Posts Tagged ‘Agency Management’

Agencies are still operating in a “full scale” mode, but what’s needed today is “agile.”

In an attempt to stay true to the overreaching concept of “full service,” agencies are in the habit of assigning and assembling complete “account teams” for each major assignment and client. Meanwhile, time and cost pressures are driving in the opposite direction.   To better adapt to current client needs, agencies can take a page from software companies who have adopted the concept of “agile” development and production.

This way of working is based on “The Agile Manifesto,” which includes the following key concepts:

1. Build projects around motivated individuals. Give them the environment and support they need, and trust them to get the job done.
2. Simplicity — the art of maximizing the amount of work not done — is essential.
3. At regular intervals, the team reflects on how to become more effective then adjusts its behavior accordingly.
4. The team welcomes changing requirements, even late in development.
5. The team delivers working software frequently, from a couple of weeks to a couple of months, with a preference to the shorter timescale.

In an agency environment, this means fewer, better people operating in smaller teams.  It means less of a top-down, command-and-control structure and dismantling the cumbersome levels of review and approval that make work slow and expensive.  In the agile model, meetings don’t require the writer, art director, associate creative director, and executive creative director – they just require one senior creative who is empowered to make day-to-day decisions about the assignment.  Same goes for the levels of client service, media, etc.

In many ways, software companies are better models for what agencies could and should look like.  The philosophies of iterative development, continual optimization, and test-and-learn are essential to success in a marketing environment in which “good and fast” is better than “perfect and slow.”

The harmless-looking timesheet produces a variety of exceptionally harmful effects in professional service firms like agencies.

You can read the following comments from real people in real agencies and draw your own conclusions about the tyranny of billable time.

“Agency management gives mixed messages about what the agency values. We promise projects to clients with the lowest possible amount of hours, then are told to manage written-off time. The idea is that we can squeeze efficiencies out of the creative process, which can’t be done. So we have to decide where to go the extra step to make the project great, then listen to complaints about write-offs, or we have to decide to come in at the budget level, and not put extra effort into producing great work for the client.”

“The competition for client budgets within our own agency hurts our collaboration. There is no incentive for me to bring in other team members to work on a project, because they take budgeted hours away from my department, making us less ‘profitable.’ So while there is a greater agency profitability from collaborating and doing better quality work, it is undermined by departmental ‘profitability.’”

“I am basically penalized every time I contribute to an agency-related project such as our blog, recruiting new people, looking for new business prospects, or developing myself professionally. Because if I do any of those things, my “billable hours” drop, as defined by the agency.  This is a mark against my productivity.”

“People in salaried positions (which is most of us) often feel like we are treated as hourly workers with the ‘billable hour’ mentality.”

“Project estimates based on hours essentially plot one department against another for billable work.”

“Because everyone is so concerned with being billable, new employees aren’t getting trained.”

“The focus on write-offs is driving creative talent away from the agency. If I could write a piece faster, I would, because I have other work to move on to.  Sometimes I work really fast and get it right on the first draft. Sometimes I work really slow because I can’t find the right opening paragraph. Sometimes I’m going back to make something that’s a little weak stronger. You can make more money off the best work I produce than you can the quick work I produce. Because no client we have can duplicate my best work. They can all duplicate my quick work.”

“The hyper attitudes of management about “writing off time” means there’s no appetite for us to collaborate, experiment, or explore new ideas.  Our incentive isn’t to innovate, it’s to manage our time to the estimate.”

While I’ve paraphrased and edited a few of these comments (to protect the identities of the creators), they represent what Ignition hears consistently in the many internal surveys we do with marketing communication firms across North America and Europe.  Besides being an ineffective way for agencies to capture the tremendous value they create for their clients, the billable time system actually inhibits agencies from internal collaboration, professional development, and innovation.  It creates a system where efficiency reigns at the expense of effectiveness.  And if marketing isn’t effective, nothing else matters.

The agency business model is built around old metrics of success that have outlived their usefulness.

If you were a marketer, would you prefer to pay your agency for efficiency or effectiveness?  Yes, it’s a simplistic question with an obvious answer, but the sad fact is that most agencies are still selling – and clients are still buying – efficiency.

Efficiency is based on the old advertising model of exposure, which is measured by such time-honored metrics as reach, frequency, gross impressions, and cost-per-thousand.  But what if no one is paying attention?  And in today’s consumer-controlled marketplace, fewer people are.

