Marketing Services procurement illustrates the difference between effectiveness and efficiency

I remember many years ago being taught – probably at University actually – the difference between efficiency and effectiveness.

Effectiveness is doing things better, and is focused on results and outcomes. Efficiency is doing whatever you are doing at lower cost or producing a greater amount for the same cost. But it doesn’t mean you are doing the right thing. I could constantly dig holes in the ground then fill them in again efficiently. I’m not being very effective however.

This interesting interview with Sir Martin Sorrell, CEO of WPP, the world’s largest advertising agency, appeared just before Christmas in First Post, a very good Indian website I’ve just discovered. He talked about the role of procurement – it’s here to stay, we have to make the best of it, was the summary of his views. But he made this distinction between efficiency and effectiveness in a marketing spend context. He also was somewhat critical of some clients overly strong focus on cost, but he gave a balanced view overall.

I think it is wrong and in the fullness of time, clients will realise, probably slower than we would like, that the key to long-term growth is top line growth; not at the expense of costs together with managing costs but it's a combination of top line growth and looking at efficiency. So, efficiency and effectiveness is a good way of looking at it.

That difference between these two terms is something that should be etched on the heart and brain of any procurement person responsible for a whole range of categories, largely (but not solely) complex services. Anything really where what the organisation is buying can have a real effect on the top line and the bottom line of the business – and is not merely a cost to be minimised.

So that covers marketing spend, as well as a high proportion of professional services spend. In these cases, it is not just the efficiency of the spend but the effectiveness that is critical.

The Marketing Director is not interested in finding a graphic designer, a PR shop or a creative agency that can do their work really efficiently, but without effectiveness. Look! This designer can produce a new logo in 10 minutes! It’s rubbish but he works really efficiently!

They’re interested much more in the effectiveness – will the new logo, the creative idea, the clever viral video, be effective and drive my brand awareness, market share and ultimately sales and profit. That’s what matters – and procurement people who persist in focusing on efficiency and its closely related cousin cost savings will come seriously unstuck, as soon as they are challenged by a savvy marketing person.

Spending a million on a marketing service that increases profits by ten million is clearly better than spending half a million on one that does nothing at all for profit. Yet too many procurement functions will still count the latter as a half million “saving”. That’s one of the issues we need to address if we want procurement to continue to grow in stature and credibility!

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Voices (5)

  1. Final Furlong:

    Recently read a book by a couple of characters from one of the big firms, simply called: The 3 Rules: How Exceptional Companies Think:

    What are The Three Rules?

    • Better before cheaper: Compete on differentiators other than price.
    • Revenue before cost: Drive superior profitability with higher prices or higher volumes, not lower cost.
    • There are no other rules: Change anything/everything in order to abide by the first two rules

    (Many of the ‘top companies’ were medical/clinical manufacturers….like Medtronic, Stryker etc…).

    1. b+t:

      Wow. Sounds like a classic ‘wrong end of the stick’ fallacy. Hope you didn’t pay full whack.

      1. Final Furlong:

        Who said anything about paying. I’m hoping that all advice from the big firms will go down a similar path:
        – Max of 3 simple points of advice (one can ignore the third)
        – Don’t pay for it.

  2. RJ:

    …and yet Procurement teams (and their key sponsors, usually in Finance) continue to use “savings” as the only measure of Procurement performance. I’ve even seen Procurement teams measured on their “efficiency” which was calculated as either the value of spend managed per individual in the department or the cost of the department as a percentage of turnover (step forward Hackett who were continuing to use the latter measure when I last saw their Procurement benchmark a few years back – apologies to them if this has changed in recent years). Few other roles in a business are measured in such a one-dimensional way.

    Sadly, though, although there are some better practices around, I’m yet to discover a best practice measure of Procurement value/balanced business scorecard and would love to hear from anyone who has found the solution to this perennial problem..

  3. b+t:

    Procurement needs to abolish ‘cost’

    There’s no such thing as a ‘cost’.

    There are only ‘investments’ ( although some investments are wiser than others)

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