Design Industry Voices report - analysis
The three authors of the 2011 Design Industry Voices report analyse the survey results, which show free-pitching is on the increase as client budgets drop.
LESSONS FOR A SQUEEZED INDUSTRY
by Karina Beasley, co-author of Design Industry Voices report and managing director, Gabriele Skelton
Never a day goes by when I am not aware of the unique perspective that we recruiters have about the digital and design industry. We sit tightly sandwiched between the agencies and the candidates. The nature of our personal relationships often changes, as our clients become job-seekers, and then clients again.
The insight gleaned from a recruiter’s role was the seed of inspiration for the Design Industry Voices survey, now in its third year. I wanted to understand whether what I was hearing, seeing and feeling was more than just my personal experience and intuition. Every year I learn a little more about the experiences of the people with whom I work from the survey. This helps me do my job a little better. Here are the lessons I’ve drawn this year.
Staff engagement is at an all-time low, with more than 58% of respondents intending to change job in the next twelve months. This will hit agencies’ bottom lines hard. Hiring new people costs agencies in terms of money and time, whether it’s in the form of recruiter fees, incentive payments to staff that introduce new hires, or simply the cost in billable time of induction. All this, while being squeezed by clients who are expecting more work in pitches for free (71%) and, once you’ve won the account, more work for less money (85%). What is an agency leader to do?
Employees are asking their senior team to demonstrate strong leadership. ‘They care most about their ideas and opinions being valued, being part of a team, doing stimulating work, and being rewarded for going the extra mile,’ explained Design Industry Voices report author Rachel Fairley. It’s worth noting that ‘having good pay and benefits package’ was the twelth most important attribute out of fifteen attributes; this is not about money, employees understand these are tough times.
There are inexpensive ways to improve an agency’s perceived performance in these areas.
How about ‘lunch and learns’ with pizza each month to show off the great work being done and the people doing it? Or sending people home early to say thank you after long days getting a project finished? ‘Harnessing the wealth of inspiration from your employees may be as simple as making time to listen and help them understand how they can go about implementing their ideas. And not forgetting to say “thank you”, privately and publically.’ suggests Stef Brown, MD of On Pointe Marketing.
It’s also important that employees realise that their experiences are part of an industry-wide challenge. The grass is not necessarily greener. Leadership can come from any role at any level. Why not help your leaders understand what a difference your idea could make to clients, to yourself and to the bottom line? And then offer to help get it implemented. Employees can help create the culture they want from within.
For those on my side of the table, the anecdotal evidence from the survey of the huge number of candidates, the paucity of roles, and the issues with communication are familiar. We must continue to do all we can to support clients and candidates with the utmost professionalism. Our business is one of chemistry, of matchmaking the right candidate with the right agency to create something new.
If we all play our part we can help stop the exodus of talent and focus on growth.
By Rachel Fairley, Lead author of Design Industry Voices report and managing director, Fairley & Associates
UK digital and design agencies are facing a second year of talent exodus. Last year 56% of respondents to our Design Industry Voices survey were intending to leave their agency. These were not idle threats; in our 2011 survey 35% had been in their job less than a year. In the next twelve months 58% are intending to change employer. It is time for the industry to take this seriously.
The impact of churn
Churn has far reaching consequences that SMEs can ill afford in this uncertain economy. It impacts on reputation, profitability, quality of work, client and talent retention and acquisition.
Recruitment demands senior management time, fees, and further investment to train new employees on the agency’s approach and knowledge of its clients’ businesses. Over half (58%) of respondents told us their agency is employing less permanent staff, 43% that they are using more unpaid interns and 55% that they are using more freelancers. Is it any wonder that 32% say that the quality of work has declined?
Clients get nervous when the ‘A’ team pitches but an unstable ‘B’ team delivers. And feeling that you aren’t on the ‘A’ team is demotivating, giving employees another reason to consider leaving.
This uncertainty can encourage clients to put their account out to pitch again. Add to this that respondents say clients are expecting more work in pitches for free (71%) and once you’ve won the account more work for less money (85%). One agency owner told us ‘Yes, budgets are killing us, everyone wants something for nothing and without good reason and if you don’t agree they all go elsewhere.’ There is ‘too much competition. Little opportunity’ said one designer.
The movement of people between agencies can make or break reputation through word of mouth. This is increasingly true as a growing number of respondents are using the social web to talk about their professional experiences (30.4% in 2011, up from 19% in 2009).
Clients asking for safer work (54% o’ respondents) will do nothing to enhance an agency’s (or the client’s own) reputation as being at the forefront of innovation.
An account manager explained “There are a lot of clients demanding that something is just done the way they want despite expert opinion to the contrary… It seems lost that the clients are in fact employing experts for the skills they have and subjective feelings on the value of the work can dominate the management of project and dilute the end result.’
Safer solutions may not achieve the client’s business objectives. One design director pointed out, ‘It’s increasingly being dumbed down and made more obvious and commercial as the clients are frightened to try anything new. They tend to patronise the audience and don’t assume that the consumer can pick up on edgy subtleties.’
A rose-tinted challenge
Agency leaders are wearing rose-tinted glasses. Owners are consistently more likely to rate their agency’s performance higher than their employees. This may be helpful if they are to successfully lead their agency through the economic downturn and back to prosperity, but they should be aware that their employees do not share their perceptions of agency performance.
Respondents rate ‘has management team that demonstrates strong leadership skills’ as the agency attribute with the second highest delivery gap: -53% in 2011, and -48% in 2010. (The delivery gap is the difference between the perceived importance of an agency attribute and the perception of how well the respondent’s agency actually performs against that attribute.)
