BATAVIA, Ohio (AdAge.com) -- Agency performance evaluations are becoming almost universal among major marketers, but they are far less likely to be conducted for digital, PR, direct and multicultural marketing agencies, according to a survey of members of the Association of National Advertisers.
But for creative agencies -- especially those with large accounts -- the heat's still on. Though performance reviews have been around for ages, they're taking on added importance for creative shops as pressure builds in a tough economy and more marketers link them directly to agency compensation. Case in point: Procter & Gamble Co. and Coca-Cola Co., whose new compensation models incorporate performance reviews into their compensation formulas.
The ANA survey, fielded in cooperation with marketing-services firm Mktg, showed that 92% of marketers with sales of more than $5 billion annually have review processes, vs. 74% of smaller firms. Overall, of 117 marketers participating in the survey, 76% said they have a formal evaluation process for traditional creative agencies and 68% have one for traditional media agencies, but only 47% do for digital agencies and 25% have one for direct-marketing, PR and multicultural agencies.
Not evaluating other disciplines on a similar format and same timeframe as the creative agencies is a mistake, said Jim Stengel, former global marketing officer of P&G and now a Cincinnati-based marketing consultant.
"What we tried to do at Procter," he said, "is have everybody on the same schedule. So when I sat down with John Wren or Martin Sorrell or Maurice Levy I had the entire holding company [evaluations] and not just the ad agency or media agency."
P&G has always evaluated all its marketing-services shops on a similar timeframe to the lead creative shop. Under its newer "brand agency leader" model, which CEO Bob McDonald said last week would be rolled out to brands covering "at least" 70% of P&G sales by the end of 2009, only the lead agency gets a performance evaluation, but it's evaluated based on performance of the entire marketing-services lineup and in turn is responsible for evaluating the sub-contracting shops.
The increasing application of performance evaluations to agency compensation largely reflects a desire from marketers to get accountability for the work, said Arthur Anderson, principal in Morgan Anderson Consulting. It also gives marketers a way to solve problems short of changing agencies, which he said is "a very drastic, expensive solution."
Increased use of evaluations to impact compensation may also be linked to another trend identified in the ANA survey -- growing use of two-way or 360-degree evaluations in which agencies evaluate the client, now used by a majority of companies in the survey.
The agency's evaluation of the client isn't likely to directly impact the fee, Mr. Anderson said, but it does at least give agencies an opportunity to change things that impact their performance and ultimately compensation. "If there are some blockages in the relationship," he said, "they can get it on the table."
Though the evaluations and compensation may be linked, Mr. Stengel said he found it better not to talk about them at the same meeting. "The evaluation [meeting] is about how do we do better together," he said.
Regardless of whether compensation is directly linked, there "have to be repercussions" from reviews, he added. "I tried to make it clear that ... if you're in the danger zone you have to improve these things or there will be a warning and then action on the account."
One new tactic the ANA survey evaluated is now used by 13% of respondents: having agencies evaluate one another. Certainly, there's been no shortage of that over the years, at least informally among shops vying for work within large, multi-brand marketers, but some marketers are now institutionalizing that process.
"The idea behind it is good," Mr. Stengel said. "But you always have to take it with a grain of salt."
Five tips to make agency evaluations workRespondents to the ANA's survey and industry experts suggest the following steps for making agency evaluations productive:
- All marketers, even those with small budgets, should conduct formal agency reviews regularly.
- Use a consistent format for all agency types, though specific questions can be varied.
- Present results in person.
- Have clear corrective action plans with due dates and assigned "owners."
- Try to eliminate game playing and politics. "Sometimes junior people feel that if they come down too hard or too soft on an agency there will be career repercussions," said former P&G Global Marketing Officer Jim Stengel. "People need to see that when they provide honest feedback, there won't be negative repercussions."