Why most “full service” agencies are actually now specialist agencies

December 5, 2011 | Author: Tim Williams

95% of agency websites prominently feature the words “full service” somewhere in the first few sentences. (No wonder clients have a difficult time differentiating between agencies if everyone claims the exact same business model.) But in reality, very few agencies really do serve clients in a “full-service” way. Here’s why.

According to research from the Association of National Advertisers (ANA), Fortune 500 companies have an average of 17 agency relationships.  Not a single one of them have an actual “Agency of Record.”  They may have what they consider to be a “lead creative agency,” but that’s hardly the same thing as an agency that’s expected to do everything like in the days of Sterling Cooper.

Procter & Gamble probably comes closest to the former AOR approach with their Brand Agency Leader (BAL) model where one large agency designated as the “BAL” has the responsibility to hire and collaborate with other specialists agencies; but still, this is not a “full service” relationship.

From AOR to AOC

What we have today are not Agencies of Record (AOR’s) but rather Agencies of Collaboration (AOC’s).  Gone are the days when large clients have the expectation that all or even most of their marketing communications needs can be handled by a single firm.  So why exactly do agencies persist in marketing themselves as “full service?”  Good question.

Smaller firms would argue that they do in fact work for some clients who consider the agency to be an “Agency of Record.” But these relationships are increasingly rare.  Even smaller clients in smaller markets now have multiple agency relationships; advertising, public relations, digital, etc.

But here’s the really startling finding: even the small or mid-size agencies that still persist in developing and cultivating a “full-service” model actually have very few – if any – full-service relationships.  Let me illustrate this dynamic with a real-life but anonymous example of a well-known, mid-size agency in the Southeastern U.S.  They actively market themselves as “full service” and “integrated” and staff for a “full service, integrated” model within their organization.  They list their primary services as:

• Creative development
• Web development
• Digital marketing
• Media planning and placement
• Promotional marketing
• Direct marketing
• Public relations
• Social media

Not a single one of their clients uses the agency for all or even most of these services.  Here’s how their services are actually used by their five largest clients (which makes up 80% of their revenues)

The difference between integrated thinking and integrated doing

In larger agencies – the multinationals – these dynamics are even more exaggerated, where most clients use the agency primarily for a single service; usually creative development for the creative agencies and media planning/placement for the media agencies. 

Agencies that persist in trying to fund an expensive full service model must come to terms with the fact that we are now in the age of specialization and we’re never turning back.  In fact, many observers believe we’re now crossing into an era of hyperspecialization due to the ability of the internet to serve up so many specific skills and services from people and providers all over the world. 

Don’t marketers need holistic thinking?  Of course they do.  But increasingly this role is falling either to the client organization itself – who is functioning as the integrator in this constellation of 17 agency relationships – or to a separate “strategy” firm who is one of the “Agencies of Collaboration.”  Firms like Interbrand, FutureBrand, Prophet, and Red Scout (not to mention consultancies like McKinsey and Bain) are increasingly playing the role of the holistic strategist. 

That’s actually the right place on the value chain for full service-type thinking; upfront in the strategic and planning phase, where marketing problems are defined and solutions are recommended. 

Executing those solutions is best done by specialists who have the expertise and resources to deliver best-in-class services in those areas.

This is why surveys among clients, such as one done recently by Millward Brown for the 4As, shows “Desire for best-in-class specialists” as the driving force behind agency selection.  Clients understand that no one agency can be excellent in everything.  It’s time for agencies to understand this as well.

The positioning choice: thrive or just survive

November 22, 2011 | Author: Tim Williams

Lack of focus in professional service firms like advertising agencies is unfortunately the norm instead of the exception.  Diversification is a natural human response to help mitigate uncertainty.  The problem is that diversification is not really a business strategy, but rather the avoidance of a business strategy.

A wide body of business literature documents time and again that the most successful companies are those who are willing to make what business strategist Michael Raynor calls “strategic commitments.”  In his compelling book “The Strategy Paradox,” Raynor observes:

“Firms that avoid strategic risk survive but do not prosper.”

This is a powerful way to think about the question of positioning. It essentially invites you to ponder the question “Do you want to just survive, or do you want to truly maximize your success?”  Survival, while certainly desirable in these tough economic times, is hardly the reason talented professionals come to work every morning.

The nature – and power – of trade offs

To define and implement a strategy is to decide which trade-offs your company will make.  You can’t offer every type of service or serve every type of client, so strategy is about deciding in which areas you intend to be excellent.

“Faced with this painful trade-off between the returns to the bold commitment and the risk of making the wrong commitment,” says Raynor, “most organizations forgo the possibility of glory for an existence bereft of greatness.”  If your goal is greatness, the price is strategic commitment.

Robert Burns understood the nature
of trade-offs.

A risk?

“The best laid plans of mice and men go oft awry,” wrote the poet Robert Burns, in a nod to modern strategy making.  A positioning strategy is indeed a risk, but so is not having a strategy.  In fact, the greater risk – at least financially speaking – appears to be in not taking a stand and not making strategic commitments.

The diversification discount

Economists have actually identified what they call a “diversification discount,” which is a measurement of the inefficiencies that arise by channeling money and energy into too many different activities, divisions and product lines.  This is chronicled in studies like The Cost of Diversity: The Diversification Discount and Inefficient Investment and Diversification's Effect on Firm Value.

In effect, you erode both the short- and long-term value of your firm by spreading your time and resources into too many areas. 

Don’t ever forget that as a professional service firm, what you essentially sell is expertise, and expertise is gained and maintained by focusing on the areas in which you and your firm can truly be best in class.