22 Nov 2019 Gaston Legorburu

Will this Creative Consultancy find a cure for the troubled agency model?

For an industry that prides itself on harnessing the powers of creativity and innovation on behalf of its clients, advertising has historically done a poor job of reinventing itself. Effectively it has only been external client pressures and significant cultural shifts that have forced its hand into any substantial change at all.  

Let's face it; while changes in consumer behavior, the maturity of digital media, and the tools we use today have significantly transformed how we market, the underlying financial and organizational models we employ at a traditional agency have not changed in the last fifty years. 

Pundits continuously write about the woes of the industry, but they seldom shed detailed light on the underlying disease, and even less focus has been given to the cure. What we tend to hear is whining and complaining about the market, the talent wars, ungrateful clients, and their ruthless procurement arms. These are just excuses, and a form of deflection in my view. Truth is clients struggle to see the value they’re getting from their agency partners, and it's ultimately the industry’s fault. We need to heed our advice and pay better attention to our client's behaviors. We intend to address that directly in this article by looking inwards for a change.

The villain in this story is a familiar one; we all know him as bloat or bureaucracy. A recent HBR survey suggests most employees spend an average of 28% of their time on bureaucratic chores such as preparing internal reports and attending internal meetings. That's more than a full day per week wasted. Imagine, this gets much worse as the company you work for gets bigger or even worse if a company goes public. How much of your operating budget do you think goes to keeping the bureaucracy alive? How much of that gets passed on to your clients?

Bureaucracy is a time trap. Over time agency consolidation and public market pressures have made this worse. Companies do not age well; the older they get, the more bureaucratic they become. I often joke that when it’s time to lay-off people, the people managing the spreadsheet are never in the spreadsheet.

Here are four key symptoms of bloat in people-based businesses like an agency or consultancy. 

Skills Mismatch: People-based businesses are hard to run profitably for several reasons. The hardest challenge, in my opinion, managing supply and demand for talent. Some agency leaders believe their entire value proposition hinges on providing their clients access to the world's top creative, strategy, and technology talent on demand.

I believe that thinking is part of the problem, and I challenge this concept that we are just a glorified temporary staffing service. Disruptors like UpWork, Fiverr, TopTal, 99 Designs, etc. all address this market and frankly are much better positioned to win this game.

I feel the second we dilute the client's core need to "I need a body to fill this role," we have lost the plot altogether. Clients want great outcomes and access to high performing teams, not more people pushing emails around. We don't just sell access to talent. We sell the product of a well-oiled and experienced team, their ideas, their collective thinking, process, and experience. 

Here is a simple illustration of the problem:  Imagine you owned a tool rental company. You pay for rent, insurance, advertising, and the staff that works the register, etc. More importantly, you also make hefty monthly lease payments on every expensive tool on the wall. A savvy business- person would quickly recognize that there are several tools in inventory (especially the expensive ones) that seldom get rented out. These tools do not generate enough rental fees to cover their own cost of ownership, let alone help cover the rent. 

If you owned such a business, you would likely have to do one of two things to stay afloat. You would likely get rid of underutilized tools to free up cash to purchase more desirable inventory, or you would raise your rental fees. 

Eventually, you may run the risk of breaking your value proposition. You can't blame the customers for complaining about your hefty fees or not coming back to you if it effectively makes more sense for them to buy their own tools. Translate this into a people-based business where the constant hiring and firing inevitably erodes culture and the quality of the work.

A talent platform only pays the talent when they get paid, which solves the cost problem. That said, talent platforms are not the perfect replacement for agencies or consultancies. These platforms make their profits by connecting freelancers to projects, but they do not actively participate or contribute in any way to the work. There is no way they can ensure excellent outcomes for the client or even stand behind the quality of the work.

I will say it again. The second we dilute the client's core need to "I need a body to fill this role," we have lost the plot altogether. Clients want great outcomes, not more bodies. 

Broken Leverage Model: How many agency people does it take to screw in a light bulb? I feel I could write a whole book on the broken leverage model. There are two kinds of leverage in a professional services firm, and they work very differently. First, is the "Doers and the Watchers," and second is the "Masters and the Apprentices." The bottom line is that we need many more practitioners (or doers) in our agencies than watchers. Very few people walking the halls of any agency should be thinking about much else other than the client's needs. To be more specific less than 5% of your staff should be administrative. Just about everyone in the shop should be client-facing practitioners. 

To build further on that idea. I firmly believe in dissolving the account services domain and replacing those folks with consultants. In my view, everyone who leads a client relationship should be a seasoned practitioner. I effectively want our clients to want to hire away our people, that reassures me we are providing value. Conversely, I want those same people to want to stay at my firm. That lets me know that we are building the right creative culture and providing our people with challenging and rewarding opportunities. 

Now let's explore the concept of masters and apprentices. I can't stress this enough, this is the core of our business differentiation, and we cannot get this wrong and expect to survive. A great agency should not resemble a staffing service; it should behave more like a higher learning institution, a collective, a guild. The point is the firms, culture, values, approach, high standards, talent and reputation matter. Here is an example: Would you prefer to log into your HMO patient portal and look up a doctor that matches your needs, or go straight to the Mayo Clinic? The Mayo Clinic is an organization focused on integrated clinical practice, education, and research. Although this place attracts and produces some of the best doctors in the world, the lore of the institution is way bigger than any individual. Medicine, like marketing, requires constant practice, education, talent, and teamwork. There are new tools, continuous learnings, and new skills to be mastered to stay on top of the game.

Ask yourself the critical questions. Where do we add value beyond providing the client's access to talent? If I were a client, would it make good business sense to hire our agency today? If I were a client, would I choose to build an internal team instead of hiring us? 

Misaligned Incentives: Time and materials billing can serve as a trap too. I get why we gravitate towards that compensation model as in theory, it can de-risk the agency from runaway people cost. Unfortunately, it has some adverse side effects like rewarding effort over output and focusing the commercial conversation around hourly rates rather than deliverables and results. For this reason, we prefer fixed priced engagement and almost always include a performance incentive.

Before we set out to build GlueIQ we studied various other professional services firms, In house design teams, and agencies, as well as freelance collectives, boutique studios, and talent platforms. We tried to borrow the best elements of each model while steering clear of the obvious pitfalls. 

Here are some of the questions we asked ourselves before starting GlueIQ?

Do we need to hire a full staff these days? 

Do we need a physical office? 

How big do we want to get? 

Would we hire us in this environment?

Some things we already knew. We understood the agency model as it exists today is dead. We realized the biggest challenge was an economic one. The value equation has been failing for some time. 

Modern businesses can’t justify the expense of hiring an agency when they believe it is more efficient to just hire the people. The perceived benefits, both tangible and intangible, are no longer a strong enough argument, and there are many alternatives to getting the job done. Martech companies court clients and make promises that their magic toolsets can transform any marketing team into a well-oiled machine. CMO's talk themselves into spending most of their working dollars in building their in-house capabilities only to learn it is not that easy and often end up being stuck with another white elephant. I will repeat it. It's our fault.

 

Insider, Business, Agency Model

Gaston Legorburu

Gaston is a NY Times best selling author, speaker, and industry hack. Readers of Gaston’s New York Times bestselling book Storyscaping, industry pundits, and audiences worldwide can attest to his visionary ability to see and shape what’s next for brands and humans. Adweek recognized him as a “game-changer who is modeling the creative company of the future.” Gaston has been at the forefront of the digital disruption across the agency and consulting worlds for the last 20 years. Before launching GlueIQ, Gaston served as the Chief Strategist and Chief Creative Officer for PublicisSapient and their brands.

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