Posts Tagged ‘Agency Business Model’

To understand the changing dynamics of the “value chain” concept, observe what’s happened to the music business.  Consumers are still spending roughly the same amount of money on music, but the money isn’t going to the record companies and music stores; it’s going to iTunes.  The money in the music business value chain is still there – it just moved.

The same is happening in the advertising agency business.  Marketers are spending, but they’re spending in areas of the value chain that aren’t owned by agencies.  Instead of trying to squeeze the last bit of value from traditional sources of revenue, agencies should instead be focused on finding a different spot on the chain.

Finding the most profitable areas of the value chain

To continue to profit in the marketing business, agencies must select a place on the value chain where the offerings are still underdeveloped. The problem is that most agency business models are still centered around the idea of “production and distribution of advertising” — a spot too far down on the value chain to have any real or perceived value in today’s multi-channel marketplace.

Here’s how to think about your firm’s value proposition:

Most agencies base their value propositions on overdeveloped services; they are placing themselves on the wrong side of the value chain.  By focusing on the underdeveloped features or benefits of the category, you are in effect not just positioning your brand for where the profits are, but for where the profits will be.

Underdeveloped offerings in the agency world include:

Online Account Planning

While many agencies have a well-developed account planning function, they have yet to fully realize the potential of the internet in gleaning customer insights.  For example, in addition to using traditional account planning tools Butler Shine Stern & Partners uses services like MotiveQuest to track consumer behavior for client Mini.

Analytics

Virtually every agency can benefit from adding the discipline of analytics.  Besides helping to meet clients’ demands for accountability, analytics can serve as the foundation for value-based compensation agreements.  Kansas City-based Bernstein-Rein promises clients the ability to “organize, evaluate, measure, and interpret the right data to make it valuable.”

Social Media

As the marketing value chain continues to emphasize non-paid online solutions vs. paid offline solutions, agencies must establish competent services and tools to help their clients maximize the world of social media. Media Logic, an innovative agency located in Albany, New York, has a suite of resources that help them monetize this important area.

Other underdeveloped agency services include:

Digital: Usability testing, behavioral targeting, software application development (think smart phone apps)

Branded Content: Custom publishing (both online and offline), branded channel development

Customer Relationship Management: Customer database analysis, customer service programs

Reputation Management: Online reputation monitoring and reporting

Conversational Marketing: Conversation strategy, online community development

Customer Engagement Marketing: Crowdsourcing, product co-development

Intellectual Property Development: Content syndication, sale or license of IP

And much more …

So now the question is, which side of the value chain are you on now, where do you think you should be, and what are you doing to get there?

By Tim Williams

Times are indeed tough. Most of us have never experienced an economic recession of this magnitude. Virtually every agency – from the smallest independent to the largest multinational – has experienced a wave of layoffs. Some firms have implemented across-the-board pay reductions, furloughs, or cut the length of the work week. Many have suspended 401k contributions and reduced agency-funded insurance benefits.

There’s no doubt that cost cutting is an absolute necessity at a time when clients are reducing budgets, delaying projects, or just cancelling work altogether. Clients are paying later and banks are cutting or freezing agency credit lines, creating a dangerous and uneasy cash flow crunch for firms everywhere.

You only have so much time in the day.  How are you going to spend it?

This is a time when our problems – especially those of the financial variety – confront us squarely every day that we come to work. Our natural reaction to income and profit pressures is to keep pruning; no more discretionary travel, no more administrative help, no more free parking, and no more complimentary sodas in the fridge. But there comes a point where it’s simply no longer possible to save our way to success.

The danger is that we’re devoting so much time and attention to the problems that we’re failing to pursue the opportunities. Peter Drucker believed that far too much time is spent trying to fix problems at the expense of developing all the remarkable potential that surrounds us. His philosophy “Feed the opportunities and starve the problems” is arguably even more relevant when times are tough. Cutting expenses may be necessary, but it’s hardly a business strategy

Trading problems for opportunities

If you put all of your time and energy into squeezing more costs out of the system, there’s no time or energy left to work on the very things that could help pull your firm out of the situation it’s in. Yes, even the very best agencies have had to reduce their expenses; so has virtually every company in America. But the best agencies are also continuing to innovate, develop new services, and find better ways to get paid for the value they create.

