You can stem the blood loss but can you still run a marathon tomorrow?
You've probably seen today that Hewlett-Packard (HPQ) announced they intend to cut 27,000 from their global workforce, (that's 8% of the total) stating on their website that the move was part of a "productivity initiative designed to simplify business processes".
It will be interesting to see the impact on marketing and whether the marketing teams make up a larger proportion than average of that 8% cull. You'd expect it to be the case. Divisions are merging, advertising accounts being consolidated (for example the recent re-appointment of BBDO). The trends outside of HP in the marketing arena would suggest that marketing is currently a pretty risky place to be for job security. Part of a bigger trend perhaps of corporations not seeing the long term value in a multi-disciplined, multi-market, multi-layered and multi-channel marketing culture which has employed many hundreds of thousands around the world. Other similar sized companies; many of them technology competitors are facing their own unique challenges but likely to throw up some similar patterns of re-evaluating marketing structures and processes.
When the patient is bleeding so profusely, to use a medical analogy, those in charge of the lifeblood (a.k.a. the money) will be tasked with stemming the losses before any plans for long term health can be developed. Finance and procurement leaders will have responsibility to identify places where blood loss (variable costs) can be addressed and reduced. As a variable annual spend (and not a hugely accountable one at that) marketing is a rich source of this cash, not only in reducing budgeting but also in cutting headcount. Wise B2C marketers don't come cheap, especially those with stellar branding or digital credentials so there's potentially significant efficiencies in reducing headcount. Of course huge value of legacy knowledge is then lost in the process, but to return to the medical analogy, when the patient is bleeding to death on the pavement, you don't worry too much about whether they'll be able to win a marathon tomorrow, more that they may die tonight.
Recently a wave of brands, previously deemed to be in good health and of sound mind, have stated publicly that they will be aggressively trimming costs from marketing in the coming months and years, notable amongst these were P&G and Pfizer who are talking about giant lottery sized gaps in future paid-marketing budgets. This naturally rings alarm bells for the agencies. That might cause some short-term discomfort for them as they adjust their headcounts to the inevitable reduction in fees that follows a client headcount reduction. Most agencies seem to reflect client headcount on a like-for-like basis (which by the way prompts the old question "does the agency need to staff up to reflect the number clients or is it the other way around?") so cut backs at the client mean inevitable cut backs at agency. In an age when many agency contracts are based on fees of resources, less heads means less revenue.
This is all pretty gloomy for everyone involved. The companies have considered and decided they need to go through this rationing to be able to grow. There is a massive watch out though if you are a company going through this process of losing headcount and resources from marketing, especially media management.
Our advice:
The big risk for clients is that they become overly distracted with their own internal cost-cutting processes (losing 27,000 is a long journey of distraction and potential apathy to be ignoring your marketing spending). If this talent vacuum creates an absence of sound media governance then agencies will make hay while the sun shines before their contracts get similarly downsized. This needs to be carefully monitored to ensure full value delivery throughout the distraction of a re-structure.
Agencies themselves are having to adapt to a new post-recession (or are we still pre-depression?) reality where brands potentially refuse to spend big ever again on traditional mass-marketing.
It would be tempting for some clients to call large scale consolidation reviews to try and squeeze out the last bit of value from their supplier relationships in a negotiation. These will be run by well intentioned marketing procurement specialists who may be armed with an objective and a process but may not appreciate the best way to drive real productivity from their agency supplier contracts. Companies like us can tell you what to cut, what to save and what can be adapted or repurposed. We focus on productivity improvements for procurement leaders, sustainable in the longer term.
Our suggestion will be that one day, not just yet, when the blood loss has stopped, you will need these same agencies to help you to run again. So, set your relationship with your agency suppliers correct now and you will not only drive some productivity gains in the short term but have the foundations of a strong partner to bring future growth. Where now it might seem there is such little hope of surviving until the morning, we will help you complete your marathon tomorrow. Ahead of your competition.
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