No more frequency

As a matter of fact, the Advertising Research Council (ARF) has been lobbying for a few years now to discontinue the metric of frequency altogether.  Just because a media schedule achieves an average monthly frequency of 4 doesn’t mean anyone was actually paying attention.  So when agencies sell media programs based on the concept of exposure, they’re selling something of increasingly questionable value.

Effectiveness is what we should be selling.  Effectiveness is about engagement, measured by such metrics as attentiveness, receptivity, and page views.  Nielsen now evaluates not just which programs are most “watched” (exposure), but those that are most “liked” (engagement).  A lot of digital media are sold based on actual engagement.

Solving marketing problems through a different lens

The implications of this for agencies go way beyond the media plan.  When agencies approach a marketing problem through the lens of “exposure,” they instantly jump to the question “Is the budget big enough to sustain a media schedule?”  But if you look at the problem through the lens of “engagement,” the budget question is a lot less relevant.

Imagine that a small travel destination comes to you wanting big results.  Looking at this potential client with the “exposure” mindset, many agencies would just walk away because the client can’t afford much of a paid media program.  But if you approach this assignment from the “engagement” perspective, you might create something like the award-winning campaign for Queensland Australia tourism that was executed for a fraction of the cost of a conventional campaign and produced an incredible amount of impact.

Marketing spending will cease to correlate directly with market share

Remember that in a world where many of the major communications channels (YouTube, Twitter, etc.) have a media cost of zero, the real currency of marketing is no longer money, but ideas. Truly.  In the near future, market share will no longer correlate with how much money you spend, but rather how good your ideas are.

Because most agencies are selling the wrong thing, they’re also charging for the wrong thing.  We can get paid for the value we create (effectiveness) rather than the hours we work (efficiency). The question isn’t how – some of the most successful agencies and marketers are already working this way.  The question is when.  When do you plan to start working this way?  No one is going to force you – not the 4As, the ANA, not even your clients.  It’s up to each individual agency to decide they want to be in the effectiveness business and structure their approach for where our business is headed instead of where it’s been.

Under the flawed hourly-rate system good and bad ideas cost exactly the same.  Here’s how to change that.

Some of the biggest stars take the biggest risks when it comes to compensation by taking a percent of the box office.  A good film makes more than a bad film, and the leading actors get paid accordingly.

In the world of professional photography, a good photograph earns more than a bad photograph.  Because the photographer owns the rights, the more the photo gets used, the more the photographer earns.  The iconic Maxell photo showing a man in a chair “blown away” by the sound of Maxell tape is still earning royalties more than 25 years later.

Despite the fact that most of the professionals that advertising agencies draw upon to complete their work — photographers, actors, musicians, etc. — earn more for good work than bad work, most advertising agencies themselves are stuck in a compensation paradigm that doesn’t correlate to value.

It’s time for marketing communications firms to realize that they’re in the intellectual property business instead of the hourly rate business.  Here’s how agency principal Mike Reineck describes how his firm, Atlanta-based Kilgannon, captures the value they create:

“For the first 70 years of the twentieth century, agencies were paid based on how much media they bought for clients. This imploded after the growth of television drove the cost of media (and consequently the amount they paid agencies) through the roof. So for the next 30 years, agencies got paid based on how many hours of service they gave their clients. This imploded after client-side consultants and procurement folks practically drove agencies out of business by process-engineering the costs down to nothing.

Problem with all this is that it has nothing to do with the core offering of an agency. What is that – Media? Not anymore. Services? Not really. Most clients hire agencies because they want help persuading prospective customers to buy more of their stuff. That generally requires a bright idea that gets effectively communicated to those prospective customers. So, do clients pay agencies based on how bright the idea is? Or how effectively it reaches the customer? Or if it helps sell more stuff? Nope.

A media transaction is a market-determined price, so it’s easy to value. An hour of time is easily measured by a clock. But, how is the brightness of an idea measured, or the effectiveness of communication? These are really fuzzy, non-touchable things to measure. In the land of lawyers they’re called “intellectual property,” and payments for them are generally determined through royalties and licenses.

Underlying the license and royalty are the basic concepts of “Use” and “Value.” If intellectual property has value, it probably is going to be used a bunch. For example, Microsoft Office creates a lot of value to a personal computer. I am using it now to write and post this blog. Our enterprise decided to use it a bunch by loading a version on every computer in the agency.  Even though the disc it came on only cost a few cents, we paid a couple hundred bucks for each license on each computer. The program had value; we used it a bunch. We paid Microsoft accordingly. Our procurement people don’t pay Microsoft based on how many hours their programmers spent developing it, or on how many bytes of media the program occupied on the disc. A similar use and value license is employed in the music, publishing, or art world. Back here in advertising, though, we are a little slow on the uptake.

