Posts Tagged ‘Agency Management’

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?

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 Ron Baker

In countless Ignition surveys of agencies across the country, you will read the response “people are our greatest asset” (or “resource”). The problem is, thinking of workers as “resources” is demeaning, implying people are no different from, say, timber, to be harvested when you run out.

Perhaps one of the reasons for the use of these demeaning words is agency managers do not understand the worth of their people because they cannot be measured as exactly as accountants record assets and other tangible resources.

Human capital, not human resources

Humans deserve more respect than a phone system or computer. Assets are passive, bought and sold in the marketplace at the whimsy of their owners; conversely, knowledge workers have ultimate control over their careers. Why do we insist on perpetuating this belief that people are resources to be mined rather than human capital to be developed?

A Chinese proverb teaches the beginning of wisdom is to call things by their right names. Your people are not assets, resources, or inventory, but human capital investors seeking a decent return on their investment. In fact, your people – and especially those who are knowledge workers – are actually volunteers, since whether they return to work on any given day is completely based on their volition.

Aligning movitivations

Consider for a moment how people decide which volunteer organizations to which to contribute some of their time and talent. The choice is usually based on a desire to contribute to something larger than themselves. They work hard for these organizations – some would say harder than at their regular jobs – because they are dedicated to the purpose, and possess the passion, desire, and the dream to make a difference in the lives of others. All for zero monetary pay. Why? This is not just an economic decision, it is a psychological and emotional decision.

—

Ron Baker is Chief Value Officer of Ignition, a consultancy devoted to helping marketing organizations create and capture more value. He welcomes your comments at rbaker@ignitiongroup.com

By Tim Williams

While the agency community explores the concept of value-based compensation, there’s another important dimension of value that agency managers should consider: the value created by their employees.

Just as with current agency compensation models, the compensation model we use with our people measures the wrong things. That’s one of the major reasons performance reviews are chronically neglected in most agencies. In numerous agency surveys conducted by Ignition, employee performance planning consistently receives one of the lowest ratings. Both managers and employees undervalue the critical role good performance planning can play in an agency’s success.

The value-based employment agreement

Consider that the same principles that apply to value-based agency compensation can apply to employee compensation. Rather than paying people for hours worked, you should pay them for results achieved. Instead of focusing on time and activities, focus on value and outcomes.

Best Buy, the electronics retailer headquartered in Minneapolis, experimented with this approach with great success. Based on a program they call “Results Only,” employees and managers meet at the beginning of the year to identify specific outcomes that need to be achieved. Employees are given the flexibility to achieve these outcomes by working in the office, at home, or at the beach. There are no timesheets and no requirement to work a certain number of hours. If the desired outcomes are achieved, the company feels it received full value for the money it paid the employee, regardless of the number of hours worked or the number of days in or out of the office. After the first year of his program, Best Buy reported a 35% increase in productivity among “Results Only” employees, and a 90% reduction in turnover.

Anything worth doing is worth doing right

Admittedly, this approach takes a lot more effort. It requires upfront planning, articulating clear expectations, and identifying the value each employee is expected to create for the company. But isn’t this the essential role of management in the first place? Instead, most agencies run at a frantic pace characterized by little strategic planning, inconsistent performance planning, and virtually non-existent new employee orientation and training.

The way to improve the productivity of your agency is not to make your people work harder, but rather enable them to work smarter. Instead of just keeping a watchful eye on whether or not your people are doing things right, help them focus on doing the right things.

Feeling more valuable

Every person in the agency should be guided in their daily actions by a value-based performance agreement – especially your supervisors and managers. By investing the necessary time and effort in identifying specific desired outcomes, then tying the employee’s compensation to their willingness and ability to accomplish these outcomes, you’ll create more value for your agency while also making your people feel more valuable. As a professional knowledge firm, your goal should be take a value-based approach in every aspect of your business.

By Tim Williams

In the hustle and bustle of servicing demanding clients, many agency professionals have lost their bearings.  They no longer distinguish between what is urgent and what is important; everything is urgent – or at least it appears to be.

Account executives spend their day in a reactive mode, waiting for the next e-mail or voice mail to tell them what to do.  They often end their work day feeling that they kept up with their inbox but didn’t accomplish anything important.  It’s no wonder that many talented people are simply leaving the agency business altogether, because they’re not getting the sense of achievement that is at the core of why professional people work in the first place.

What can be done to change this climate of reactivity and low professional satisfaction?  The first step is realizing that as an agency leader or manager, your primary responsibility is to create the right conditions for your people to succeed.  This includes:

Help your people understand that you are paying them for value created, not hours worked. If your people are held accountable for achieving important outcomes for the client rather than logging a specified number of hours on their timesheet, it has a big effect on how they spend their time.

Engage in professional development for all employees. Agencies are not professional service firms, they are professional knowledge firms.  Unless your people are constantly learning, they are not providing the value clients are paying you for.

Provide a better orientation for new employees. Instead of assuming new people know the ropes, show them the ropes – not only your systems and approaches, but your beliefs and principles.

Teach your people to prioritize. Unless agency professionals act on what’s important rather than just react to what’s urgent, they will never achieve the sense of satisfaction they seek from their work experience.

Here’s a useful way to think about time prioritization:

Which quadrant do most agency people go to first?  Quadrant C, because it’s easy.  But that’s not where they add value to client relationships, and it’s certainly not where they’ll find the most professional satisfaction.

You, as leader or manager, can be the catalyst for an important climate change in your agency.  But you’ll have to lead by example, as all successful agency leaders do.

By Tim Williams

Most advertising professionals are earnestly looking for the right answers to what they should be doing to make their agencies more relevant and valuable to clients.

But most good answers are the result of asking good questions. Here are three of the most important:

The Wrong Question: How can we get paid for all of the time we’re spending on our client’s business?

The Right Question: How can we get paid for the value we are adding to our client’s business?

The system most agencies use to price their services – hours, costs, full time equivalents, etc. – are all focused on internal operations and have nothing to do with the external value created for the client. We are chasing the wrong rabbit.

The Wrong Question: How can we become more efficient in the way we service our client’s business?

The Right Question: How can we be more effective on our client’s business?

Advertising agencies don’t exist to be efficient; they exist to create wealth for their clients. A compulsion to increase efficiency (doing things right) reduces the firm’s effectiveness at doing the right things. The relentless pursuit of efficiency hinders agencies from focusing on the things that truly matter – proactive ideas that build the success of the client’s brand.

The Wrong Question: What do we need to start doing to be more successful?

The Right Question: What do we need to stop doing to be more successful?

Most agencies don’t need to add to their list of capabilities and category experience – they need to subtract. They need to decide what they are not. Increasingly, clients are looking for “best of breed” partners, not “full-service marketing communications firms.”

Unless we ask the right questions, we’ll always get the wrong answer. The point for advertising agencies isn’t to get better; it’s to get different.