Perhaps you’ve eliminated all magazine subscriptions; but have you invested time and energy in developing a new social media capability? You may have a plan to ask everyone to take a week’s unpaid vacation; but do you have a plan to develop an analytics function that could help prove the value of your work to clients? You have spent late nights and weekends poring over billable time reports; but have you devoted time to developing proactive, game-changing ideas for your clients?

The decision to invest in yourself isn’t made by your balance sheet. As economist Alan Weiss preaches, “Money is never a resource issue; it’s a priority issue.”

What will your business look like?

“Feed the opportunities and starve the problems.” - Peter Drucker

When the economic crisis is over, what do you think the agency business will look like? Most economists believe the business world will be changed forever. Do you really want to emerge from the crisis as the same agency, or do you believe there’s an opportunity to emerge as an even better agency, prepared to take advantage of new waves of spending and investment? Instead of hunkering down until the storm passes, see this as the opportunity you’ve been looking for to reinvent your agency.

The future success of your firm hinges on how you focus our energy right now. Avoid the trap of being so consumed by today that you neglect tomorrow. Problems contribute nothing to your firm’s success; opportunities contribute everything.

By Tim Williams

While Ignition is known to be a strong advocate for specialization, there is nonetheless an important role for individuals inside the agency who are generalists – even inside specialist agencies.

While the exploding media universe calls for very specific skill sets when it comes to execution, knowing whether or not to recommend a specific channel in the first place is the job of a generalist; someone who knows enough about all of the options and possibilities to recommend the right one.

Generalists know a little about a lot; specialists know a lot about a little.

The people at your firm who must play the role of skilled generalists are those advising the client on the front lines – brand strategists, brand managers, channel planners, and content development (creative) professionals.

In today’s multichannel universe, the generalist must know the basics of:

Offline + Online
Paid + Non-Paid
Mass + One-to-One

If this sounds like a big job it’s because it is. Someone like a brand strategist must know enough about all of these potential marketing solutions to recommend them. Ignition has written many times about the need to fully integrate offline and online marketing within the agency. Some progressive firms have done the same with paid and non-paid. Cleveland’s Liggett-Stashower, who for many years had a reputation that was equally strong in both PR and advertising, made the bold decision to erase the line between these two disciplines so they could do an even better job of being channel-agnostic in their work with clients.

Enter the specialists

Alongside a small group of generalists is a somewhat larger group of specialists – professionals skilled in executing the recommended solutions. This isn’t to say that an agency must physically employ all these specialists; sometimes it’s more effective and efficient to use specialist business partners, especially when it comes to very highly-specialized work. In fact, the more specialized the work, the more sense it makes to go outside. Just as a television production project would rely on outside specialists for things like lighting and makeup, a digital production project would rely on specialist programmers and coders.

Complimentary roles

Here’s how to think about the interrelated functions of generalists and specialists:

Abolish the silos?

It’s fashionable to talk about the evil of “silos” but that really misses the point. It’s actually desirable and even necessary to have “silos” of specialists in marketing communications firms at certain points in the process. It’s impossible to have literally everyone in the firm fully briefed, fully involved, and fully integrated into every function and discipline. If you think there are too many meetings with too many people now, imagine a business model where everyone does everything. It’s just nonsense.

Instead of misdirecting your energy to “knocking down the silos” make deliberate decisions about who in your organization needs to be a generalist and who needs to be specialist. You need both, and both need to be great at their jobs.

What happens if the traditional marketing model collapses before a better alternative is established?

So asked Advertising Age’s Bob Garfield in his landmark article titled “The Chaos Scenario.” Garfield recently wrote the third installment in this series proclaiming that we’ve actually entered this scenario ahead of schedule.

