Productivity and cost-saving initiatives have spread in waves across corporate America during the last several years, as businesses have struggled to survive and prosper in a rocky economy. One of the results is that companies are streamlining and centralizing their purchasing practices in an attempt to be more efficient.
From a designer’s perspective, however, these new and more “efficient” procurement systems are better suited for buying toilet paper than creative services. Reverse auctions, discounted contracts, requests for spec work and elaborate prequalification processes are all part of a growing trend toward the commoditization of design, with emphasis on price rather than on client/designer relationships.
“These trends are all linked to the same root, which is companies trying to squeeze as much as they can out of their limited resources,” says Doug Powell, principal of Schwartz Powell Design Inc. in Minneapolis, and a member of the AIGA national board of directors. “Their formula is to place design into the template of a very structured procurement policy, along with providers of commodity items.”
Watching for Buying Trends
Tim Larsen, president of Larsen Design + Interactive, says he and his colleagues in the Minneapolis/St. Paul area first noticed some disturbing trends about two years ago. “We first began to see that corporate purchasing departments were becoming more involved in our projects, whereas in the past, we dealt with vice presidents of marketing or marketing-communications managers, with procurement people in the background,” Larsen says. Gradually, corporate buying departments have assumed a more prominent role. Then he and colleagues began to hear of other procurement techniques, such as reverse auctions and fixed hourly rates. Here’s a rundown of these practices:
Reverse auctions. A business posts a contract online and firms are allowed to bid on it. Typically, the project goes to the lowest bidder. “This process eliminates the different services, approaches and styles that different firms can provide, and places emphasis disproportionately on price,” Powell says. “Companies that choose vendors this way inevitably limit their base of resources, since design firms that provide a strategic component can’t compete on price alone with more tactically oriented firms.”
Master vendor contracts. Some design firms have been asked to sign “master contracts,” wherein they’re awarded work if they offer an overall percentage discount on the project. In their efforts to streamline processes, clients who negotiate master contracts may also predetermine how and when designers will bill, set billing terms, and dictate the formats of invoices and other documents. They may also mandate certain levels of liability insurance.
Flat rates. Some clients set a flat hourly rate for design services, regardless of the project requirements or experience level of the design team. “This is a very shortsighted approach, since clients do not get the benefit of experienced staff who can often arrive at stronger, more effective solutions in a quicker fashion without an increase in overall cost,” Powell notes.
Prequalification. Many companies are requiring extensive vendor prequalification processes that are overly burdensome for design firms, especially small ones, Larsen says. “These forms can take hours and hours to fill out, and often they ask for information that privately held design firms consider confidential. The time and resources required to jump through the hoops definitely increases the cost of doing business.”
Spec work. Larsen and his colleagues have also seen increases in corporations of all sizes asking for more spec work (where design firms compete for projects by producing concepts or compswithout the guarantee of compensation for that work). “During the rough economic times we’ve had, there are a lot of hungry firms willing to go there, but in the long term it’s really damaging to our field,” he says.
Building Competitive Strategies
Since January 2004, Larsen, Powell and 15 to 20 other representatives of the Twin Cities design community have met twice to discuss emerging procurement trends and their effects on the local design industry. Calling itself the AIGA/Minnesota Business Leaders Forum, the group hopes its ongoing dialog will help design firms address these procurement trends. The grassroots group plans to meet four times in 2005.
Powell acknowledges there are more questions than answers. But the group is working toward consensus on best practices that will help design firms as they compete for work. A few strategies have emerged:
Talk about design in business terms. Present your past work in terms of successes the client can relate to. Did your point-of-purchase display contribute to an increase in market share? Did your annual report design improve investor relations? Quantify design’s effectiveness in terms your client will understand.
Recognize trends and adapt quickly. Watch for changes in your clients’ markets, and adapt your firm accordingly. If your client’s competitors are doing more online marketing, for example, be ready to take on more web work. Constantly refine your business model and learn to effectively define yourself.
Examine your own productivity. “Our firm is going to deal with productivity issues just like large companies,” Larsen says. Streamline your processes. Where it’s possible to cut costs without affecting the quality of your output, cut them. Stay as lean as you can.
Position yourself as a strategic partner. Good design is simply the cost of entry these days. Provide more than that—provide strategic value to your clients. Learn their businesses inside and out. Recognize their objectives and tailor your design accordingly. They’ll consider you a partner, not just a vendor.
Evaluate each opportunity carefully. Instead of responding automatically to a request for proposal or bid, ask yourself: Is it possible for us to be successful on this project? Can we make a reasonable profit? If the answers don’t satisfy you, don’t pursue the work.
Read the fine print. Companies attempting to prequalify vendors or negotiate master contracts may produce lengthy forms and legal documents. Read them all thoroughly, says Monica Little, president and creative director of Little & Co. in Minneapolis and another member of the Business Leaders Forum. “It takes a boatload of time, but if you sign something, you are agreeing to do it,” she cautions. “We review contracts carefully, then if there are red flags, we go back to the client to see if certain things are negotiable.”
Powell says the AIGA/Minnesota group will work toward refining these strategies and will connect with the business community through ongoing dialog. “We feel that businesses engaging in these practices need to understand how their actions in procuring outside design services will affect their long-term strategic goals, and we also need to promote the value of our discipline. And we in the design community should understand the pressures our clients face.”