‘There will be a lot of agencies that just can’t survive’ – global supply chain crisis

Seja Al Zaidi speaks with two agency CEOs to investigate the cause and effect of the organisational quandaries posed by the global supply chain crisis.

A series of tumultuous global affairs have resulted in drastic supply chain issues around the world, highlighting global vulnerabilities and challenging marketers in their efforts to source and retain top talent amidst economic crises, plague and war.

The immense strain put on supply chains has been one of the most stubbornly persistent and universally challenging issues posed by the COVID-19 pandemic. While it’s common knowledge that consumers, suppliers and businesses alike battle threats to the timely and complex processes of manufacturing, storage, transport, logistics and distribution, there are lesser known impacts to agencies and marketers, who have been left to embattle the trickle-down effects of a turbulent economy and constipated supply chains.

Significant global bottlenecks in conjunction with long-running global travel bans and state border closures have led to a hardened cluster of talent sourcing issues. The drought of quality talent has subsequently triggered a sequence of organisational quandaries including gender inequity, hardball salary negotiations, employee resentment, workplace conflict, diminishing profit margins and inconsistent cultural outcomes.

Another dimension of the supply chain crisis’s impact on marketers is the issue of accurately assigning media spend to product availability when consumer demand, inventory statuses and distribution timeframes exist in mutual conflict. In May this year, Omnicom Media Group launched the Supply Chain IQ Score, the industry’s first supply-chain based media activation tool, in partnership with Crisp, an open retail data platform.

Data supply is another dimension of the issue, with digital agencies embattling the 2021 introduction iOS’s ATT (App Tracking Transparency), making the supply of online attribution data and the ability to measure online KPIs significantly more minimal.

Marketing agencies may be going underwater – and soon

The cluster of issues caused by the talent drought may spell a dismal future for the survival of agencies, says Kath Blackham, founder and CEO of Versa.

“Particularly for digital or tech based agencies, if there is not consideration put to [the supply chain issues] in the next six months, I really feel like there will be a lot of agencies that just can’t survive.”

Kath Blackham, founder and CEO of Versa Agency.

“The reason I say that is because of salary; there is such a pressure on salary. And you know, we all compete with one another on the salary front for sure. And there’s always been a bit of competition from larger groups like the WPP group who maybe are able to pay a bit more.

“We’ve got tech based startups and mature tech companies like Atlassian and realestate.com who have been quite open in the market about the huge numbers that they’re having to pay graduates; upwards of $300,000 for a graduate because they can’t get access to talent. And that’s okay for them, because that one person’s time they spread across many, many different customers, because what that person makes is sold to many customers.

“When you’re in the service-based industry, we sell people’s time. And so it’s very difficult for us to pay the big salaries unless we pass that on to our clients and the industry just isn’t in a position where we can start charging twice as much to clients. So clients don’t want us to charge twice as much, but at some point something’s going to have to give.

The industry is making, 10 to 30% margins. If the salaries and the cost of people go up by 30 or 40%, well, we are underwater. We’re not making any margins anymore. And I think it’s just something that’s not being talked about as much in the industry.”

This bleak outlook is corroborated by global dialogue on the economic climate, which is seeing central banks around the world aggressively hike interest rates in a bid to curb surging inflation.

How the current economy has led to employees demanding higher salaries

As inflation reaches decade highs, the rising cost of living in addition to a border-closure triggered talent drought has emboldened prospective employees to demand higher salaries.

Given that supply chain issues have created mitigated numbers of expats in Australia, some employers have no choice but to recruit new talent at the demanded, far higher salaries – which have been pegged as a cause of skyrocketing inflation.

While job seekers justify negotiations with the reality of heightened living costs, employers believe the newfound salary stridency will cause inequality and resentment amongst existing employees.

Rich Curtis, CEO of FutureBrand Australia, is a believer in fostering workplace equity through a combination of transparency and leadership philosophy.

Curtis believes the current macroeconomic climate in conjunction with the phenomenon of the Great Resignation has emboldened employee salary expectations in a way that isn’t sustainable for businesses.