Despite the difficulty of measurement, agencies and clients need to move to a compensation model tied to “value and use.” It more closely links to what we do and what clients want from us. Most every idea gets embodied into some kind of material (an ad, a banner, content, SWAG, etc.). Most of these materials get used (TV, radio, internet, events). Generally speaking, the better the idea the more it gets used.

The payment system should deliver money to the agency based on the idea’s use and the value it creates, even if the client is still using the material and the Agency is not providing services. Why? Because the idea is still producing value to that client and they are using it. In a Darwinian Adam Smith-type system, this would ultimately lead to good ideas and the agencies that produce them flourishing, while bad ideas and their agencies go the way of the Edsel. Isn’t that the most efficient market mechanism?

At our agency, we have spent a long decade trying to transform our compensation systems to ones based on use and value. In the long run, it’s the only win-win for us and our clients. It involves us identifying ideas, tracking their use, and putting skin in the game based on whether they produce value or not for our clients. Last year 25 percent of our revenue came from intellectual property payments.”

(From the blog Kilgannnon Says.)

So next time you hear that an IP-based approach can’t be done, consider the fact that it already has been done.  It works because it aligns the economic incentives of the agency and the client, the hallmark of effective agency-client relationships.

Value-based compensation can take many forms, from simple to sophisticated.

Are you ready to get some experience with value-based compensation?  The first step, of course, is to be clear about what you’re really selling: the value you create, not the hours you work.  A value-based approach to pricing can take an almost endless variety of forms, but to get started here are three basic forms to consider.

1. Straight Fee

The simplest form of a value price is simply a straight fixed price based on the mutually-agreed value of an assignment.  This is different from a traditional estimate of hours multiplied by the hourly rate, because the value associated with the price isn’t correlated directly with time.

One of the best examples of a professional firm using a straight fixed price associated with value is the public affairs firm that brings tremendous value to an assignment by virtue of its contacts and relationships in government.  Sometimes a single phone call can create the desired value for the client.  It’s really irrelevant that the firm only invested a few hours in the assignment.  What’s relevant – and valuable – is that the client’s objective was accomplished.

2. Usage Fee

More and more, the best solution to a marketing problem is not a conventional advertising campaign, but rather some other form of branded content.  Yet structurally agencies still operate as producers and distributors of “ads,” even going so far as to stipulate that their work is “work for hire” that is wholly-owned by the client.

Compare this to the creative service partners agencies work with: actors, voice talent, models, musicians, and photographers.  A photograph is owned by the photographer and licensed to the firm or client.  The more a photograph gets used, the higher the price to the marketer.  The less it gets used, the lower the price.  This correlates directly to the value of the image to the client.

For example, a photographer typically charges a flat fee to take a photograph, but this never comes close to the income the photographer needs to make the assignment profitable.  The photographer’s “session fee” is subsidized by the licensing fees for the use of the image.  A similar approach could be used by agencies where the development of branded content is priced significantly lower than in the traditional “work for hire” model; the firm then makes its real money on the usage.

With the usage fee, the more effective the branded content, the more it gets used, the more the agency earns.  This approach actually solves the problem many marketers have with hourly-rate system where a bad idea costs the same as a bad idea. Not so when you charge like photographers do.  (See American Society of Media Photographers for a look at how the usage concept works.)

3. Results Fee

Unlike the “straight fee” which is a fixed price, a “results fee” is a variable price.  In the results fee approach, the firm ties its compensation directly to specific indicators.  Progressive consulting firms pursue this approach.  Over 30% of Accenture’s contracts include some type of performance measures.

When identifying KPI’s — Key Predictive Indicators — keep in mind that the health of a company is not measured exclusively by one metric any more than the health of the human body is measured exclusively by heart rate.  Choosing the right metrics is critical, of course (the subject of a much longer discussion), but keep in mind they can all be weighted based on the agency’s ability to influence them.

For example, agencies are famous for arguing that they don’t have enough control over sales to tie their compensation to it.  Fair enough.  Make sales just one metric of several, and assign it a low weighting.  Assign a higher weighting to things where you have more direct control and influence, which might include such measurements as brand awareness, brand likability, website page views, etc.

Beyond these three basic approaches, marketing firms can exercise remarkable creativity in developing compensation approaches based on value created vs. hours worked.  All it takes is your willingness to start experimenting with a better way to get paid.

