Should You Have a Business Manager?                                    By Mike CarltonA Simple BusinessThe agency business...
A Look BackIn the historic agency business model, the agency created ads or commercialsand got paid a media commission for...
The Core of the Business Model IssueWith all this change, many of the business models currently used by individualagencies...
When life is like this, it is very difficult to focus on the strategic issues of theagency’s business model. As a result, ...
his spare time. And it should not be the leader of the agency who does this inaddition to her countless other duties.The b...
creative, digital, media, social, production, etc.), from conceptual throughcompletion. Attracting, developing and leading...
At a higher level, a strong business management function provides continualconsultative and collaborative services to the ...
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Should your advertising agency have a business manager w


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Agency business models aren't working the way they used to. The market has shifted. And to remain relevant and competitive, agencies need to shift, too.
This whitepaper addresses how a fresh look at agency business management can make a difference.

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Should your advertising agency have a business manager w

  1. 1. Should You Have a Business Manager? By Mike CarltonA Simple BusinessThe agency business has always been pretty simple. You get clients. You dogreat work that moves their audience. You bill them. They pay you. And,everybody’s happy. While there are lots of subtle variations to this equation, ithas never been very complicated. Until now.It’s a new world. Agencies are being besieged by complexity. It is coming fromall directions. There is more change confronting the agency business today thanany of us have ever seen. And, it is likely to get worse before it gets better.Today, it’s harder than ever to get clients. It’s harder than ever to do great work.It’s harder than ever to build partnering relationships with clients. It’s harder thanever to keep clients. It’s harder than ever to differentiate your agency in itsmarketplace. And, it’s harder than ever to make money.Wow! What happened? What’s going on? And, what can you do about it?A Model in DeclineSimply put, the traditional agency business model doesn’t work the way it usedto. The market has shifted. And, to remain relevant, agencies need to shift, too.There is no question that the consumer has moved well beyond a primaryreliance on print and TV as her primary information and entertainment sources.Consumers’ commercial decisions are being based on information andexperiences from all kinds of media. They are inviting marketers to connect withthem in a myriad of new ways. Some of it social. Some of it one-to-one dialogic.Some of it experiential. Some of it just plain cultural buzz. Yet many agenciesseem to be mired in the 30 second spot/colorful ad business.A former president of Coca-Cola said it best. “The magnitude and urgency ofchange isn’t evolutionary – it’s transformational. Agencies need to rethink thecore assumptions and practices of their current business models.”And more. Hardly a week goes by without the trade press reporting otherindustry seers questioning the business model agencies are following.OK, Just What is a Business Model?A business model is the way in which the agency relates to its clients, theservices it provides and the way it gets paid for those services. 1
  2. 2. A Look BackIn the historic agency business model, the agency created ads or commercialsand got paid a media commission for running them. That was a good model inthat if the ad or commercial worked in the marketplace, the client kept running it,and the agency got paid continuing commissions that were a lot like residuals.And, if the ad didn’t work, the client stopped running it and the agency didn’t getpaid any more until they came up with a new, and presumably more effective, ad.Very simple. Very easy. And, very fair.But the commission system had it limitations. It did not work well on non-mediarelated activities. And, the size of the media budget dictated the level of agencyinvolvement. So marketers and agencies groped for a better model.As the commission system declined, agencies moved primarily to hourly chargebusiness models. These were more appropriate as agencies expanded theirrange of services into non-media activities, which were not commissionable.From an economic standpoint, hourly charges protected the agency on thedownside, but provided little reward on the upside. And, the agency received thesame compensation for effective work as it did for ineffective work.Also, balancing internal time resources became much more complicated, andmore difficult. An agency could not sell more time than its staff had available, butif client demand faltered, it could have a lot of un-bought time on its hands.And worse yet, this model made it appear that the agency was just selling stuff athourly charges, and was no longer as much of a partner as before. Vendormentality began creeping into the relationship. Stuff overwhelmed ideas.All the while, an expanded array of communications avenues was becomingavailable with which to reach the client’s audience.The hourly charge for projects model has partially evolved into the fee forservices model, which while still hourly cost-based can treat the client much moreholistically. In effect, the fee system could allow the agency to become mediaagnostic, so that all kinds of new avenues of communications could be openedwith the client’s audience.While there has been considerable experimentation with compensation systemsthat reward the agency for effectiveness in the client’s marketplace; application ofthese has been limited. They tend to falter on the details of how success ismeasured and how the agency is rewarded. Thus, pay for performance systemshave generally only been adopted by the more sophisticated marketers. 2
