Agency Upheaval? Something's Gotta Give

As I spend more time with clients on their organizational challenges as digital grows in importance, inevitable questions start to come up about the role, mix, and compensation of their agencies. For most companies, the creative aspects of their marketing depends on fresh thinking that is hard to get from an internal team. The type of talent that thrives at agencies requires career tracks, variety, and community that many companies cannot offer internally, so they need agency partners. But the march of technology is chipping away at the range of needs brands have from agencies. Since most agencies still are paid for most of their work on an FTE mark-up basis, many of the technology advances that drive efficiencies get passed quickly on to their clients or don't get pursued at all, given the inability of agencies to keep their fees.

New workflow tools streamline the back and forth of design and approvals, then digital asset management and content management systems can handle much of the logistics after advertising content gets created. For large scale digital banners or video programs, where there are likely to be dozens, if not hundreds of testing or targeting cells, new tools allow easy swapping in of content modules and the work can be done in more of a production mode, possibly offshore. Routine website updates can also be done on a cheaper outsourced basis than many agencies would charge.

Most of the digital islands that are solidifying in marketing organizations, where search, display, social, mobile, affiliate, email, and site all have separate managers and agencies are now being questioned, as leaders realize the need for tighter integration. As that happens, they are seeking parallel integrated agency support, or trying to find new models for managing their agencies in more integrated ways. But it is hard to do. The agency holding companies are struggling to make multi-agency combinations work when each team is part of a separate agency P&L, and the agencies all have separate working procedures.

Lastly, more capabilities are flowing back into in-sourced client teams. Digital DSP's or trading desks to place display advertising or search optimization teams can now use a wide variety of tools to match the capabilities of agency teams who originally built their capabilities at a time when more had to be done manually or with bigger teams of very young resources. Social media monitoring and fast response teams are now being built in most marketers, and while many have some outside agency support, the core operations, which consume a growing proportion of marketing spend, are staffed with internal teams.

Having been myself at a digital agency for nine years, I appreciate the enormous value that great agency teams provide their clients. But something has to give. I was at the recent 4A's conference in New Orleans, and, while it was a fabulous showcase of amazing work, and there were some tough discussions on evolving business models, there were not enough examples of agencies and holding companies who have really done it. Agencies need compensation models based on impact that let them invest in the tools that can drive system efficiencies and not get penalized. They need to crack the narrow P&L structures imposed on them in many holding companies or experiment more with agency combinations, as Draft/FCB did several years ago, that can offer more integrated client services. But they also need to recognize that many of their services are based on manual inefficiencies that could go client side. I think this will lead to leaner, higher value-added agency services, and a growing market of outsourced marketing services geared more towards production and media logistics. The strategic top ends of media and creative agencies may get much closer together, as their increasingly automated services move into competition with the hungry outsourcing companies who see marketing as their next horizon for growth.

I see a big shake-up on the horizon. Marketers need to partner tightly with their procurement peers to develop compensation models that will give them the best creativity and total economics. Agencies need to bring a new level of creative strategy into their own business model design. Are you already seeing the signs of change? What seems to be working?

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