in the ‘service’ business- we are in the ‘manufacturing’ business- the business of ‘producing’ ideas. Our products are ‘intangible’ unlike ‘widgets’ produced in a factory. Production of ideas cannot be judged by ‘time and motion’ studies like the manufacturing of ‘widgets’. Manufacturing of physical goods can be timed and monitored for efficiency. But intellectual ideas can’t. Some ideas can come in a flash; others can come from days or weeks of toil- for the same minds. ‘Idea creation’ is neither time bound nor process driven. There is a process of ‘immersion’- getting to understand all the issues related to the business and brand. This can be kind of scientifically timed and planned. And then there is the process of ‘emergence’ when the idea comes through some ‘magical’ thought process- when the mind makes the unusual connections to arrive at a solution. Then the ‘idea’ needs to be executed. Even the execution of an idea is not a linear, ‘time and motion’ study worthy process. Execution of an idea is also ‘added value’ in itself- as the idea is being crafted and brought to life, new elements are being experimented with and being added to give it final shape. There is a lot of magic that happens from script to film; from print layout to final photography. In that context, are time sheets the best way to cost for an agency’s contribution to a brand and client?
This story maybe apocryphal but it’s quite instructive. Picasso was once sketching in a park when a fan walked up and asked him to do a sketch of her. He did it with a single stroke. The fan was impressed and asked ‘how much do I owe you?’ Picasso said ‘Five thousand dollars’. She was shocked that he was demanding so much for a second of work- Picasso replied with smile ‘It took me a lifetime of learning and practice’. That’s perhaps more indicative of how to cost for creative mind power to generate an idea. The current compensation for creative minds- the basis of time cost management- is not a fair representation of what it has taken him or her to get to the solution.
Payment by results is a step forward yet does it capture the whole picture of what ideas actually do for clients and brands? Implicit in the PBR system is current sales but ‘ideas’ do more than just that. Marketing and alongside it advertising is an investment rather than an expense. It delivers more than immediate value- it builds long term brand equity and with it, life time customer value. And there needs to be a measure of this factored in to determine value of what the agency is delivering to the brand. This gets particularly highlighted in cases of mergers and acquisitions. Companies are paid premiums for the brands they own. And some (if not much) of that value is driven by ideas co-created with the agency. Does the agency get compensated for that- get a share of the value it has created? Giving agency shares (or asking them to own shares in the client organization) is not a solution as share prices are not always reflective of brand value. And to wait for a merger or acquisition to hit a bonanza is not again the fairest compensation for ongoing value being created.
‘Royalty’ for value of usage of an ongoing idea is another good way out. Celebrities, who believe they are delivering extra to a brand because of their aura in their ‘other’ world, demand and get a hefty price. In many cases, celebrity fee for a couple of years is more than the fee paid to the agency to create an idea around him or her. The personality gets more than the idea creator- and that doesn’t sound too fair.
And, of course, there is a case of perception management. Management consultancies are seen to be providers of life changing wisdom and ideas for corporate change or evolution. We, in advertising, do no less for brands. They have a process that helps them to charge hefty premiums; creating a scientific process for ourselves is a way out; but it could be a smokescreen and not a long term solution. After all, there is a part of our solution generation that is non-scientific- it comes from a ‘magical, emergence’ process. We need to sensitize clients to the long term value we are delivering through our ideas.
There is no quick fix solution or formula to arrive at a fair agency compensation. The current system works well for clients- as it keeps costs low; gets them to, at best, pay more if they perform well in the short term and yet get high quality thinking and ideas that make an unmeasured difference to their business. The need for change is at all levels- for us to get the notion out of our minds that we are in the service business; for us to believe that our ‘ideas’ are making a real difference to brands in the short and long term by building equity (the way celebrities operate) and for us to consciously sensitize clients that we are more than just ‘creative’ suppliers and that the idea creation is not the same as making a ‘widget’ in the factory. Clients need to understand that there is lot of painstaking learning and education of the past that goes behind our generating ideas in a seemingly short time (the way Picasso explained to his young fan). To my mind, clients are deep down aware of it; it’s just that they don’t have the right perspective on it.
Something worth thinking about.
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