Not linear, but exponential

Some of the changes we experience in this business are gradual and linear, but the movement to digital is exponential. Some agency executives continue to think of the digital revolution as “This year’s most critical issue for the past 8 years,” but even the most cynical will now acknowledge that the revolution has truly arrived.

The implications for marketing communications firms are monumental – some obvious and some not so obvious. Senior agency executives around the world report seismic changes in their client relationships brought on by not just the economy, but by the urgent need to find more innovative solutions to marketing problems.

Demonstrating digital leadership

Of course digital isn’t always the answer, but increasingly clients are turning to agencies not only for help but for thought leadership in digital marketing, and only the most progressive agencies are in a position to deliver it.

In Ignition’s consulting work, we regularly encounter agency principals who recognize the urgency and importance of the shift to digital, but are personally unprepared for the change.

Not just organizational competency, but personal competency

Ask a senior agency professional a question about broadcast production and they can usually answer it. Same with print, radio, outdoor, or even point of sale. But ask them a question about digital and the answer is often, “That’s a little out of my league – let me have the digital guys get back to you.” That’s a little like dodging questions about television if you were an account executive in 1954.

Agency leaders, managers, and senior executives all need to develop a personal competency in digital just as they have in traditional. And if you haven’t learned it already, you need to enroll yourself in what BBDO’s Andrew Robertson calls a “reverse apprenticeship.”

Senior professionals as students

If you can’t answer the questions of what, who, why, and when regarding digital, you need to enroll yourself in a program of self-study. If you’re in a general agency management position, your curriculum should cover such topics as:

• Digital terms and terminology
• Types of digital projects and solutions
• Identifying and mapping scope of work for digital projects
• Stages in digital projects
• The tools and methodologies of digital project management
• Managing technologists
• Marshalling and managing digital assets
• Experience design and usability testing
• The role of quality assurance in digital production
• Basics of online analytics

Most of the digerati are self taught

Think about the digitally-talented people you know and you’ll realize most of them are self-taught. They took an interest in digital and learned it on their own. You can do the same, especially because everything you need to know about digital is online, and most of it is free at sites ranging from the Interactive Advertising Bureau (IAB) to ClickZ.

Make the commitment to a digital apprenticeship this summer and assure your personal relevance in the marketing communications business.

The Association of National Advertisers recently conducted their annual “Hot Button” survey. This year, the top-ranked hot button issue among CMOs is “experimentation.” Clients want their agencies to experiment with new solutions and new channels, because the old ones are quickly losing their effectiveness.

From linear to organic

Progressive marketers are challenging their agencies to push marketing in new directions, which in turn requires agencies to change how work is done in the firm. The traditional linear approach to campaign development that moves work from one department to the next must be replaced with an organic approach that allows the involvement of key agency functions all throughout the process.

And with the explosion of channels and virtually unlimited ways to communicate with consumers, the work of the agency is increasing in complexity with each passing day.

Disincentives for working collaboratively

Unfortunately, most agencies have a disincentive to work collaboratively because of their compensation structure. There are usually no “hours” in the fee for proactive thinking. Hours logged to jobs are tracked relentlessly, overages are policed ruthlessly, and managers constantly lament the number of agency people attending meetings. This isn’t exactly the kind of climate that encourages experimentation and collaborative innovation.

The traditional agency hierarchy is also an inhibitor. Layers of review and approval not only slow down the process, but also create an environment more focused on control and consensus than innovation and collaboration.

Nimble teams

A few forward-thinking agencies have taken the step of forming small teams charged with the responsibility to nimbly move work through the system. Brunner, a talented independent agency with offices in Pittsburgh, Atlanta, and Washington D.C., has what they call a “Momentum Team”℠ assigned to each major client. A Momentum Team℠ is composed of just four key people:

1. Account Manager
2. Brand Strategist
3. Contact Strategist
4. Creative Lead

The key to making this concept work is to endow the team with not only the responsibility but the authority. Is this risky? Perhaps. But evaluate the risk against doing things the way you always have, which isn’t likely to deliver the kind of agility and originality clients are increasingly demanding.

