Is Your Agency the Best House in a Bad Neighborhood?
By Tim Williams
The agency Huge has been through a monumental transfiguration. In a period of about 18 months, they restructured their entire service offerings from the typical bullet-point list of capabilities and competencies to an elegant suite of solution-centric programs and products. In effect, they have developed a fully productized business model.
However, when we look around the rest of the industry for examples of truly transformative business models, most of these renovations are cosmetic at best. Agency leadership teams emerge from offsite planning meetings with pronouncements that the firm will undergo a “restructuring” that usually results in nothing more than a new website featuring yet more offerings tacked onto an already overly ambitious service set.
Playing in the wrong ecosystem
Max Baxter, who was at the helm of Huge when they began their productization initiative, was committed to the idea that he didn’t want to just remodel the agency to be a nicer house without considering the surrounding neighborhood. The current agency neighborhood, Baxter reasoned, is a homogeneous array of decaying row houses built decades ago based on a design that has long since outlived its usefulness. As everyone with any real estate experience knows, building a modern new house in a worn-out neighborhood isn’t a great investment.
Being the best house in a bad neighborhood is the equivalent of being the leading brand in a declining category. The advertising agency industry, as a category, is a mere shadow of its former self. Yes, advertising spending continues to grow, but the way this money is being spent isn’t always directly benefitting agencies. In-house agencies and direct deals with media have seriously eroded the role and prominence of agencies in the marketing ecosystem. There are fewer and fewer “Agencies of Record,” and project work now dominates the advertising landscape.
Waiting for the doorbell to ring
Rather than reinventing their future, most agencies seem to have accepted their fate. Some small independent agencies have found a way to thrive in this environment by landing creative assignments from brands who heretofore would be leveraging the resources of multinational agency partners. While the opportunistic business model of this current creative class of independent agencies might be a recipe for short-term success, it doesn’t address the problem of the agency category as a whole.
Too many firms are now operating as fast food restaurants, taking orders in the form of client briefs, rather than offering the type of top-down problem-solving that built the foundations of the agency business. To see the reactive way in which agencies just “fill scopes” would make the likes of Bill Bernbach or David Ogilvy turn over in their graves.
Much has been written about the dynamics that created this environment. A series of inflection points dating back to the 1980s served to strip value away from the agency business, most notably our industry’s decision to “Balkanize” itself, followed by the adoption of the billable hour as a compensation model. Step by step we chipped away at the foundations of a business model that was originally designed to help brands solve critical marketing problems to an environment today where most agencies are waiting for their clients and prospects to ring the doorbell and give them another assignment.
Remodel or move?
There is a shortcut solution to this self-created dilemma. Stop remodeling the house and move to a different neighborhood — a community where firms are paid for their heads instead of their hands. In this neighborhood, firms are organized around a business model that takes a top-down approach to problem-solving — always starting with the question “What is the business or marketing problem we’re trying to solve,” rather than the reactive bottom-up approach that has unfortunately become the standard for many agencies today.
No doubt most agencies reading this article will take strong exception to this criticism. Their pushback would be that only the worst agencies work this way, the “order takers” of the business. But leading industry observers would agree most agencies operate in a mode where their clients take the lead in identifying the work that needs to be done, turning to their roster agencies to fill a pre-defined scope of work. This puts agencies in the neighborhood of “expensive production houses.”
Vendor or partner?
In order to occupy a more valuable place in the community of professional services, agencies must run their businesses in a way that comports with Michael Hammer’s definition of a professional: “A professional is someone who is responsible for achieving a result rather than performing a task.” As long as agencies continue to compete on the basis of who is the most responsive, the fastest to deliver, and the most cost-effective (read inexpensive), they will be consigned to the district where other service suppliers live. They may continue to use the term “partner” when pitching new business, but really they are operating as what industry great Lee Clow once called “highly talented, highly paid vendors.”
Look up the definition of “partner” and you’ll see it usually implies some kind of vested interest. If you’re a true partner, you have some skin in the game. You take responsibility for solving problems that connect to outcomes. In the current agency neighborhood, business has become too transactional.
The “business partner district” is a much more rewarding place to live — both financially and professionally. To live there, your firm must invest the intellectual capital to cultivate a business model that offers solutions to business problems, not a bullet-point list of services and capabilities. This means selling and pricing programs and products, not hours and staffing plans. Sell the meal, not the ingredients or the labor required to prepare it.
