HOW TO PROSPER IN THE ERA OF HYPER-COMPETITION
The largest digital agencies (and some of the largest agencies of any kind) now bear names like Accenture, Deloitte, and PwC. Just a few short years ago, none of these appeared anywhere in the pages of Advertising Age, much less on its annual list of largest agencies.
Media companies — once almost completely dependent on advertising agencies for their revenues — are now more than willing to bite the hand that feeds them by setting up their own agencies.
Production companies, once loyal partners to agency creative departments, are now offering an agency-like line-up of services.
PR firms are increasing looking like full-scale agencies, diversifying well beyond their traditional expertise in earned media. And media agencies now feel compelled to add creative competencies in order to serve the content marketing requirements of the campaigns they recommend.
Online talent markets now allow marketers the ability to bypass agencies altogether and access a global talent pool of creatives, technologists, and other key resources. Even some bricks-and-mortar agencies are staffed not by employees, but by an arsenal of hard-working independent contractors.
Fast forward a few more years and artificial intelligence (AI) will be solving complex marketing problems that currently require the expertise of seasoned agency professionals. AI already is hard at work in various areas of professional services, from case work in law firms to structural engineering in architecture. IBM’s Watson is now on the “agency” roster of marketers from General Motors to 1-800-Flowers. And Salesforce’s Einstein is predicting outcomes and optimizing commerce for marketers like ShopAtHome, who reports Einstein has improved email opens by 30%.
A known solution
While this form of across-the-board disruption may be new, the basic solution isn’t. The most effective way to fortify your firm against disintermediation is to be much more deliberate about your business strategy. Among the world’s major business types, agencies are notorious for their shape shifting. Based on a dogged belief in the unattainable “full service” approach, agencies are in a constant scramble to serve every market and fill every need. Which, of course, is not a business strategy, but rather the absence of one.
By definition, business strategy is about offering an inimitable set of solutions to a defined market. Being “inimitable” requires deep expertise in a few core areas. The goal (even if impossible to fully achieve) is to create a monopoly. But instead, most firms are unwittingly swimming in what economists call a “perfectly competitive” market — meaning low barriers to entry and offerings that are easy to copy. These are precisely the markets that are most easily targeted and duplicated by other companies.
Former Cadbury marketing executive John Bradley exhorts agencies to “Regain pricing control by deciding the part of the customer proposition you will be the best at, protecting you from price competition with the customers who most value that attribute.” He says this is a lesson that marketers themselves finally learned, after decades of wandering in the wilderness of “our brand solves every need.”
Seeking the unsatisfied
This isn’t to say that agencies shouldn’t endeavor to develop new, better services that meet the emerging needs of marketers. Indeed, survival in any professional services business requires a steady march upstream in the value chain. The most successful firms do their best to stay ahead by anticipating the unmet and unsatisfied needs of their clients.
But this is a far different approach from vast majority of firms who feed their revenue machines from the opposite end of the spectrum: by offering overdeveloped services that are widely available from a variety of other sources. If this is the approach you’ve chosen — consciously or otherwise — you’ll need to retool your firm in the shape of a low-cost provider, because that’s what wins in perfectly competitive markets.
But assuming that’s not where you want to play, you must do your best to focus your firm on specific markets where you can create uncontested value. This is the “blue ocean” where no one else is sailing.
However, you can regain pricing control by deciding the part of the customer proposition you will be the best at, protecting you from price competition with the customers who most value that attribute.
Different offerings combined in a different way
To create a “category of one” might seem like an unrealistic aspiration, but it points you in exactly the right direction: toward hard-to-copy competencies that make your firm much less susceptible to ever-expanding forms of competition. Harvard’s Michael Porter describes strategy as “Deliberately choosing a different set of activities to deliver a unique mix of value.” Consistently executing your strategy creates what Porter calls “fit,” which effectively locks out imitators. “Fit” is achieved not only through unique service offerings, but by combining them in ways that competitors can’t.
Some of the most prominent examples of creating powerful new forms of value comes simply from combining existing products and services in ways that have never been done before. In one of the most memorable scenes from the recent movie Steve Jobs, Jobs and his friend and co-founder Steve Wozniak are engaged in a passionate discussion in an orchestra pit. Wandering amid the music stands, Woz is maddened by the fact that Jobs gets all the credit for Apple despite not even knowing how to build a computer (which, of course, Woz does). “What exactly do you do?” Woz demands. “I play the orchestra” responds Jobs.
To thrive in a world where seemingly everyone is competition, trade the energy you put into matching competitive offerings for a more single-minded business strategy focused on differentiated, inimitable solution sets. A black box will smash a white box every time.