Want to build an insanely profitable PR agency? Declare war on “failure demands”

lean PR failure demand

Lean is all the rage these days, thanks to ‘The Lean Startup’ by Eric Ries. If you run a PR agency and you have worked with a startup or a big manufacturer, chances are that you’ve heard the gospel of ‘lean’.

In fact, you may well have already run into some of the approach’s more popular manifestations. Task management app Trello, for example, is based on the principle of ‘kanban’, which was developed as part of lean manufacturing. 

Lean is a manufacturing process that was originally created by Toyota in the sixties and seventies. It is based on three simple principles:

  1. Minimise waste
  2. “Pull” items through the process instead of “pushing”, i.e. let demand drive the pace instead of letting production set the pace
  3. Continuously look to improve the process

In manufacturing, lean has been a huge success – as evidenced by the meteoric rise of Toyota. But in services, the introduction of lean methods was a lot less successful.

In fact, you might have encountered lean services – and hated it. You know those computerised phone menus where you have to “Press 1 for…”, “Press 2 for…”? That’s an instance of lean applied (badly) in a service environment.

In their paper “Rethinking Lean Services”, researchers Seddon, O’Donovan and Zokaei argue that the reason lean services do not keep their promise is because they fail to see that services are completely different from manufacturing.

1.    Learn the difference between “value demands” and “failure demands”

The key to unlocking the value of the lean philosophy is to take a step back and realise the differences between services and manufacturing, says Seddon.

In services, it is not about creating the most efficient processes to force customers through. Instead, it is about understanding what the customer asks.

“we need to understand more about customer demand – what customers want”

And here’s a shocking bit of information:

“From the customer’s point of view, you learn that much of the demand is waste and, worse, it creates further wasteful activity.”

Surely that’s a bit harsh, you’ll say? Well, no. For a customer, two outcomes are possible when he engages with a service process. Either the customer achieves what he wanted, or he doesn’t. In the first case, the process created value, in the second, your company created failure. The authors coin the terms “value demand” and “failure demand” to distinguish between the two.

Typically, a failure demand is caused by not understanding the customer’s request correctly.

More broadly, a failure demand is every demand by a customer or a colleague that does not create value for the customer. This includes questions by the client to correct mistakes, typos and such things, but also requests like “You haven’t forgotten about X, have you?”, “Where are you on Y?

These requests take up valuable time, but they don’t add to the success of your work. Failure demands are incredibly harmful to your company (and your relationship with your customer). You and the customer are both spending time that does not result in added value.

Worse, your customer will have to “try again” by asking you to redo your work. In other words, he is paying twice for what you should have gotten right in the first place.

2.    Root out “failure demands” – fanatically

Seeing your work in terms of value demands and failure demands requires you to look beyond billable time. Because the trap about failure demands is that they can appear to be productive. You might be able to invoice your customer for doing two or three versions of a press release, but you are surely not adding more value.

You are merely providing the value that your customer was asking you to produce the first time. You are wasting the customer’s budget, and you’re wasting more of it than you realise:

In financial services, failure demand can account for anything from 20 to 60 per cent of all customer demand.

A real life example: my heating system broke down last week. I told the customer agent on the phone what the likely cause of the breakdown was. My guess turned out to be right, but on his first visit the technician didn’t bring the piece. Value added on first visit: zero.

On the second visit, the technician managed to repair the piece, but created a leak when repairing the system. The third time, they made the leak worse. Only on the fourth attempt did they finally manage to repair my heating system. How this firms makes a profit is beyond me.

As the owner of an agency or a service firm, it’s very useful to ask yourself: are you like this firm? To some degree, you probably are – and it means you’re burning money and hurting your firm.

It’s quite common in agency settings to say that “customer expectations” were too high. But research shows that B2B customers are actually quite well informed about the quantity and quality of work they can expect your firm to deliver.

This means that your customers will know it when your firm is not delivering the value they can expect, and they will complain. They will pressure you to lower your hourly rates or overservice, and in general, they will tell their colleagues and peers that they were not happy with your services.