Time to bring IT out of the back room and put it to work for clients

Exceptional client service is key to agency success, but the truth is that most agencies deliver it.  That’s one of the reasons our business is called “professional services.”  Your firm undoubtedly ranks high in “high touch.”  But are you fully leveraging technology to help improve the operations of your firm? Are you truly “high tech,” or are you mostly just mirroring what most firms do?  Is your agency deep into the digital stream, or mostly standing on the edges?

Maximizing technology to increase agency effectiveness

Because agencies are populated with knowledge workers, not manual laborers, agency executives assume that increased productivity can only come from making people work harder.  But there’s much more that marketing communications firms can do to improve both efficiency and effectiveness, and it starts with making much more aggressive use of technology.

In the enlightening book Reinvent Your Enterprise, consultant Jack Bergstrand asks:

“Does it take your company a couple of weeks just to set up a meeting? If so, you are either in trouble or headed toward it.  If your enterprise can’t improve its knowledge work productivity, your firm’s best years are behind it.”

In most firms, “Information Technology” is mostly about making sure people have working hardware, access to the network, and reasonably current versions of basic operating systems and software. But increasingly, clients expect their agencies to be using technology to maximize value in the relationships. We now see questions in RFPs like this one:

“What web-based tools or systems do you use to create operating efficiencies, manage costs, or service your clients?”

Technology essentials for agencies

Unfortunately the only technology most agencies use with their clients is email.  Sure, email is easy, but it’s a horribly ineffective way of communicating and collaborating with clients.  The essential job of IT in an agency is to equip the firm with proven technology solutions for:

Project management: Abolishing the traditional job jacket and using a software platform (like Advantage or Workamajig) not only to  move work through the system, but to attach and catalog all relevant digital assets, including creative briefs, copy, art elements, and even finished production files.

Presentation: Attaching a PDF to an email is an exceptionally poor way for an agency to present and sell its work.  Instead, progressive firms are using real-time presentation and communication services such as WebEx, Fuze Meeting, or ConceptShare.

Collaboration: The state-of-the-art way to collaborate with clients is using online services such as Basecamp or Workzone which serve as “virtual offices.”  All correspondence and relevant files are cataloged, organized, and instantly accessible online.

The benefits of making this upfront investment of time and money will be immediately apparent.  Art directors will no longer have to waste an hour looking for a file (a complaint Ignition hears often).  Clients will no longer have to call and ask you to “please email that file again.”  And your batting average for getting good work approved will go up, leading to fewer do-overs.  Even revisions are likely to decline as a result of better communication and more accurate version control of files.

Procter & Gamble’s new CEO Bob McDonald keeps no paper files.  He wants to fully digitize P&G, and to the extent possible, its marketing.  Would you rather be following your clients or leading them?

Positioning isn’t logical.  If anything, defining a differentiating value proposition for your firm will take you in the opposite direction of “common sense.”

Logic says your agency will grow faster by targeting the “general market.” But some of the largest and fastest-growing agency brands are squarely focused on a particular type of client, not every type of client.

Of the top 25 advertising agencies in America, more than half are specialist firms, not “full-service” agencies. Focused agency brands like Rapp, Digitas, and Wunderman are actually larger than general market agency brands like DDB, Ogilvy, and Y&R.  In Minneapolis, a city that has spawned more than its share of talented advertising agencies over the past few decades, the largest agency is not Fallon or Campbell Mithun – firms that help put Minneapolis on the advertising map – but rather Carlson Marketing, a specialist in customer relationship marketing.  With revenues of some $265 million, Carlson Marketing is nearly four times larger than any other agency in the city.

Logic says that an agency can increase its revenues by broadening its line-up of services. But experience shows that the most successful brands deliberately cultivate a narrow line.  They know that depth is much more effective strategy than breadth.  This is particularly true for professional service firms, where your product is your intellectual capital.   No client ever buys a “wide range of expertise,” but rather a specific kind of expertise.

Being afraid of “too much focus” is the mistake of assuming narrow is the same thing as small.  Starbucks is narrow – coffee – but it certainly isn’t small.  Intel is narrow – microchips – but ranks as a Fortune 100 company.  In professional services, some of the largest firms are some of the most focused.  For example, while most other advertising agencies attempt to position themselves as “full service,” Zimmerman is focused on the retail category.  They call their specialization “brandtailing” – the combination of strong expertise in both branding and retailing.  As far as ad agencies go, this is a pretty “narrow” focus.  But the result is anything but small.  With billings of over $2 billion, this agency employs several thousand people.

Logic says that diversifying and creating other divisions will helpp grow your firm in these economically challenging times.  This type of diversification may add to your revenues, but it rarely adds to your profit.  This is mostly due to the diffusion of your firm’s energy and resources.  Your agency and your management team (especially if you’re one of the smaller independents) can really only optimize one strategy at a time.

The other argument for diversification is that it broadens your risk — if one business goes bad, the others are there to protect you.  Again, this sounds like inarguable common sense.  But experience and research shows that it’s almost never an effective way to maximize your profits.  The most profitable companies in the country are without exception those that are the most focused, not those that are the most diversified.

To make matters worse, agencies that do choose to establish additional divisions tend to make the same mistake their clients make; they extend the existing agency brand name onto these new companies.  Logic says this will create faster, higher awareness at lower cost.  But marketing text books are littered with examples of line extensions that literally destroy the meaning and value of a brand.  In professional services as well as packaged goods, line extensions rarely if ever result in a strong brand that generates profits without cannibalizing the parent brand.  This is because your brand can really only stand for one thing at a time.

The main reason so many brands — agencies and others — fail to reach their potential is because they do what seems logical instead of what’s actually effective.  As marketing professionals, we in the agency business should know better.

*Heraclitus picture courtesy of Cote – Flickr

Now more than ever, marketing communications firms need to analyze their revenue streams and find more ways to extract value from the services they provide.  “Business as usual” isn’t an option in today’s economy.

Agencies need to apply creativity to solving their revenue problems, just as they do to solving their clients’ marketing problems.  Here are twelve good questions to help you capture more value:

1. What opportunities could we pursue to develop or package our intellectual property for sale or license?

Instead making all our money in a “work for hire” model, do we have a knowledge base or proprietary information we could turn into a source of revenue?  What would it take to develop and package it for sale?

2. Could we experiment with charging minimal fees for concept and production and then charging for usage?

This is the business model of most of our creative services suppliers: photographers, musicians, talent, etc.  If it works for them, why couldn’t it work for us?

3. What missed opportunities have we had to apply some creativity to pricing (rather than just estimating our costs)?

This is the first and most essential question we should be asking.  How can we get our people to understand that we’re not selling our costs, but rather our value?

4. Do we have any current clients with whom we could structure a simple compensation agreement in which we are paid for leads, inquiries, clicks, downloads, etc.?

Which of our clients might be willing to pay us for the results we produce rather than the hours we work?

5. Which of our clients would be willing to pay us more money if we take more risk?

Do we have a client who is sophisticated enough to want to “grow the pie” rather than focusing on how big of a slice they give us?  Are we willing to accept a different form of risk (knowing that every client relationship carries some risk, not the least of which is the risk of not making money!)

6. Could we propose a “value audit” for current or prospective clients to help identify drivers of success upon which we could base a compensation agreement?

Rather than jumping straight to “scope of work,” could we get some experience with the concept of “scope of value” Could we use this approach to help differentiate ourselves in a new business situation?

7. How can we help our clients identify their real brand success drivers and measure what matters (not just sales and market share)?

Could we employ account planning or analytics to help our clients identify and test their real success drivers, then build our compensation around our ability to move these drivers in the marketplace?

8. Would we make more money if we raised our prices on “high value” services and lowered our prices on “low value” services?

Could we make most of our profit on the services that are most highly valued by clients?

9. Could we add value to a particular service and charge more than other agencies?

How could we take a “standard” service and differentiate it in a way that adds more perceived value?

10. Could we find a more efficient way to deliver a particular service and charge less than other agencies?

Could we use technology or streamlined work processes in a way that would allow us to deliver a production/distribution service at a much lower cost than other firms?

11. Which 20% of our clients produce 80% of our profit?  How can we cultivate more work from them?

Knowing that a handful of clients produce most or all of our profit, how could we provide (and capture) even more value from these clients?

12. Who are our low-value, unprofitable clients?

Unprofitable clients really offer us only two options: develop new compensation agreements with them, or resign them.  What are we waiting for?

Because most agency leaders want to create an environment in which ideas can flourish, they go out of their way to grant as much freedom to their staff as possible.  Most of the time this takes the form of a relaxed workplace, a relaxed dress code, and relaxed personnel policies.

But a laid-back environment, by itself, isn’t a very powerful catalyst for creativity.  Otherwise, every stress-free work environment would be a hotbed of innovation.

