When a talented ad agency transforms the global reputation of a brand through a brilliant marketing program based on unique customer insights, that’s an example of the kind of high-value problem solving professional firms get hired for in the first place. It’s the kind of “magic” that characterizes knowledge work, creative thinking, and professional expertise.
But an outstanding idea requires outstanding execution. Great buildings are a result not only of great architects, but great builders. And designing and building are essentially two different skill sets. Those who are talented in the art of architecture usually aren’t skilled at the science of structural engineering.
Most professional firms are actually in two different businesses: Magic and Logic. To win a high-profile court case (Magic), the litigation team in a law firm is dependent on a great discovery team (Logic). In accounting, some firms make their mark solving complex business problems (Magic), while others have succeeded by effectively handling high-volume work like tax return preparation (Logic).
Magic is not necessarily better or more important than Logic. Magicians and Logicians are both valuable; they’re just valuable in different ways. Magic is about defining and designing a solution, while Logic is about implementing and executing it. The work of Magicians is usually custom, using unique resources. Logic work more standardized and repeatable. For a given assignment, if the skills required are scarce and hard to find, it’s Magic. If there’s a widely available talent pool that can do the work, it’s Logic.
The Rise of the Logicians
The best reason not to discount the importance of Logic work is to realize that most firms derive the majority of their revenues from work that could be classified as “routine, repeatable, and standardized” — the domain of Logicians.
In the case of ad agencies, this phenomenon is driven by the continuing explosion of marketing channels and the ever-increasing need to create content to feed these channels. A recent study from the marketing software company Percolate reports that despite ongoing cost-cutting efforts by marketers, the fees paid by marketers to agencies to create, produce and distribute marketing messages keep growing as a proportion of the total marketing budget. This class of spending is curiously referred to as “non-working dollars” by marketers (as opposed to the “working dollars” that are spent directly with media).
The Look of Logic
In the marketing world, Logician organizations are sometimes described as “activation agencies” like the company Splash. Diadeis calls itself a “pre-media agency” promising “brand efficiency.” The holding company-owned enterprises like Hogarth (WPP), Prodigious (Publicis), and Craft (IPG) are master Logicians with impressive global footprints, using descriptors such as “marketing implementation,” “global execution,” “scalable production,” and “brand logistics.”
The line that divides Magic from Logic is not only often blurry, but it is constantly moving. What was Magic in 1984 is Logic today. And what was Magic just a few months ago may be suddenly and disruptively transformed into Logic tomorrow. The Danish media agency Blackwood Seven says they use artificial intelligence to plan and buy all their media. While on the surface this qualifies as a Logic business model, this firm actually employs a fairly progressive pricing model, charging a licensing fee for their proprietary software platform instead of the traditional fees or commissions.
Two Different Classes of Value
When marketers cut ties with their agency partners, it’s usually not because they’re unhappy with the quality of the Magic, but rather the cost of the Logic. The failure of most agencies to unhook these two classes of value is driving an ever-increasing number of in-house agencies. And while agencies continue to try to preserve, combine and integrate Magic and Logic, major marketers are actively “decoupling” their marketing programs and pouring their marketing spend into different value buckets. They’re willing to pay Magicians for game-changing innovations and solutions to marketing problems, but they’re understandably less willing to pay premium prices to those same firms for the production, execution, implementation, and activation required to bring these solutions to life. This work is better done by Logicians, and everyone in the marketing ecosystem knows it.
Magicians and Logicians are both valued and important; they are just valued in different ways. Just as these two types of enterprises have a different cost structure, they must also have a different pricing structure.
Avoiding the Worst of Both Worlds
The continued insistence on the part of many professional firms to keep their arms wrapped around both classes of work produces simultaneously unhappy clients and unprofitable firms. Clients are unhappy paying Magic prices for Logic work (or worse, a “blended rate” for both), and firms cannot profitably provide Logic services using the same model appropriate for the Magic business.
In addition to unrealistic expectations about margins from Logic work, most firms chronically and woefully underprice their Magic work — or worse, give it away (in new business presentations).
So which are you — Magician or Logician? The only economically sustainable way you can have your foot in both camps is to form two different enterprises, each of which requires their own type of talent, their own cost structure, their own processes, and their own revenue model.