Perceived agency performance is getting worse: there is too much poor leadership, that doesn’t value ideas and opinions, and fails to reward people for going the extra mile when there are excessively high workloads relative to staffing levels. Fewer staff than ever expect their agency to be a brand that is compatible with their own values.
Agencies appear to be running on empty, with staff engagement at an all time low.
What are digital and design agency leaders going to do about this?
A return to middle management
Elizabeth is an agency entrepreneur. An account director, she steers her agency and client team, always delivering innovative, creative, business-results-focused work. She is a middle manager: no responsibility for running the agency, total responsibility for her client’s satisfaction. Elizabeth is tenacious, she invests budgets as if the money were her own, worries about billability and profitability of the agency, is confident advising business leaders, and is a natural ‘farmer’ and business developer. A wordsmith, she always pushes studio to innovate creatively and knows when to nurture and when to begin again. Elizabeth knows the value of ideas and she doesn’t like giving them away for free.
If we can put that entrepreneurial spirit possessed by so many agency leaders and managers at the heart of the business we may yet find a way to stop the exodus.
It is time for a return to middle management. Middle managers have daily contact with clients, lead the agency team, manage the budgets and produce work that can make an agency’s reputation. They are the future leaders.
With middle management as the agency’s driving force, it’s easer to focus on profitability and engagement.
Teach managers how to increase billability and usage rates, reduce investment from overspend on pitches and projects. Improve their negotiation skills. Stop over-delivering in ways that the client doesn’t notice and instead make one-off investments in additional work that is groundbreaking, setting a new tone.
Give managers responsibility for the resourcing budget on their project so that they can staff up appropriately and allocate manageable workloads. Stop promising to clients more than your people can deliver during a normal working day for the budget. Take a percentage of the project profitability and allocate it to managers to use as a team bonus for outstanding work and for seeing the project through, helping increase quality and reduce churn.
When I see Elizabeth, or any of the other great senior manager or director-level account managers, designers and strategists at work, it makes me wonder why we have executive teams. How are they helping if they are failing to lead, don’t listen to ideas and opinions, fail to reward people for going the extra mile, or ensure that workloads are acceptable? Here’s one way to save money - a slimmed down executive team and an empowered middle management.
Whatever you think of my ideas, this is an industry wide problem and it is time for fresh thinking and action.
WISHFUL THINKING FROM A BUSINESS DEVELOPER
By Stef Brown, Co-author of Design Industry Voices report and MD, On Pointe Marketing
Most people that know me for even a short while see that I’m a pretty action-oriented person – someone that loves lists and getting things done. So you’d think New Year’s Day and all the hoo-hah around making resolutions was made for someone like me. But I have a confession to make. I despise New Year’s resolutions. I don’t like the premise that I should resolve to change things on just one special day of the year. I can’t remember the last time I made one nor can I recall the last time I actually stuck to one.
But observations about business development, based on this year’s Design Industry Voices results, have spurred me into action. What follows are not so much my own resolutions but my top three wishes for agencies to abide by in 2012 – new ways to think about business development.
1. Stop free pitching – and ask to be paid
71% of the survey’s respondents said that clients expect more work in pitches for free. Just because clients expect free pitching doesn’t mean agencies need to abide by it. Producing creative work for free during pitches means agencies are giving away their most valuable commodity: their intellectual property. I can’t think of any other services business where this is tolerated, or even considered an option. Can you imagine asking a plumber to renovate your bathroom, but you’ll only pay for their time if you’re happy with their work?
My plea to agencies? Refuse to free pitch. Educate clients and prospects about why free pitching won’t benefit their business. If enough agencies take a stand and stop this practice, clients will follow suit. And have the courage to actually ask to be paid. I worked at a branding consultancy for several years where I was the first point of contact for new business enquiries. Every time a prospective or existing client suggested that creative work might be involved in the pitch, I immediately asked what sort of pitch fee they were planning to pay to agencies, as if it was natural to be paid in such circumstances. Clients would pay up a fairly significant amount almost all the time – and sometimes only to my agency. Simply because we weren’t afraid to ask.
2. Focus on existing clients
Developing the new business pipeline is an expensive proposition for agencies. And so is pitching. I’ve witnessed agencies spending £25,000 in time to win new business pitches to the value of £20,000. And this isn’t a one-off. Even the most mathematically challenged can see that these numbers simply don’t stack up.
A study from Harvard Business School found that it’s 11 times easier to win business from existing clients. That same study found that committed clients translate directly into profit – every 10% more apostles you have correlates into 20% more profit. Whilst new business can be an exciting proposition for agencies, the wise decision is to spend more time focusing on existing client development.
My plea to agencies? Start changing your culture from one of new business to one of client development. Invest the time to really get to know what your clients think of you, conduct regular annual satisfaction surveys with them, develop business development action plans for each of your clients, figure out how to widen your influence at your clients’ organisations, set up tangible business objectives and most importantly, create a mechanism to reward and recognise your people for delivering on those objectives in the same way you probably already do for new business.
3. Payments by results – the way forward
Over four fifths of Design Industry Voices 2011 respondents agree that clients expect more work for less money and that client budgets have been reduced. Given this, you’d think that clients would jump at the chance of any arrangement that gives them a reduced up-front fee. Payment by results (PBR) does just this. With a bit of thought, effort and willingness to take a long-term view, PBR can promote increased trust and accountability between agencies and their clients, it puts the relationship on a sounder commercial basis and should position the agency as true business partner rather than just a supplier.
My plea to agencies? Choose a couple of clients and discuss the possibility of working out a payment by results deal with them. Make sure they understand that PBR doesn’t equal discount, be clear about success criteria and set out ways to evaluate/measure those criteria.
My promise to agencies? As a concession to my natural resistance to making resolutions myself, if agencies resolve to make some of these changes, I’ll do my damndest to help them along the way towards achieving these things.