By Jay Pattisall & Ted Schadler, Forrester
The pressure is building on the borders of agencies’ “special relationship.” Agencies are no longer the exclusive marketing and business partner for CMOs. The agency business model is under attack. P&G reported saving $1 billion in agency fees over the last four years. Unilever cut $400 million in agency-related expenses through its in-house studio system. Both claim deeper cuts are on the way.
Agency holding company revenues and profits are falling as CMOs bring agency work in-house and aggressively manage agency fees. Global consultancies like Accenture and Deloitte target CMOs and new business and technology stakeholders with experience agency services. And media and production fees – the age-old foundation of agency revenues and profits – erode under price transparency, automation, and programmatic buying.
The big seven agency holding companies – Dentsu Aegis Network, Havas Group, Interpublic Group of Companies (IPG), MDC Partners, Publicis Groupe, Omnicom Group, and WPP – are responding with modified structures, new leadership, and consolidating service lines. But it’s not enough.
There is a path back to partnership, but only for agencies that embrace a brave new business model, one that sheds archaic and crippling structures and leadership models to put clients at the center and accelerate the powerful combination of creative entrepreneurialism and brand execution. Agencies have an opportunity to borrow and adapt pieces of the consulting industry playbook to:
- Build agile client teams that assemble and disassemble quickly to tackle tough problems.
- Stand up global practices of service lines. We have identified seven services that agencies can manage as practices to solve clients’ bigger problems (see Figure below).
- Cultivate progress leaders with multidimensional skill sets that include business strategy, design, and rich technology acumen.
- Realign the financial reporting and compensation to motivate creative entrepreneurs while making it easy to move expertise and staff to the client teams and practice areas that need them most.
- Create a coherent brand structure. Too many agency brands, sub-brands, bespoke client teams, or practices team of individual agencies are confusing and promote ego-driven fiefdoms. There are two ways out of the brandlet jungle:
- First, the holding company can adopt a single global brand — Dentsu Aegis Network, Havas Group, and Publicis Groupe are assembling agency partners under a global go-to-market brand, such as Publicis’ Power of One.
- Alternatively, the holding company can consolidate into a small number of agency brands: IPG, Omnicom Group, MDC Partners, and WPP are consolidating their agencies into new entities like IPG’s Reprise or WPP’s Superunion.
Chief marketers must make changes too. Agencies are only as good as their clients will allow them to be. They can’t embrace a brave new business model if you can’t make brave decisions. It’s time for exclusivity to end. They deny you access to the best agency talent and rob the agency the ability to build expertise in verticals and categories. Break down the corporate silos that align clients and agencies to different, sometimes conflicting, budgets, decision makers and agendas. Lastly, the elephant in the room is agency compensation. Cost cutting creativity prevents you from accessing the best and brightest talent, tools, innovation, ideas and execution.
The payoff will help marketers as well as agencies. Marketers need to blend creativity and execution – at scale – in order not be sidelined as the executive driving growth. They also need to re-energize and differentiate brands that risk sliding under a gray cloud of sameness as the brand expression burrows down into tiny mobile and voice experiences.
Agencies will benefit from superior cost structures, higher agility, and broader client relationships. But they must make these changes while preserving the creative entrepreneurialism that has characterized the best agency work.
Download our complimentary report for more information on Forrester’s predictions on the future of the agency industry, including what the seven largest holding companies must do to quickly adapt for change.
This post originally appeared here.