  3. 3. The Core of the Business Model IssueWith all this change, many of the business models currently used by individualagencies have been arrived at almost by accident. They are often the product ofreactive client situations, rather than thoughtful proactive approaches. As such, itis not uncommon to see two glaring weaknesses in them:1. They Restrict InnovationThe consumer is accessible through more avenues than ever. And clients areexpecting agencies to lead in the use of these new avenues. Yet, manyagencies do not have business models in which they can be fairly compensatedusing these new avenues. So, as a result, they fall back on the security of usingthose they are most familiar with, and know they can make money at. Thus, the30 second spot / colorful ad rut.2. There is Little Reward for Outstanding WorkThe client receives a fundamental economic benefit from creative leverage. Agreat idea moves an audience more that an average idea. And, clients wantgreat ideas. But only the audience can determine the value of a great idea, andonly then by their behavior in the marketplace. Yet, most agencies get paid thesame for an average idea as they do for a great one.These business model weaknesses have led clients to commoditize whatagencies offer. This falsely assumes that all talent is equal, and that all ideashave the same leverage in the marketplace. A sure recipe for mediocrity.And on the agency side, these business model weaknesses breed caution andconservatism. Safety trumps innovation. Surely not the best way to get greatideas. Or to win hearts and minds in the client’s marketplace.Make no mistake. There is probably not one “magic bullet” agency businessmodel. But rather, a wide array of sub-models, each tailored to the needs ofindividual clients. This is mass customization of the agency’s master model.In this kind of environment, continuing thoughtful exploration of better agencybusiness models – each one unique to the needs of each individual client - isobviously called for. But unfortunately, seldom done.It’s Hard to Build a Fire House When You Are Always Putting Out FiresMany agency leaders understand that things aren’t working the way they should.But, they are almost overwhelmingly engrossed in urgent day-to-day issues.About clients. About new business. About people. About their product. Aboutmoney. 3
  4. 4. When life is like this, it is very difficult to focus on the strategic issues of theagency’s business model. As a result, serious business model thinking getspushed to tomorrow. And then tomorrow, it gets pushed back again. And whenit is done, it takes on a patch-work quality. This is clearly a case of the urgentcontinually preempting the important.The gut issue is that while agency leadership is busy minding the urgent, no oneis minding the shop!To be successful today, agencies need to pay as much attention to theirbusiness model as they do to their clients. But few are organized in a way tomake this happen.This puts them on a road to limbo. Or worse yet, slow death. Slowly, the agencyloses its competitive strength. Slowly, almost imperceptibly, it loses its share ofthe client spend. And slowly too, it loses its spirit. Not a happy picture.The sad fact is that if the business model isn’t right, nothing else works wellSo, Who’s Going to Fix the Business Model?First, a couple of definitions:1. Business management means the establishment and maintenance of asuccessful business model.2. A successful business model commands a premium in its marketplace andmeets the psychic and financial needs of the agency principals and staff.In smaller, less highly developed agencies and similar organizations, the founderor principal owner often holds the business management portfolio. This isnatural. Someone has to create the initial business model. And someone has tomake sure the business is soundly run.But, as a firm grows, it is in everyone’s interest for the key players to focus moreintently on their specific skill sets, particularly as their firm encounters challengesfrom larger, more experienced and more sophisticated competitors.Enter the Business ManagerThis is an emerging role. It needs to be thought of in a fresh way. It isessentially entrepreneurial. It is intense. And it is highly passionate.This is not just the trusted accountant, who may be loyal and knowledgeable. Orsomeone skilled in finance. Nor is he a senior account person who does this in 4