Redefining “meetings”

Besides the number of people involved on assignments, another factor working against effective integration and collaboration is meetings. Meetings are a necessary evil, but some firms have established a new approach to getting key people together that doesn’t involve reserving the conference room, checking Outlook calendars, waiting for meeting replies, and rescheduling due to lack of attendance. The Martin Agency has a practice they call “swirling.” The rules of swirling are refreshingly different:

• A swirl is not the same thing as a meeting
• A swirl can be spontaneous
• A swirl doesn’t have to be held in a conference room
• A swirl can be held standing up
• Not everyone on the team has to be present (they can catch up later)

The point is to create an environment where ideas can be discussed informally at many points throughout the development process instead of only during formal scheduled meeting. The result is more collaboration, more often.

Really embracing technology

Yet another way to make sure important information and insights are shared with the right people at the right time is to make much better use of technology. At The Phelps Group in Santa Monica, California, the discussion points, decisions, and action items resulting from a client-focused meeting are captured in real time using a keyboard and big-screen monitor in every meeting room. These meeting notes are posted for all team members to view and review – including the ones that missed the meeting.

With all of the incredible online collaboration tools available (like Basecamp, Workzone, Marketing Central, etc.), it’s a little archaic to continue a work development system that largely resembles the way agencies did things 15 years ago.

A risk you can’t afford not to take

These new approaches require some trade-offs and perhaps even some changes to the agency culture itself. But one thing is for certain: agencies can’t meet client expectations in the areas of experimentation, innovation, collaboration, and nimbleness using the old hierarchical, linear, hourly-based, technology-less approach of the past.

By now most agencies have realized that operating a separate interactive unit (or worse, a separate interactive brand) only postpones the inevitable confluence of digital and traditional skill sets in a marketing communications firm. A separate interactive “department” only perpetuates the notion that digital is a complex discipline that can only be mastered by the technically elite.

Back in the 1950s, special “television departments” in agencies were essentially the same thing. TV was seen as something so new, so different that it required its own discipline. The interactive department of today is the TV department of the 1950s. With the Internet on its way to becoming the world’s largest advertising medium within the next two years, it’s certainly time for digital to lose its status as a separate function and bring it aboard as a fully-integrated agency service.

New skills for every agency function

This means every function in the agency must add digital to its skill set.

Client service people must be able to talk with clients as easily about digital solutions as traditional solutions.

Project managers must learn how to manage a digital project as well as any other.

Media or channel planning professionals must have the knowledge and skills to plan and place digital media as well as mass media.

Digital project production must take its place right alongside print and broadcast (although outsourcing certain commoditized functions like programming still makes sense).

Creatives must learn how to concept and create in the digital space as well as in the mass media space.

But creative is the one function where a new team member is really needed: the experience designer. Instead of the longstanding writer/art director twosome, the new creative team is a threesome consisting of:

Experience Design is synonymous with User Experience (UX) or Information Architecture (IA). It has been a serious discipline in digital firms for a decade, and it’s now popular enough to have its own association and conference (see www.ixda.org), which this year is co-sponsored by none other than Crispin Porter + Bogusky.

Besides helping to concept digital solutions, here are some of the essential duties of the Experience Designer:

• Developing the structure, information architecture, and user pathways for digital projects.
• Collaborating with the visual designer to help execute the design.
• Working hand in hand with web developers, programmers and software engineers to deliver the final product.
• Coordinating with quality assurance professionals during implementation and testing.

Richard Grefe of the American Institute of Graphic Artists (AIGA) defines the role of experience design as FORM+CONTENT+CONTEXT÷TIME. Quite simply, the job of the Experience Designer is to make digitally-delivered information and interaction as simple as possible.

For the agency that wants to make digital a true core competency, it’s time to welcome a new member to the creative team.

One of the greatest challenges to agency profitability is the perception on the part of clients that some agency services are commodities. Because clients feel they can get these services down the street – or across the ocean – for less, there is intense pricing pressure on agencies in areas such as print production, website programming, and media buying.