“I think one of the big risks is that you remunerate new people higher than your current people,” said Curtis, echoing Blackham’s concerns of potential workplace inequalities.

Rich Curtis, CEO at Futurebrand Australia

“Right now, inflation is running much higher than anyone would want it to. And so they’re putting up rates, but it won’t necessarily solve the underlying issue because the underlying issue is these supply chain problems.

“So you’ve got then got this situation which I certainly appreciate because I feel it just like anyone else – the cost of living pressures going up. And so you’ve got to precipitate to at least contribute to the situation where people want increased salaries. Cost of living is one of the reasons why, and then the market dynamics around the recruitment industry are obviously a significant contributing factor as well, but the conundrum then plays out.

“And at the same time, the RBA is trying to curb spending by putting up rates. This is a really wicked problem. Because if we are not careful, these things will conflate and ultimately implode, because the salaries will go up and up and up at the same time as the RBA is trying to fix the market,” said Curtis.

Curtis’s description of the cyclical conundrum the macroeconomic environment poses reflects an ecosystem where agencies and employers must tackle volatility to maintain equity, and to avoid over indexing on payroll.

“The question of salary pressure, you know, it may or may not be merited. It may or may not be a bubble. And if a business isn’t careful it’ll get caught short having overspent on salaries,” added Curtis.

“Before you know it, you’ve got salary expectations at one end of the spectrum and market confidence at the other. That would then be a very difficult situation for a lot of companies. In that context, I think from a commercial perspective in running a business, you have to be very wary around chasing increasing salaries.

“It’s a risky, volatile environment in which to be over indexing on salaries. Because whatever you do on the salary side of the equation for better or for worse should very well be exacerbated quite significantly by this knot of issues between the RBA, Fair Work Australia, increasing salaries, and then supply chains at large.” said Curtis.

Blackham notes that EOFY poses a risk to agencies who may not be satisficing employee needs in light of a post-pandemic change in career values and expectation.

“I worry over the next 12 months that agencies will find it very hard as we come through the financial year, and a lot of people do staff reviews and pay reviews.

“People will not get what they want, and they’ll start to leave. They will need to be replaced. And the thing is, you can’t replace them. So, the worst thing is that you lose someone you are paying $100,000 and you go to replace them and you have to replace them with $200,000. And that makes everybody else in your company feel like there’s a lot of inequity,” said Blackham.

How supply chain issues are creating a gender pay gap in 2022

This inequity can also serve to hinder efforts made to bridge the gender pay gap by industry leaders, with women’s’ documented reluctance to “rock the boat” enabling a situation where salary inequity can thrive given employers’ struggle to find and retain appropriately remunerated staff amidst supply chain issues.

“Another thing that I’m really concerned about is the gender pay gap,” said Blackham.

“I am fearful that this talent shortage is creating exactly the environment that we were trying to avoid. Where females will stay where they are. The mums, they don’t want to rock the boat.

They don’t want to go and get another job because they can’t travel. You know, they’ve got all of their daycare set up around the job that they’re in. So they feel less confident about going and asking for a salary rise, and their male counterpart just comes along and says, well, I’m leaving if you don’t pay me another $50,000, and they get it.

And suddenly, there’s a gender pay gap again. Companies are saying to themselves, I really care about this, but actually, I care about the future of my company more.” said Blackham.

The supply chain issues causing the talent drought

The pandemic has incited an array of barriers preventing business travel, interstate employee movement, workplace visitation, and most importantly, the introduction of expats into the Australian workforce.

“COVID has made it even more difficult to bring talent.

And I don’t think it’s the government travel restrictions. It’s also that, and it’s been reasonably well documented, that people don’t want to come to Australia. You know, the fact that we had these massive lockdowns was not great for the market,” said Blackham.

Ultimately, time will tell if there is a renaissance in Australia’s desirability as a destination to live and work.

The RBA continues its attempts to dim inflation, which may consequently serve to curb newly heightened salary expectations.

The global supply chain crisis doesn’t appear to be slowing down – but it should embolden marketing managers and agencies to understand their vulnerabilities, build resilience, and take actions to circumvent or manage the current macroeconomic climate.


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