The latest iteration of the disintermediation of the agency industry is the unbundling of ideation from execution. Or, in client-speak, “decoupling.” When a marketer hires TBWA/Chiat/Day for creative development and Tag Worldwide for production and distribution, that’s decoupling in action.
Another variation on that theme is when the client organization itself takes over the production work, using its own pre-certified network of suppliers with whom procurement has already negotiated “preferred pricing.” Some agency search consultants are in the business of helping clients decide which typical agency services are best in-sourced vs. outsourced in order to achieve optimal levels of cost efficiency.
The concept of decoupling usually produces a visceral reaction among career agency professionals, especially among creatives who ardently argue that because God is in the details, taking production responsibilities away from agencies means brilliant ideas will be subject to less-than-brilliant execution. Procurement professionals, on the other hand, argue that it’s a waste of a creative agency’s talent and intellectual capital to be in the business of producing 37 versions of a banner ad. Many marketers and search consultants further argue that creative agencies aren’t really set up to do intensive production and distribution work – at least not on a scale that can match the new breed of “marketing implementation” agencies who excel at that kind of work (such as Hogarth or ICP).
A garden or a factory?
The view in today’s increasingly complex multichannel world is that agencies should be modeled after either a garden or a factory. Gardens grow ideas. Factories produce them. In simpler times, agencies were both, but economic factors are forcing agencies to decide which model they intend to develop. Garden agencies are staffed with conceptually-talented people who are marketing problem solvers. They have a high cost structure because they’re populated with expensive people who usually work in expensive offices in expensive cities. It’s a high cost business model, but their output is also generally seen as high value, and the agency has the potential to earn high margins.
The factory model, on the other hand, is where the real pricing pressure is. Production, execution, implementation, translation, versioning, and distribution are all seen by clients as important, but as relatively lower-value compared to the work of ideation. The factory model therefore must be low cost, necessitating lower-cost talent in lower-cost offices in lower-cost geographies. Ogilvy’s Redworks, which originally called itself “The Beautiful Factory,” has most of its employee base in places like India and China.
The silver lining for agencies
So is this good or bad for the agency business? And if you’re a smaller, independent agency, what does this mean for you? Actually, it means you no longer have to be a big global agency to be able to work for big global brands, because brands like Diageo can (and do) hire smaller single-office creative agencies for ideation and rely on the large marketing implementation agencies for production and global distribution.
That’s the silver lining of the decoupling phenomenon. But it means agencies will increasingly have to be very deliberate about what business they’re in. You can either choose to decouple your business model now, or you can wait and let procurement do it for you.