Unless you do something to add value and turn these perceived “commodities” into something clients can’t get down the street, you’ll be in a downward spiral of competition for work that doesn’t have much of a margin. Not a very attractive business to be in.

Deciding What Is Core

If you step back and look at your services and capabilities, there are certain core competencies that are central to the positioning and focus of your agency. For most agencies, these services will be in the area of strategy and ideation (vs. tactics and execution). For the services that define your value proposition you should be charging a premium for two reasons: 1) Because they’re worth more, and 2) To help offset the smaller margins you make on execution.

Another more radical approach is to decide that you won’t offer “commodity” services at all. This is the philosophy adopted by many (if not most) of the successful new agency start ups in recent years. Strawberry Frog, Toy, Brew, Brooklyn Brothers, Fort Franklin, Wexley School for Girls, and others have all adopted the philosophy of what Ignition calls “big brains, small machine.” Their business model is to assemble a group of talented people who provide primarily strategy and ideation and outsource virtually everything else.

When asked how Strawberry Frog handles global brands with a relatively small staff, one of the partners explained, “We outsource everything the client views as a commodity.” In other words, they follow the precept “Either add value and charge accordingly or don’t do it at all.”

The Hollywood Model

Some agencies refer to this as the Hollywood model; staff the agency with a core group of very smart people, then assemble teams around them for each project as needed. Boston’s Partners+Simons has been following this model for years.

How do you decide what services to handle in-house and which to outsource? Spend a morning with your management team and take them through an exercise of listing all the services and capabilities needed by your clients, then rating these services on a scale of 1 to 10 based on the following:*

Based on your analysis of the above, each of these services and capabilities can be assigned to one of four groups:

CORE
Done in-house as a core competency of the firm.

PARTNERED
Performed in partnership with another firm.

OUTSOURCED
Assigned to an outside resource with little supervision from you.

AUTOMATED
Turned into an automated service using technology.

If you choose to simply do “everything” for your clients yourself, you will continue to dig yourself deeper into a “high-volume, low-margin” business. And that violates the first rule of holes, which is “When you’re in one, stop digging.”
—
*This model adapted from the work of Ric Merrifield, Jack Calhoun, and Dennis Stevens as published in the Harvard Business Review, June 2008 under the title “The Next Revolution in Productivity.”

By Tim Williams

Account planners have an innovative research technique they call “The Obituary.” In individual interviews or small groups, planners ask consumers, “Let’s say this brand just died. Write an obituary for the brand. What did it die of? Who will miss it? Who will come to the funeral?”

Respondents are asked to put the brand’s obituary in writing. Out of these responses come some fascinating insights about how consumers really feel about brands.

In seminars we teach around the country, we sometimes engage advertising professionals in an obituary exercise for something that’s near and dear to their hearts: the advertising agency. What do agency executives say when asked to write an obituary for the agency?

“Here lies the advertising agency. It struggled for years to remain relevant in the face of changing consumers, media habits and fierce competition. It was too big and too slow to be nimble, and reluctant to walk away from its heritage of thirty second spots. It died stubborn and alone.”

“The advertising agency passed of a narrow mind. It died from a lack of understanding that there is no such thing as “new media”. There is just media, and it is everything and everywhere – countless opportunities to create a connection with consumers beyond that which people used to call “advertising”

“The advertising agency, previously known for creativity, innovation and understanding consumer behavior finally died today. This was a long, slow death, prolonged by bad habits such as always taking orders from clients rather than solving problems; becoming production houses rather than developing ideas; and going after any and all new business rather than deciding who we are and what we want to be.”

These responses came mostly from young professionals in their 20′s and early 30′s. It’s telling that even this age group believes our industry is headed for extinction if we don’t change our ways.