Both overservicing and negative word of mouth will negatively impact your business in the long run. And as we will see, they are avoidable if you manage to root out “failure demands”.

3.    Don’t standardize your services. Train your people instead.

If failure demands are such a problem, why do these computerised phone menus exist? Because they are applying the ideas of lean on the wrong kind of activity.

Phone menus try to standardize services. They try to force the customer through a process defined by the service provider. It’s not very customer friendly, and actually increases failure demands:

In service organisations work typically has been standardised and industrialised (…).The consequences are more handovers; more handovers means more waste, and an increasing likelihood of failure demand (further waste).

Standardized phone menus try to shape the customer’s demand into a “supplier shaped” solution: you are trying to tell the customer that you know what he will ask, and that you know how you will solve it – before you have even listened to his demand. This is the wrong approach.

As Seddon writes: ‘customers make customer shaped demands’Your job as a service provider is to answer the customer’s specifically shaped demand with a service that matches the demand – you should not try to tell the customer that he actually wants something else instead, because that will only make them angry (just like phone bank software makes you angry). 

In any service firm, there is the idea that we should created “packages” and “products” – the idea being that if we can force the customer into certain templates, we will prosper more. Seddon’s article suggests that the reverse is actually true: you will thrive as a PR agency if you manage to handle very diverse requests from clients, and deliver them all at the highest quality. The answer here is not to create “templates”, “products” or “menus” that your people can execute without thinking too much. The answer is to train your people to understand these requests, allow them to use their brains and deliver projects in a highly customised way that will delight your customers.

4.    Aim for “single piece flow”

Lean also gives a few interesting ways to reduce failure demands. One of them is simply: avoid handovers and try to deliver work in a “single piece flow”. Single piece flow means that the work can be completed wihout interruption, or without being sent back to colleagues or the customer for clarification.

This means that you should train everyone at your service company to be able to handle the most frequent “value demands” from start to finish. Seddon calls these high frequency value demands – the 20 percent of activities that make up for 80 percent of your revenue. In the case of a PR agency, these are typically things like: sending out a press release, doing follow up by phone to journalists, creating a blogger care package, doing an influencer mapping, and all similar bread and butter activities. You don’t want this work to be “pingponged” around the office, because every handover increases the likelyhood of errors.

If a handover has to happen, care should be taken to manage a a “clean” handover, meaning that the person who receives the assignment can finish it without further questions to the customer or the person who handed it over to them.

5.    Create a “pull” system to solve difficult demands

Of course, there’s the other 80 % value demands that are so niche that you can’t train your entire staff to deal with them. Here, you should make use of the “pull” principle of lean manufacturing.

When a staff member gets a demand he cannot solve, you should make sure that he can “pull in” expertise as needed to solve the demand (or hand it over – cleanly).

6.    Involve the frontline in improving the processes and training

A last important insight of lean is this: it is the people who actually do the work who have the best ideas to improve it. Since they are closest to the customer, they are best placed to understand what the customer wants – and how your firm is or isn’t delivering on it. Don’t try to force their work into processes that you design behind your desk. Instead, involve them in improvements to handle value demands, and the training that their colleagues receive for these value demands.

The end result should be more value added for your customers, which leads to more satisfied customers, less overservicing and the ability to consistently charge higher rates than your competitors.

Is focusing on waste enough to become more profitable? Probably. There is always more waste to tackle, and it is surprising how much waste a typical company generates while working.

The typical car manufacturer, for instance, is only creating value for the end customer in five percent (5 %) of its activities. The rest is “waste” in the sense that it doesn’t bring immediate value to the customer. At Toyota, the percentage of the company’s activities adding direct value for the customer is estimated at twenty percent (20 %). While this is a difference of 15 percent points, Toyota is actually performing 300 percent better than its competitors. It makes for quite the difference in the bottom line.

Imagine how much more profitable your firm can become if you can direct all its energy on creating value instead of waste.  As Seddon says:

 “focusing on the costs lowers quality and increases costs. Focusing on quality decreases costs and improves profitability.”