  5. 5. his spare time. And it should not be the leader of the agency who does this inaddition to her countless other duties.The business manager needs to have broad business skills while being anagency-guy at heart. This is a whole new function. With a whole new mission.The primary focus of the business manager is the business. And, he should be afull-fledged member of agency leadership. With the same credibility and strengthas the leaders of the other key disciplines.In a nutshell, the business manager is responsible for the success of thebusiness, consistent with the core values and culture of the enterprise.For, if the business is consistently successful, the holders of the other portfoliossuch as account service, creative, digital, social, new business, media, planning,etc. can concentrate their entire energy on their areas of expertise. Byminimizing their diversion to business issues, they can be individually andcollectively more successful.Let’s Look at Those Discipline PortfoliosWithin an advertising agency, or similar creative organization, there are typicallyfour or five key leadership portfolios. Each contains a specific set ofresponsibilities. While it is not necessary that a different person carry eachportfolio, the skill set differences are such that in larger organizations a separateindividual usually holds each unique portfolio.Typically, these four or five portfolio holders make up the senior managementteam. And, they often behave as partners, in the most traditional sense. Thetypical portfolios are:Standard BearerThe firm’s vision and values, setting and maintaining the strategic agenda, theinspiration and rallying point for staff, and the embodiment of the firm to theoutside world, with particular emphasis on business development. Standardbearers typically come from client service or creative, and in a small but growingnumber of cases, digital or planning.Client ServiceThe relationships with existing clients, including their retention and growth,management of all client activities, stewardship of client spending, attraction,development and leadership of client service talent, and participation in businessdevelopment.ProductThe quality and effectiveness of all the products of the organization (including 5
  6. 6. creative, digital, media, social, production, etc.), from conceptual throughcompletion. Attracting, developing and leading highly skilled talent, andparticipation in business development.PlanningNot all firms embrace this portfolio, but when one does, it usually represents theend customer point of view and incorporates the strategic communicationscomponent that may include research, etc. With talent responsibilities as well asparticipation in business development.Business ManagementThis is the newest discrete portfolio. Essentially, this portfolio embraceseverything necessary to make the business successful, except the functionsdescribed above.Just What Does the Business Management Portfolio Contain?No two agency business managers have the same portfolio. But, typically thebusiness management portfolio can contain the following:Development and maintenance of the business modelAgency strategic planningCorporate governanceBudgetingFinance and accountingMerger and acquisitionHR, talent attraction, upgrade and retentionHR, including benefits, support staffingFacilities and support servicesLegalInformation systems and technologyInsuranceEstablishment and maintenance of strategic alliancesOperations, including trafficBusiness relations with clients (specifically compensation and stewardship)Business relations with suppliers and mediaBusiness relations with partnering organizationsSubsidiary organizations (studios, digital shops, PR firms, etc.)In addition, and in many respects much more important, a well-developedbusiness management portfolio includes establishing and maintaining theframework for the interactions and deliberations between the other portfolioholders. For example, the agendas and schedules for the firm’s managementboards, committees, etc. are usually set by the holder of this portfolio. 6
  7. 7. At a higher level, a strong business management function provides continualconsultative and collaborative services to the leaders of the other functions. Theother portfolio holders rely heavily on the business manager as a trusted advisor.The mind set is to build the mutual trust between business management and theother portfolios to a level whereby each can focus most intently on their area ofexpertise.The most effective holders of the business management portfolio are extremelypowerful. But that power is not granted by special position or authority, but rathervoluntarily ceded by the holders of the other portfolios. When this level of mutualrespect and trust exists, the firm can soar.A Word About Risk AversionAn agency is a risky business. So it is easy to assume that a big part of abusiness manager’s job is to almost automatically say no to risky initiativesproposed by others on the leadership team. Unfortunately, this viewunderestimates the role of a good business manager.Success in any venture ultimately comes from taking carefully calculated risks.So a good business manager should enjoy the sport of shrewdly evaluatingopportunity risks and embrace those risks that he believes worthy of taking.What Does It Cost?Obviously, a senior management person of this caliber is not inexpensive. And,it is easy to view such a position as a luxury. Yet, business management donewell is probably one of the greatest bargains in the agency business. A goodbusiness manager brings focus, efficiency and effectiveness to a bunch of largelyindependent functions that if left alone easily fall out of sync, to the detriment ofthe entire agency. Not to mention the clients.In short, a good business manager way more that pays for herself.Agency of the YearA while back a hot agency had just won the Agency of the Year Award. Areporter from Advertising Age asked the agency leader what was the mostimportant factor in his agency’s success.Without hesitating an instant, he replied that it was including a business manageras the partner responsible for minding the shop from the day the agency wasfounded. He stated that without that, the other partners could never havefocused on what they needed to do to achieve the award. Copyright 2012 Carlton Associates Incorporated 7