The 21st Century Advertising Agency in 21 Minutes


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The emerging characteristics of advertising agency business models that are leading in the 21st century.

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  • Known as the Satir Theory
  • ASK: What is the average number of agency relationships for the Fortune 500 company? 16.
  • No longer a wall between the creative world and the consumer world.
  • “Crowdsourcing.”*The word itself was first used in a 2006 article in Wired magazine, which when talking about what was happening in the world of stock photography said, “It’s not outsourcing; it’s crowdsourcing.”
  • Actually, Wikipedia has a lot to say about disintermediation, and agrees that it’s mostly the internet that has caused this new form of disruption.  Says Wikipedia, “The Internet, World Wide Web and secure e-commerce has empowered the firms that create the product, service, or intellectual property, at the source of the value chain to directly sell to customers, thus eliminating the need for costly, and thus inefficient intermediaries.”
  • Consider what it means to be an “agent.”  Travel agent.  Insurance agent.  Talent agent.  Real estate agent.  To be an agent is to be an “intermediary” – someone who represents a client to a third party.  Today, most intermediaries are being disintermediated, mostly by the internet.  Instead of having to work through a “middle man,” buyers of services are able to go directly to the source – and they do.
  • David Smith, a leading futurist with whom I once had the pleasure of sharing the podium at an IPA conference in London, observes the distintermediation of everything from music (iTunes) to borrowing (Quicken Loans).   Instead of working through travel “agents,” most of us now book online directly with the airline.  Instead of retaining the services of a third-party insurance “agent,” we buy our own insurance online at sites like The advertising “agency” version of this disintermediation is that marketers are increasing going around us to work directly with the media, production companies, and even directly to creative talent via crowdsourcing.
  • “The Newest Ad Agencies: Major Media Companies” read the headline in Ad Age a few years ago, which reported “Companies such as Johnson & Johnson, Kimberly-Clark Corp., Clorox Co., Hewlett-Packard and Verizon have enlisted media companies lately not just as conduits to reach consumers but also as co-creators of programs to do so. And they sometimes bypass their usual media and creative agencies in the process.”*Pay particular attention to the quote in this article by Becky Saeger, CMO of Charles Schwab, who said "If I were an agency, I would be really worried about being disintermediated, More and more, agencies are almost in the way sometimes."  Really – in the way?
  • More evidence of this trend came with reports like “What Is Conde Nast Doing Making Kenneth Cole's YouTube Ads?  Under Threat, Media Push Further Into Agency Territory.”  Large agencies have lost large chunks of business to what used to be a vendor of media, not a provider of services.  Today, media companies are becoming more competitors than business partners.
  • In the production realm, there’s even a word for the disintermediation happening to agencies; it’s called “de-coupling” – the practice of marketers either dictating the production resources to be used, or taking the production piece away from the agencies altogether.  Agency observer Avi Dan writes about this as “Production Unbundling.” He says *(READ QUOTE)
  • Even creative development – seemingly the best example of what can’t be “unbundled” – is being redefined by the effects of internet disintermediation.  Marketers are now routinely experimenting with crowdsourcing and expert-sourcing sites like Genius Rocket, Crowdspring, 99 Ideas, Blur and many others. (Ignition actually does an entire webinar on this subject, which some of you may have seen.)
  • In effect, agencies helped take some of the “magic” out of the business by breaking down agency services into component parts that make it easier for marketers and search consultants to shop and compare.  Agencies stopped being compensated based on results and instead started selling individual services.
  • In my consulting work with agencies, I hear time and again the idea that “We just have to do a better job of helping clients understand the value of what we do.”  No, we just have to start selling something that clients value – or value more.  It’s a principle of economics that a service has a lower perceived value than an outcome.  At a gym, you can either pay to use the individual components of the facility … *or you can pay a professional trainer who sells an outcome, which costs more because it has more value. Of all people, agency professionals should understand that a benefit is more powerful than a feature.  So when agencies persist in selling individual services (or worse, the hours required to perform those services), they only fuel the fire of agency commoditization. 
  • Here’s a particularly powerful way to think about where to play…If you analyze the value propositions of most professional service firms, you’ll find they are based mostly on widely available overdeveloped services; they are placing themselves on the wrong side of the value chain. By focusing on the underdeveloped services in your industry – largely unsatisfied client needs -- you are in effect positioning the brand not just for where the profits are, but for where the profits will be.
  • An actual written “Agile Manifesto” details about a dozen tenets of the agile philosophy. Here are three of the key one:*Small teams that are empowered to make decisions about the project. The key points here are “small” (not the conference room full of 10 people), and “empowered.” Agile teams don’t have to work through the traditional layers of hierarchy.*Constant daily collaboration. Agile teams are hyper collaborative. They have short, in-person work sessions daily they call “scrums” (inspired by the concept of a huddle used in rugby). *And development is iterative, meaning it’s constantly changing. Unlike the days of arrogant art directors throwing account executives out of their office because the work needs to be changed, the agile approach actually seeks out change. Agile teams see their job primary job as understanding what needs to change to optimize the customer experience.
