GSK's recent letter to agencies is not only crass, but the worst kind of blackmail, says Dominic Mills.

GSK's cunning cash-back plan: cock-up, not conspiracy

GSK's recent letter to agencies is not only crass, but the worst kind of blackmail, says Dominic Mills. However, it's dangerous to stigmatise all procurement departments based on the behaviour of a few.

You probably will by now be familiar with the stories of GlaxoSmithKline's (GSK's) outrageous smash-and-grab raid on agencies.

The drugs giant has written to hundreds of agencies asking not only for cash back from last year, but cash upfront in order to stay on the roster next year.

Here's what it actually said: "If your agency has performed work for GSK in 2013, please provide a [percentage] rebate for the 2013 global annual spend by GSK. For all future GSK annual £ spend levels, please provide a percentage rebate. All agencies must complete this question.

"If selected to be a part of the GSK Global Digital Roster, please indicate a one-time sign-on bonus you will offer GlaxoSmithKline (in GBP)."

It's utterly crass, of course, and sounds like the worst kind of blackmail. And part of it undoubtedly is a breach of contract - asking for money back from payments already received will not be part of any legal contract.

Both the IPA and the Marketing Agencies Association have been quick to condemn GSK.

Coming, as it does, off the back of the Premier Foods agency hi-jack earlier this year, there is the worrying possibility that such behaviour may take root at clients.

You can't imagine GSK's procurement department treating its lawyers or management consultancies the same way, and that's because they have powerful friends and supporters at the top of the company"

The wider question, therefore, is whether this is an indication of the way procurement departments are riding roughshod over everything and, effectively, driving the value of non-commodity services into the ground.

Does it mean, for example, that clients are unable to understand the value that creativity can add to their business?

Well, no, I don't think it does necessarily. Procurement departments are subject to their own pressures too.

In these circumstances it may be helpful go back to the 12th century and think of Henry II and Thomas a Becket, Archbishop of Canterbury. Exasperated by the way his one-time friend had turned against him, Henry II said: "Will no-one rid me of this troublesome priest?"

What he didn't mean was for a group of zealous courtiers to overhear him, and murder Becket, who immediately became a martyr and symbol of resistance.

As I say, cock-up, not conspiracy.

The equivalent, I suspect, may have happened at GSK.

It's year-end: the squeeze is probably on, a dividend payment to be made and the share price to be maintained. The instruction goes down from the CFO to the procurement department. Find some more savings.

And some bright spark a few layers down in procurement (perhaps with experience in a supermarket, where they are masters at this sort of thing) decides it's worth hitting on the agencies.

Certainly, if you read the GSK communication with agencies closely, the language is not very sophisticated. It's clumsy and unsubtle, perhaps written in haste. It may even have been written without the knowledge of the author's ultimate boss and almost certainly the marketing director or CMO.

It's possible too that this is a standard letter, with variants going out to all suppliers, including those people who supply GSK's labs with, say, white mice and Bunsen burners.

And it may be, heaven forbid, that in order for the procurement department to make its bonuses this year, it has unilaterally decided to squeeze suppliers. We don't know how procurement departments are incentivised, but it sure as hell won't be for paying the same or more for anything.

There is one other way for agencies to protect themselves: put the same preparation and effort into negotiating the contract as they do into the pitch."

Nevertheless, it's dangerous to stigmatise all procurement departments based on the behaviour of a few, or Premier and GSK in particular.

I know some senior agency people who swear procurement departments are actually their allies and supporters, although I suspect this is in client organisations that are marketing-focused rather than ones that behave as though they are buying everything by the ton.

The answer then must surely be for agencies to engage better with procurement and help them understand a) how the agency model works and b) the commercial impact a really good agency can have on the client's business.

Agencies could also do with having a few more powerful allies client-side: finance, corporate affairs and so on - everyone with a C in their title. You can't imagine GSK's procurement department treating its lawyers or management consultancies the same way, and that's because they have powerful friends and supporters at the top of the company.

Obviously, all this isn't going to happen overnight, but the IPA President Ian Priest'sADAPT agenda can make a real difference in this area.

There is one other way for agencies to protect themselves, which is a tip I heard from one agency boss: put the same preparation and effort into negotiating the contract as they do into the pitch.

http://mediatel.co.uk/newsline/2013/12/09/gsks-cunning-cash-back-plan-cock-up-not-conspiracy/?