Rory Sutherland's Blog

Rory Sutherland

I have just been reading two things in close proximity and they set me thinking.

The first book is The Black Swan, a book by Nassim Nicholas Taleb, a chap who is now something or other at London Business School.

This is a wonderful book, suggesting that all of us have a disproportionate (or, strictly-speaking, an over-proportionate) view of probability, one deformed by our overreliance on Gaussian bell curves as a measure of likelihood. We are too eager to believe we are living in a largely predictable world, one where the only deviations are standard ones.

This is simply delusion. Rather than being a kind of "Mediocristan", with outcomes distributed proportionately (rather like human height or weight), most things in life are very different: human wealth, fame, rewards (and their opposites) often belong to a place he calls Extremistan, where Gaussian rules do not apply. While no-one is 12-feet tall (height does follow the laws of Mediocristan) it is perfectly possible for two people's earnings to differ by a far larger factor than two or three. (It is possible, for instance, that J K Rowling earns more than every other British author combined. In statistical terms, the man who chose to publish Harry Potter will not make another significant business decision if he works until he is 20,000 years of age.) And with this disproportion also comes unpredictability -  a world where small actions can have massive effects.

Anyhow it's a good read. As is this post from Brian Millar's excellent blog.

Brian's post is a request for examples of actions or ideas of exceptional value that have gone largely unrewarded. Or, put another way, they are examples of simple, inexpensive activities that have, in retrospect, proven to be worth many millions of pounds to people other than their creators. (Never mind Tim Berners-Lee.... did you know that Raphael Ravenscroft’s solo on Jerry Rafferty’s Baker Street earned him a session rate of £100?)

These examples, too, it seems to me, belong to Extremistan. To the world of contagion and hard to predict succeses where cause and effect, effort and reward, are not so clearly connected. 

And they pose Extremistan's fundamental creative dilemmas:  1) That brilliant successes may not involve a huge amount of up-front effort and expense. 2) Therefore, In the absence of proven success, it is difficult to charge much for them. 3) By the time you realise they are successes, it's too late to renegotiate the sale.

The problem that advertising and marketing agencies now face is that much of what we do takes place in Extremistan - but we get paid in Mediocristan.

All our remuneration comes from a world where things are roughly proportionate. Where you spend ten pounds to earn back fifteen. Where effort and reward are sensibly linked. Where X% increase in media spend results in Y% increase in reach. Not a world where you spend twenty pounds on one hundred different things and hope one of them pays you back a thousandfold. Not one where a fifty-pound tweak to a website can double the site traffic* in minutes. Not one where a five minute "what if" can be worth a few million in incremental sales. 

Twenty years ago our business was probably more proportionate: attention was more something you bought rather than earned, and there wasn't as much of the extraordinary mathematics of viral contagion in evidence. Paris Hilton simply couldn't have become famous via the Reithian BBC.

Back then things weren't perfect. As Brian relates, after JWT had invented Mr Kipling for free, Rank then made them pitch for the advertising.

Equally, let's not forget that a lot of the value we create now still belongs in Mediocristan. Measuring and testing. Crafting creative work. Rigorous thinking. These are all activities where effort-in is roughly proportinate to value-out. It is impossible to be a creative organisation unless you can graft and craft.

My only issue is that this is now all we are paid for. And whereas much creative value depends on this kind of work, some of it doesn't.

Yet if we are only rewarded for the laborious application of creativity and not the opportunistic deployment of it we shall surely spend too much time on one and not enough on the other. The beautifully simple solution (the E=MC² moment) and the unexpected success needs to be incentivised too. Not "I see the single's at number one, Mr Hegarty - you must be very pleased."

What's needed is quite simple. It is a trade off between incentives so that agencies are as eager to work in the one world as they are in the other.

Here's how I might make it work.

You pay an agency a reduced hourly rate for time spent on the account. Enough to guarantee a small but utterly uninteresting profit.

The amount saved, plus 50%, is put aside every six months.

Every six months, the agency presents to a group including the marketing director, the COO, CEO or MD, and one or two external adjudicators.

They are pitching to get their profit back.

The agency presents nothing but added value. The successes it has generated that were unrewarded at the time. And the incremental ideas it has had which would be valuable to apply but which would make no money in execution.  

These are rarely ideas in answers to briefs - they could be solutions to problems the client didn't know he had (interestingly, Rumsfeld's "unknown unknowns" was a Taleb coinage). With each idea it explains what the value would be created by the idea - using no other measure than that of shareholder value.

And each idea is given a price - either a flat amount or a small share of the results. If there is a difference on price, the adjuicator's decision is final.

It is far from perfect, but it would encourage agencies once again to step out of their insanely constrained roles. It would create a forum for discussing ideas, rather than autistic crap like resourcing. It would naturally drive integration, as all disciplines would be continually mined for ideas. It would reward clients with reactive or unimaginiative agencies with a significant overhead reduction. And it would mean I would once again start to pay attention in the financial part of board meetings as (for once) the money we made might bear some relation to the value we delivered.

It would also promote board level discussion of marketing issues. And could turn agencies, in the longer term, into idea brokers. (Ordinary members of the public  have many valuable ideas - they need a place to go).

Tell me a better idea if you can. All I know is that rewarding value creates value; rewarding effort creates effort. We need a system that recognises that.