To breathe new life into our business, we need to focus our attention on key questions like these:

1. What is the real value we should be delivering to clients? What do clients really pay us for?
2. How can we address client perceptions that the traditional account executive role has lost its value?
3. How can we break down the traditional department silos and get all functions engaged in developing media-neutral, cross-channel solutions?
4. How can we better adapt to the changing nature of client relationships (shorter engagements, rapid client turnover, etc.).
5. What capabilities do we need to effectively make the transition from mass communications to one-to-one communications?
6. How can we retool the production function to be more versatile and creative?
7. How can we demonstrate the accountability today’s clients want from their agency relationship?

The advertising agency as we know it is changing in revolutionary – not evolutionary – ways. Remember, you can’t cross a chasm with incremental steps.

By Tim Williams

There are plenty of tools for tracking an agency’s success – income statements, balance sheets, billing reports, ad infinitum.  No doubt you use these tools in meetings with agency management teams to assess how the agency is doing.

Most of these financial reports are merely a summary of lagging indicators; they are like looking in the rear view mirror.  They give you an understanding only of what has happened, but very little understanding of what is likely to happen in the months and years to come.

What’s your canary in the coal mine?

In the coals mines of the 19th century, a dead canary signaled the presence of dangerous gases that could lead to a deadly explosion in the mine.  For the coal miner, this was a critical “leading indicator”.

Agencies can look at important leading indicators to help them look ahead to their future success.  Unfortunately, hardly any of these indicators show up on a balance sheet.  Here’s a partial list of some of the key leading indicators of agency success:

• We have integrated digital into the fabric of the agency.
• We are capable of providing our clients with real-time campaign management.
• We provide our clients with the discipline of analytics to help maximize marketing success.
• We are well prepared for the trend away from mass communication to one-to-one communication.
• We have expanded the role of the media function to include all relevant communications channels.
• We have an organizational structure that minimizes silos and maximizes integration.
• We have a talent management system that utilizes both internal and external resources.
• We engage in inventive and unorthodox forms of promotion for our own brand.
• We are not dependent on timesheets to assess the value we create for our clients.
• We are willing to experiment with pricing and compensation arrangements in order to continually learn how to capture more value for what we do.
• We are actively attempting to own or license more of our intellectual property.
• We are developing new revenue centers that transcend the traditional “work for hire” model of professional service firms.

Measuring what matters

A performance measure can only confirm the past, while a predictive indicator can help you peer into the future. Most of the metrics agency executives use have zero predictive capability (unless your theory is the future will be an extrapolation of the past, a perilous assumption is today’s fast-changing world). In order to develop meaningful indicators of success, engage your management team in a meaningful discuss about the agency’s chief value drivers––the precursors of income and profits. The correct leading indicators will predict the lagging indicators. And that is the key to agency success.

By Tim Williams

Here’s your assignment: get your management team together to design the agency of the future. It’s not an easy undertaking. But asking these 20 key questions should help lead you to the right answers:

1. Beyond advertising, have we defined what business we’re really in?

2. What is the ultimate value that we need to deliver to become more relevant to our clients?

3. How can we address client perceptions that the traditional account executive role has lost its value?

4. What do we need to do to become more media-neutral?

5. How can we better adapt to the changing nature of client relationships (shorter engagements, rapid client turnover, etc.)

6. How can we tear down the walls between agency functions?

7. What’s stopping us from recommending more non-traditional solutions?

8. How can we expand idea generation beyond the “creative” department?

9. How can we provide the proactive thinking clients want and need?

10. How can we make the transition from mass communications to one-to-one communications?

11. How can we make interactive a part of the fabric of the agency instead of a specialized department?

12. How can we retool the production function to be more versatile and creative?

13. How can we demonstrate more accountability in our client relationships?

14. How can we flatten our organizational structure to provide better client
access to our best people?

15. How can we change roles or titles to better reflect what we really do?

16. Could we establish a talent management system for both internal and external resources?

17. How can we charge for the value we deliver rather than the time we spend?

18. How can we develop pricing as more of a core competency of the agency?

19. How could the agency profit more from its own intellectual property?

20. Could we develop new revenue centers based on our intellectual capital?

By engaging the brightest people in your firm in bringing inventive solutions to these issues, you’ll be taking the right steps to stay ahead of your clients. Far better to change than to be changed.