Some agency executives bristle at the idea that their work is becoming “commoditized” by clients. Admittedly, “commoditized” is a strong word. So “devalued” if you prefer. The simple truth is that clients won’t pay much for what they consider to be widely-available services, and its killing agency profit margins. So instead of changing their business practices, many agencies just keep cutting staff, reducing benefits, etc. as though they’ll be able to save their way to success. They’re essentially working themselves into a black hole. Agency professionals are often offended when I tell them they must outsource more of these “commoditized” services, because they are so used to doing them and are so self-identified with the idea of “full service”.
In the professional services world, there’s great resistance to doing what was done long ago in the manufacturing sector. Apple has both great products and great margins because their products are designed in Cupertino, California and manufactured in Shanghai, China. That’s just the law of economics.
Are you architect, general contractor, or subcontractor?
Unfortunately, a lot of agencies continue to ignore these irreversible economic forces, hoping that somehow the agency industry will be immune. Using a building analogy, professional firms must be the architects. They can even be the general contractors. But when they also try to be the subcontractors, they lose their shirt. Think Frank Lloyd Wright installing the sheet rock. The value of FLW was his ideas, his imagination, and his vision for the building. Although there’s certainly a difference between a good job and a poor job of hanging sheetrock, the truth is that millions of people can do it. There are not millions of Frank Lloyd Wrights. It’s time for marketing firms to confront reality, because the economic argument for a higher-value business model is remorseless. As long as they maintain nice offices in class A buildings and pay their people generous salaries and benefits, they must be the architects and general contractors; they simply can’t afford to be the subcontractors.
Lower value = lower price, which should also mean lower cost
Imagine exiting the elevator on the 21st floor of a beautiful downtown office building and seeing the sign “Smith & Simms: Architects and Drywallers.” Not very likely. Not only because it’s impractical from an image/branding point of view, but because it’s completely impractical from an economic point of view. Yet agencies continue to insist on having “all services under one roof” – from the creative and strategists that produce game-changing ideas to the people who code web pages and resize banner ads. Both architects and subcontractors. So how and when do you make the decision to outsource? Here’s a friendly guide: