Posts Tagged ‘Agency Management’

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.

Given that a great many agencies are struggling financially right now, the question “Are you risking enough?” may seem wildly out of context. But this is precisely the right question to be asking.

Agencies, like most businesses in today’s economy, are going to great lengths to avoid risk. It’s easy to assume that the least risky path is to pull in your horns and keep plowing forward with your current business model. This is essentially the strategy of “just try harder.” But marketing communications firms are at the nexus of the Great Recession and the Great Upheaval of Mass Marketing. Continuing on the traditional agency path is by far the greatest risk you could possibly take.

Don’t risk everything, but be willing to risk something

Especially now, it’s important for marketing executives to understand the nature of risk. Risk is inherent in absolutely everything you do, starting with your drive to work every morning. If you own a business, just turning on the lights and incurring payroll expenses every day is a risk. Then there’s the risk that your largest client could get acquired, your most talented creatives could leave, a group of employees could decide to start their own agency, and everything else that may keep you up at night.

Choose your risk instead of letting it be chosen for you

There’s risk in every decision you make about your firm, but there’s actually greater risk in not making decisions. You can choose to be either proactive or reactive when it comes to risk. You can make active decisions about the kinds of risks you believe your agency should take, or you can sit back and let your firm be passively subject to the risks that are inherent in running a marketing communications firm in an era of constant and disruptive change.

In Ignition’s view, here are 15 of the greatest risks to agency profitability now and in the future:

1. A skill set built mostly around “interruption” instead of “engagement.” Attempting to solve marketing problems through paid mass media.

2. A digital department in place of a digital competency. Viewing digital as a separate discipline rather than mandating that every agency professional learn and practice it.

3. Core competencies focused on “one-to-many” instead of “one-to-one.” Irrational fear of databases and CRM, which are the future of marketing. Mass messaging instead of mass customization. Broadcasting instead of narrowcasting.

4. Continuing to focus on “brand-to-consumer” communications at the expense of “consumer-to-consumer” communications. Viewing consumers mostly as an audience instead of as a medium. Continuing to practice controlled communications instead of open conversations.

5. Lack of analytics and tools to measure and demonstrate effectiveness.

6. Production people skilled in traditional media output instead “producers” in the Hollywood sense. Linear instead of organic approach to production. Moving on to the next campaign vs. analyzing and optimizing the current campaign.

7. Developing media plans instead of channel, communications, conversation, or engagement plans. Media placement instead of media creation.

8. Creating brand transactions instead of brand relationships. Producing one-time sales instead of helping clients nurture and cultivate customer relationships.

9. Continuing to rely on the mass media-centric “big idea” instead of “big multichannel ideas.” Advertising production instead of multichannel production.

10. Expecting “account executives” to be both strategic leaders and project managers (these are two very different skill sets, especially in the digital age).

11. Working exclusively in the realm of brand perception instead of brand experience. Helping clients only in the “pre-purchase” phase instead of purchase and post-purchase.

12. Standing for everything instead of standing for something. Supporting the increasingly unrealistic cost structure that comes with attempting to house every possible service under one roof. A business strategy that must support both high-value product offerings (strategy and ideation) and increasingly “commoditized” product offerings (basic production and execution).

13. Continuing to manage knowledge workers in a framework left over from the industrial age. Knowledge workers — especially those in the professional services — need a different set of tools, resources, and work policies to be effective. Staff management instead of talent management.

14. Continuing to allocate client budgets to media instead of creative. In a world where many of the most powerful media have a cost of $0, ideas are the real currency of marketing, not money.

15. An accounting and compensation system built on time, costs, and efficiency rather than outcomes, value, and effectiveness. Selling hours worked instead of value created.

This adds up to a lot of change. Which is why agencies need to move from an attitude of “tried and true” to “test and learn.” Because they’re used to functioning as third-party “agents” on behalf of their clients, agencies aren’t used to investing their own capital and taking risks on behalf of their own brands. But now agency leaders must move beyond disrupting their clients’ brands and instead disrupt their own brand.

These are trying times in the agency business. The latest research shows that advertising spending is projected to decline well into next year. Marketers are spending less and expecting the same (or better) results. The response from agencies is to cut costs.

But is there another way to respond to the upheaval in our business? What would happen if agency leaders invested the same amount of energy in creating opportunities as they do in solving problems?

Growing vs. shrinking

Is it realistic to think that marketing communications firms could be growing, developing and improving in this environment? Some are. But it means agency professionals have to stop investing all their time in “yesterday” and invest some of it in “tomorrow.” Disruptive change must be met with disruptive change.