Do you apply any of these “lean” principles at your PR agency? I’m curious to hear – let me know in the comments.

Image: Nick Webb, Flickr Creative Commons

  • Lyndon

    Raf, this is a really thought-provoking piece. It raises some interesting ideas – but the PR industry won’t pay any attention. Why? Because they make far too much money from doing what customers ask, rather than what is the right thing to do. They’re business models are engineered to bill hours against a process that is the opposite of lean.

    I find the idea that customers are billed for errors they made or a failure to understand or provide best advice to a customer ridiculous – but that’s the standard in my industry right now. A PR company accepting it got something wrong and not charging customers for it is unlikely to become a mainstream approach. PR companies consistently complain about the meagre fees they charge [perhaps because of their reputation for value fails, caused by their willingness to accept demand failures in the pursuit of the billable hour].

    The biggest challenge in the PR industry is that it is full of people that have no understanding of the fundamental skills required to be able to advise customers on the best way to do something – so they can’t advise customers. They are a slave to the process and the billable hours [activities, rather than value]. In order for that to change it will require agencies to break their existing models and give up their retainers… and that isn’t going to happen any time soon.

    Best wishes,


    • http://getmustr.com/ Raf Weverbergh

      You raise lots of points, Lyndon :) Let me try to address a few of them:

      1. I don’t think lean PR as described is antithetical to retainers. Lean PR is about understanding the demand of the customer, and trying to cram as much added value in your work as possible (essentially by *avoiding* failure demands). Whether this is done on retainer or in a project budget doesn’t matter too much.

      2. I think that in services, it’s quite possible today to add a lot of value. I talk about Toyota adding about 20 % “direct” value to the end customer. In PR, this number is generally a lot higher I think, because they have relatively low overhead and stock. I’m not as pessimistic about the value the PR industry delivers as you. You can argue about quality, but if an account executive writes a press release, he or she is clearly adding direct value for the customer.

      I think most agencies are probably around 40 – 50 % or more. If you manage to automate all the work done by “fee eaters” (sorry for the horrible wording) like accounting, secretaries, HR, payroll, etc – you can further increase the direct value add for customers.

      Of course, this still leaves about 50 % waste to eradicate, which will also have a huge impact on the bottom line.

      3. In terms of the PR industry not “listening” to lean ideas – I think the history of lean manufacturing shows that individual players don’t actually have much choice in the matter. Toyota forced the rest of the industry to adopt its model because it was so clearly superior.

      If some agencies manage to become really “lean”, they will just *kill* the incumbents – at least if they can manage that 300 % increase in productivity that Toyota achieved. But if lean doesn’t gain a hold in the PR industry, I think it will probably be because of my second point – that services, in general, already create quite a lot of “direct” value to the customer. If it’s already at something like 70 % and overhead accounts for about 20 percent – then becoming more “lean” only has a limited benefit. I haven’t found any reliable numbers on the direct value add in services, however. (Should look into this more).

      4. On that quality topic: it’s also a fact that services are cocreated between the customer and the supplier, and that services are consumed at the same time as they are produced. This means that there is a quantity of failure demand that is caused by the customer. I think this is where training your staff comes in: they should learn how to spot potential failure demands (unclear briefings, unclear goals and expectations,…) and address them with the customer beforehand.

      Curious to hear your thoughts!

      • Lyndon

        It might not be anti-ethical, just unworkable. The retainer is an arbitrary figure – usually based on a number given to them by the prospect – where the work is then scaled to fit it. Lean is about diagnosing what the customer needs and recommending the best solution.

        In my 15+ year agency career I never once saw a customer told, ‘what you think you want isn’t what you really need and you don’t need to spend anywhere near your budget to achieve it’. Not once did I see a simple problem solved in an hour rather than using a cookie-cutter media relations programme lasting a minimum of three months. Not once did I see a customer told that they didn’t need a retainer.