  • So as your firm grows – or if you’re a very large agency already – how do we avoid the stifling, layered structure and bureaucracy of your client’s organizations? By breaking the organization down into small business units, small groups, and small teams. *The business genius Gary Hamel preaches that “To become more adaptable, companies must ‘disorganize’ into smaller units.”*This is true of many of the innovative organizations we admire. At Google, the average team size 4 to 7 people – never bigger.
  • As I’m sure you’d all agree, it really doesn’t work to get a group of people in a conference room and say “OK, collaborate.”
  • Collaboration is not a meeting; it’s a cultural way of working. It happens most and best in agencies that have the mindset – and the facilities – to work collaboratively.
  • Ultimately, collaboration springs from culture.*Some agencies have an open, risk-tolerant culture that not only allows but actually encourages multiple sources of input on a project.*Other agencies have a low-key, nose-to-the-grindstone culture that emphasizes efficiency and “getting the work done.”  Cultures like this put a real damper on effective ideation; they feel more like insurance agencies advertising agencies.
  • In the end, the degree to which your firm integrates is dependent on your internal definition of success.*If success is defined mostly in financial terms – jobs completed “under estimate” – you’ll get people are mostly worried about being called on the carpet for exceeding their “allotted hours.”*If, on the other hand, success is defined as an effective solution to a business problem – a successful marketplace outcome – then chances are the people on your internal teams will be highly proactive collaborators.
  • *Behavior economics is about understanding the gulf between the rational behavior the economic models predicted and the actual observed behavior seen in real life.
  • In fact, it’s a little ironic that the big winners at the Cannes Advertising Festival tend not to be advertising at all. Like the Corona “Save the Beach Project” which was about collecting garbage from the beach and building hotels from it. This certainly isn’t conventional paid media advertising.
  • The fact is that well over over half of the revenues of the major marketing communications holding companies (WPP, Omnicom, IPG, Havas) are derived from non-advertising activities. This trend started about 10 years ago and gets more pronounced every year.
  • When the Association of National Advertisers asked their CMO members “What keeps you up at night?” they got an interesting answer: the need to do more experimentation. This, they explained, is because the marketing programs they used to execute no longer work. They know that what’s needed now is a ‘test and learn” mentality; to identify and explore new approaches and channels. This is the expectation CMOs also have of their agencies.
  • Everyone joining us today knows all about the explosion of marketing channels – most of which has happened over just the past few decades.
  • In an effort to understand which of these ever-growing channels is truly effective,smart marketers like Unilever, J&J, and P&G have established innovation funds as a consistent part of their marketing budgets – usually around 15%
  • Most importantly, exploring new channels requires that we adopt a “test and learn” approach and attitude. *When we fulfill the clients expectation to explore new channels, we’re really in beta mode.
  • Or think of it even in these terms; we’re engaging in agency R&D. Many of our clients engage in extensive R&D. Shouldn’t we be doing some of this ourselves. I believe the reason many of us don’t is because we’re hung up on the idea that we’re just an agent acting on the client’s behalf. We insist that all the risk be with the client. That every experiment be exclusively with the client’s money. *So are we just “agents” acting on a client’s behalf, or should we ourselves be investing in product development.? My opinion is that we should, and in fact, we must.
  • This is perhaps the uber-expectation that clients have of agencies; that we will do more to invest in our own futures instead of just reacting to day-to-day client needs and requests. *To do this, we have to shed the “service business” mentality and instead think more like product developers; software companies in particular are a good model for us moving forward.In many ways, software companies are better models for what agencies could and should look like. The philosophies of agiledevelopment, continual optimization, and test-and-learn are essential to success in today’s digitally-enabled 24/7 marketing environment.
  • The 21st Century Advertising Agency in 21 Minutes

    1. 1. The 21st Century Agency in 21 Minutes Presented by Tim Williams Ignition Consulting Group
    2. 2. The Satir Theory Where are we now?
    3. 3. “As the world changes, and I continue to explore different business models, I keep running up against new competitors. I'm trying to map out as many different places that we intersect and compete with companies in other industries as possible. From media companies like Meredith who have purchased agencies so they can create content directly for clients, to entertainment companies like Electus in Hollywood, to data companies, to technology companies like Foursquare that have direct client relationships, to media agencies that are now in the content creation business like Starcom’s Liquid Thread, to PR firms, to design firms, even companies like Accenture vying for their share of analytics and digital production.  It seems everyone is bellying up to today’s pool of marketing dollars. Technology has made it possible for everyone to expand their capabilities and all of the different ways to reach the consumer has really grayed who does what.  Net, not only have our options to reach consumers increased exponentially, but also the universe of our competition.” BBDO Executive
    6. 6. The 21st century agency has competencies focused on “pull” instead of “push”
    7. 7. “The Bridge”
    8. 8. The 21st century embraces the open source concept
    9. 9. Level of involvement Create the content Control the content Consume the content Level of creativity Evolution of content
    10. 10. June, 2006 CROWDSOURCING
    11. 11. New role of agencies: Not just create, but curate.