	Growing	Shrinking
Capabilities	Strong integrated digital capabilities Adoption of non-paid techniques and channels Outsourcing commoditized services Expertise in one-to-one marketing Develop branded content, not just advertising Analytics ability Real-time – not just long-term — campaigns	Business model dependent on production and distribution of advertising Failure to reinvent “media” function Undifferentiated service offering Unwillingness to separate strategy from project management Lingering technophobia (especially among agency principals)
Business Development	Focused business strategy vs. everyone is a prospect Attention to online reputation of agency brand Emphasize marketing activities over sales activities	Reliance on outdated techniques like cold calling, mailings No one in charge of marketing the agency brand Investing in every opportunity that comes along vs. careful selection
Pricing and Compensation	Price based on value instead of hours Emphasis on effectiveness instead of efficiency Develop and charge for some forms of intellectual property (vs. just “work for hire”)	Wasted energy around tracking time, billable time reports, etc. Overcharging for commoditized services, undercharging for high-value services

Writing in a recent issue of the Harvard Business Review, executives of the consultancy Deloitte believe that “Unless firms take radical action, the gap between their potential and their realized opportunities will grow wider…Institutions must increase not just efficiency but also the rate at which they learn and innovate…”

If you’re serious about growing, then developing new products, services, and approaches should be at top of your daily “to do” list. Don’t wait until your calendar eases up, because it never will. As successful entrepreneurs know, business building means acting rather than being acted upon.

In turbulent times like these, marketing communications firms are scrambling to identify the best business strategy not only to get them through this recession, but to position themselves for success once the recession is over.

The natural response is to “try a little bit of everything”; to expand your services, broaden your capabilities, and try to appeal to more clients. It seems like common sense, but it’s exactly the wrong response. The best growth strategy — in good economies or bad — is to decide what not to do.

Expand by narrowing

Imagine two architectural firms: one that’s extremely focused with a clear value proposition, and one with an unfocused business strategy that attempts to do everything for everybody. Which of these two firms would have:

• The strongest earning power?
• The largest geographical market area?
• The fewest competitors?
• The greatest degree of respect from clients?
• The most sophisticated clients?

The answer in every case is the focused firm. Let’s look at each question individually.

The greatest earning power. It’s a simple fact that the specialist earns more than the generalist. This is true in medicine, law, engineering, architecture, consulting, construction, you name it. This is because the specialist knows more, and we live and work in a knowledge economy.

The largest geographical market area. Focused firms draw clients from all over the globe, not just from their own Zip code. That’s because what they’re selling isn’t available down the block from some other firm just like them.

The fewest competitors. The easiest way to narrow your competition is to narrow your focus. There are far fewer specialists than generalists, and the law of supply and demand dictates that the less supply the greater the demand.

The greatest degree of respect from clients. Knowledge and expertise equals respect. An effective value proposition allows your firm to develop and leverage its intellectual capital. This makes you valued – and respected – not just for what you do, but what you know.

The most sophisticated clients. In the boardrooms of professional firms everywhere is heard the lament “If only we had better clients.” A quality value proposition attracts a quality client. A business that proclaims “we’re right for everybody” is logically going to attract both the good and the bad.

As business strategist Chris Zook writes in his insightful book Profit from the Core,

Having a clear sense of business boundaries and of the definition of your core is a critical starting point for growth strategy. Identifying the core of your business is the first step in determining how to grow.

The marketing communications industry has reached a point where radical change is now pragmatic change. Incrementalism is the worst possible approach, not the best – nor even the safest.

This is not the time to deliberate whether digital marketing will continue to grow (it will), whether mass media spending will continue to shrink (it will), or whether marketers will continue to want more innovative problem solving from their agencies (they will).

Needed now: a new creative team

Industry observer Warren Berger, writing in a recent issue of Communication Arts, argues that the writer-and-art-director-in-a-room-developing-big-ideas model simply does work in a world where brand building is accomplished through lots of multifaceted ideas that work in multiple formats on multiple devices, all seamlessly integrated. “What’s needed,” says Berger, “is a more wide-open, technologically sophisticated, collaborate, multidisciplinary team approach to creating brand communications.”

Most agencies are still organized in this old Bill Bernbach-inspired model. It worked effectively in the days of Mad Men, but it’s not what’s needed in a world where marketers need work that engages in technology-centric, consumer-controlled channels.

Trading analog dollars for digital pennies?

A recent study published in AdWeek by the IBM Institute for Business Value says that 65% of marketers will increase their digital marketing this year. The exact same number — 65% — said they would decrease their traditional marketing in 2009.

The means the scale of agency work is changing in almost every dimension, from production to media. The time-honored formula of dividing advertising budgets into 85% media and 15% production gets flipped on its head in the digital world. A recent paper published by the 4As cites research showing how money is moving in this value chain:

Source: Bear, Sterns & Co. “Advertising Outlook – Perspective from Wall Street,” 2008

As this study shows, the news is not all bad. The move to digital can actually produce more income for the agency, not less, but agency principals must change their perspective about where their money comes from.

So should you be working on incremental change at your firm, or disruptive change? I think you know the answer.

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?