        I don’t disagree that a lot of value can be added by a service. But applying the same ‘process’ to every customer – varying the mix or amount [dependant on the customer's retainer budget] isn’t adding value. It’s adding cost where it’s not necessary. It’s adding work where none is needed.

        Writing press releases isn’t adding value. I’ve read thousands in my career and the majority of them are garbage. They’re not fit for purpose and don’t add any value. It’s the PR industry selling a process containing a set number of things [with recent new additions being social media and content 'marketing'] rather than delivering what a customer needs to achieve a desired outcome, and charging a fair price for it.

        Your ‘fee eaters’ [I think it's quite a good word, btw] are fixed costs. They’re the costs of doing business. Every business has them. The PR industry has too many people earning too much and delivering too little value. Rather than reducing the costs of the administration it needs to look at reducing the waste spent on front line employees that aren’t up the job.

        The PR industry won’t ever become lean in the way you suggest in the original piece. They can trim the costs associated with the process they sell, but they’ll never offer only what their customers’ need. They have a process that needs funding; they have offices with expensive leases that need to be paid. They have overpaid employees that are the cogs in the process they sell.

        The PR industry can’t tell you what value it adds, so it’s unlikely that you’ll find anything that quantifies it. The industry can’t even agree how to measure the outputs of its process. The fact that they want to put a standard measure on it tells you everything you need to know about the problem.

        Measuring the output of a process is easy if you’re Toyota. You have a certain number of models that need building in a specific volume. You’re mass producing the same product. When you’re trying to apply a process to vehicles that start at different stages of completion – and all end up looking different – it’s a completely pointless exercise because the outcome in each case is different. It starts with a different set of parts. The assembly process is different as a result. The measure of success is specific to that vehicle.

        I agree that employees should be trained to add value, not deliver a process – but agencies won’t so long as they are charging retainers. Retainers based on an arbitrary figure provided by their customers where adding value means they charge less than the customer’s budget. They would also have to be able to deliver – and measure – value. The PR industry has been trying, unsuccessfully, to do that for at least the last 20 years and I have no confidence they’ll resolve it any time soon. The problem is that they’re trying to apply a fixed process – lean or otherwise – to customers with different perceptions of value.

        My model is as close to lean PR as I have been able to find in the last five years of proactively looking. I have no retainers and I advise on what my customers need – not on what they think they need – and I publish my prices. I don’t have a standard process – because each of the companies I work with have unique problems requiring custom solutions.

  • Nicola Jayne Little

    Keeping it brief -your post has got me thinking! Thanks.

    • http://getmustr.com/ Raf Weverbergh

      Thank you Nicola! I’ll be posting the next chapter of “lean PR” very soon (probably on Medium or something, though, because it’s more about our agency).

  • http://www.CarriBugbee.com/ Carri Bugbee

    As a devotee of lean/agile, I’m always trying to figure out how those frameworks can be best applied to marketing teams/processes (my partner has been doing this for software teams for 15+ years), I think the ideas you put forth are interesting and some have a lot of merit.

    However, I don’t think you can force clients into that mold by telling them you’ll only do two revisions of a press release or refuse to correct typos, for example, because anything beyond that doesn’t offer enough value for the money. Moreover, I don’t think it’s up to service providers to decide what a customer considers valuable.

    Personally, I don’t want to do a bunch of revisions to a document, but if a customer can’t make up her mind (or the message/opportunity keeps shifting in the background on the client side), it would simply piss her off if I told her it was a waste of time. It’s her budget. She can decide how she wants to use/waste it. All I can do is cut down on internal waste within my company. I can’t impose that mentality on clients.

  • duke

    This really applies to any service provider. One of the problems I get far too often is being told after the fact that we have to provide a product that we have never delivered before, so it’s always a rush job to deliver a sub par outcome. It sets staff up for failure, the client contact with disappointment and embarrassment, and the client with a diminished view of our ability to deliver who is unlikely to return to us for that product. To me you’d put the proper time in to know if you can provide the service and what’s involved – the customer would surely be far less annoyed with a longer than expected timeframe than a defective product. It’s the difference between a value demand and a failure demand.