    12. 12. Crowdsourcing Model
    13. 13. Expert Sourcing Model
    14. 14. The 21st century agency knows how to create value in a disintermediated world
    15. 15. DISINTERMEDIATION “The Internet, World Wide Web and secure e-commerce has empowered the firms that create the product, service, or intellectual property at the source of the value chain to directly sell to customers, thus eliminating the need for costly, and thus inefficient intermediaries.”
    17. 17. “The disintermediation of everything.” David Smith Global Futures and Foresight
    22. 22. WHERE WOULD YOU RATHER PLAY? OVERDEVELOPED SERVICES UNDERDEVELOPED SERVICES Satisfied client needs Overserved markets Unsatisfied client needs Underserved markets Strategy: Low Cost Leader Strategy: Innovator Many providers Low margins Few providers High margins
    23. 23. The 21st century agency works in an agile way
    24. 24. “Marketing will be carried out in the digital spaces by people quite different from the ones who inhabit today’s agencies. They will be what Thomas Friedman calls ‘versatilists,’ able to write and draw and program and read research. Agencies that are able to offer a staff like this will resemble Pixar more than they resemble the agencies of today.” Jeff Goodby
    25. 25. Agencies are organized like classical orchestras in a jazz age. - Rashid Tobacowala
    26. 26. The Industrial Revolution created scale The Digital Revolution decimated scale Bob Garfield and Doug Levy “Ignore the Human Element of Marketing at Your Own Peril” Advertising Age
    27. 27. The Agile Philosophy 1.  Small teams that are empowered to make decisions about the project. 2.  Constant collaboration (daily “scrums”). 3.  Everything is iterative; work is constantly improved based on feedback.
    28. 28. Small business units, small teams “To become more adaptable, companies must ‘disorganize’ into smaller units.” Gary Hamel London Business School Average team size at Google = 4
    29. 29. “The Beatles were never more than four men and George Martin; they didn’t get bigger to get more creative.” Dave Bedwood Creative Partner
    30. 30. This is not collaboration
    31. 31. Collaboration is not a meeting – it’s a cultural way of working
    32. 32. Collaboration springs from culture An open, risk-tolerant culture that encourages multiple sources of input; emphasizes innovative problem solving. .vs A nose-to-the-grindstone culture that emphasizes efficiency and “getting the work done.”
    33. 33. Collaboration depends on how you define success Completing a job “under estimate.” .vs Solving a marketing problem in a brilliant way.
    34. 34. The 21st century agency is adopting the new discipline of behavioral economics
    35. 35. Behavioral Economics: A new strategic imperative for agencies “Hundreds of agencies have developed models for ‘how marketing communications works.’ What’s needed now is for agencies to base their business on ‘how people work.’ Rory Sutherland, President Institute of Advertising Practitioners (IPA), Vice Chairman, Ogilvy, London
    36. 36. Behavioral Economics The study of how people work
    37. 37. Choice Architecture
    38. 38. Advertising or PR? Does it matter? Corona “Save the Beach” Project
    39. 39. The majority of revenues of the major marketing communications holding are now derived from non-advertising activities.
    40. 40. The 21st century agency goes beyond “work for hire”
    41. 41. What keeps clients up at night? The need for experimentation
    42. 42. Innovation fund
    43. 43. Exploring new channels requires a “test and learn” approach
    44. 44. Are you just an “agent” acting on a client’s behalf, or should you also invest in “product development?” Agency R&D
    45. 45. Why always “work for hire?” All campaigns, trademarks, service marks, slogans, artwork, written materials, drawings, photographs, graphic materials, film, music, transcriptions, or other materials that are subject to copyright, trademark, patent, or similar protection (collectively the “Work Product”), developed or prepared by Agency or its employees, agents, contractors, or subcontractors under this Agreement, are the property of the Client, provided: (i) such Work Product is accepted by the Client within twelve months of being proposed by Agency (and such acceptance is reflected in written form from Client to Agency received within such twelve-month period); and (ii) Client pays all fees and costs associated with creating, and, where applicable, producing such Work Product. Subject only to the two aforesaid Conditions (the “Conditions”), all title and interest to Work Product shall vest in Client as “works made-for-hire.” To the extent that the title to any such Work Product may not, by operation of law or otherwise, vest in Client as a work made-for-hire, or any such Work Product may not be considered a work made-for-hire, all right, title, and interest therein is hereby irrevocably assigned by Agency to Client.
    46. 46. The ultimate expectation clients have of us: That we should be investing in our own future SERVICE BUSINESS
    47. 47. “The most important question for any organization is this: are we changing as fast as the world around us?”
    48. 48. @TimWilliamsICG “Positioning for Professionals” by Tim Williams