Putting energy into the right things

Sociologists have shown that the best way to create a sense of freedom in your people is to instill a sense of purpose.  A former worldwide creative director for Ogilvy & Mather, Norman Berry, once said “Give me the freedom of a tightly-defined strategy.”  Once you know the strategy – or the purpose – you have the freedom to solve problems rather than wonder about which problems it is you’re trying to solve.

People in purpose-less organizations spend much of their energy wondering what it is they’re supposed to be accomplishing (beyond their day-to-day tasks).

The primary unspoken question on the minds of most agency people is “Where is this agency headed?  What are we trying to become?”  Imagine the collective power of an agency focused on a common goal and vision of the future.

Defining purpose

While most business organizations seem motivated mostly by external factors — the “competition” — purpose is about being motivated from the inside.  It involves questions like:

1. Why does this agency exist?  Why was this agency started in the first place?  What did you expect to accomplish that was different or better than other agencies?

2. What is the meaning in what we do?  Beyond providing a paycheck, what rational, emotional, social or psychic benefits does this organization provide to its stakeholders?

3. What significant contribution does the agency make to the industry, the profession, or the world?  Is there a “greater good” served by the agency?

A calling beyond employment

Most advertising professionals realize that they didn’t just land in this business.  Rather, they were called to it, much like teachers, artists, or civil servants feel called to their line of work.  Defining the agency’s sense of purpose is largely a matter of remembering why you all got into this business in the first place, and what you expected to be able to accomplish by devoting yourselves to a career in advertising and marketing.

You know you’ve been successful in defining your purpose if:  1) It’s inspiring. 2) It’s about meaning, not money, and 3) It’s very difficult to fully achieve.

In a recent “Recession Survey” from the Association of National Advertisers (ANA), 71% of client respondents are challenging agencies to reduce internal expenses and/or identify cost reductions. 56% are planning to reduce agency compensation (compared with 32% a year ago).

My friend Tom Finneran, Executive Vice President of the American Association of Advertising Agencies, says AAAA members are under tremendous pressure from clients on compensation. Current client tactics include:

• RFP’s that focus extensively on price.
• Procurement inviting more “competitors” to pitch and bid on projects.
• Unilateral procurement mandates to reduce fees with little to no reduction in scope of work.
• Procurement led processes that demand extensive agency “transparency” of agency labor costs, overheads, profit margins, hourly rates, etc.
• Clients being coy about revealing what they are budgeting for major marketing expenditure components.
• Procurement groups trying to use the recession to re-negotiate contracts and to edict extended payment terms.

Moving toward “perfect competition”?

It’s no wonder agencies are feeling more pressure on their margins than ever before.  Some parts of of the agency business are starting to match up with an economic theory called “perfect competition,” which is characterized by these conditions:

1. The customer is in control. (This is increasingly the case, evidenced by the rise of procurement.)

2. Excess supply. (There are 12,000 agencies in America vying for client business.)

3. Large numbers of small firms. (Most of these 12,000 are definitely small firms).

4. A homogeneous product. (While the quality and inventiveness of agency work certainly varies, increasingly clients view agency output as similar. When it comes to production, clients view these services as identical.)

5. Total access to information. (Clients demand — and mostly get — very detailed information about every dimension of the agency operations and cost structures.)

6. Low barriers to entry. (The belief that “anyone can start an agency” is largely true. It’s also true that small agencies come and go with great regularity.)

The above conditions are truer for the “tactical/manufacturing” side of our business than the “strategic/conceptual” side. Nonetheless, we’re on dangerous ground.

Magic and logic

The IPA (Britain’s version of the AAAA) has coined the terms “Magic” and “Logic” to describe what agencies do. The “Magic” is the high-value brand development, strategies, and concepting — things that clients generally can’t do for themselves (at least can’t do well, because the best talent in this area still goes to agencies). The “Logic” part of our business is the lower-value production and execution work — work that clients actually can do themselves (or at least believe they can).

The Project Lifeline

John Minty, CFO of Venables Bell & Partners, believes that every assignment has a “Project Lifeline.” On one side of the lifeline is the strategy/concept work that clients still value and are willing to pay for. On the other side of the lifeline is the increasingly-commoditized production/execution work that clients believe they can get cheaper down the street. The goal of VB&P is to maximize the value they provide to clients by emphasizing their abilities and services on the left side of the lifeline.

The agency business must begin charting a course away from commoditization if it is to remain relevant, valuable, and profitable. We must do that by developing and offering differentiated, high-value services. Particularly when it comes to dealing with procurement, we cannot negotiate our way out of pricing pressures; we can only differentiate our way to success.