The acceleration of agency change has been a hot topic in recent weeks. For some years, it's been established that legacy ad agency business models are untenable. Most often, we talk about the unsustainability of large holding company agency models. But really, it’s any structure built on the assumption that AOR relationships would sustain unnecessary overhead and redundant labor costs.
The industry has talked itself silly over the need for agencies to evolve. Still, even as they were encroached upon by consultancies and in-house agencies, those who could continue doing business at some degree of status quo did. Many agencies made cuts to budgets and staff rosters but didn’t change their underlying processes. The approach was more “let’s do what we have to do now to make this work,” versus “what’s the best, most efficient, productive, and profitable way for us to work going forward?” The heavy lifting was moved to the backburner. Margins, morale—and client relationships—have suffered for it.
As Michael Farmer of TrinityP3 USA points out in his post about why The Agency of Today needs to be fixed before we can get to The Agency of the Future, it’s not that agencies have failed to innovate and change. They’ve adapted to change on a constant and ongoing basis. But in most cases, they have made tactical rather than strategic changes.
This fiasco of a year has forced agencies to make changes faster. The current crisis has provided an impetus for agencies to take “flexibility” and “agility” from empty talking points to the reality of how they work. Faster, easier, better, and cheaper have become constant pursuits for every agency process and project. Not to mention, perhaps never before have agencies had to tap their collective creativity so thoroughly to meet operational challenges.
We aren’t ever going to pick back up where we were in March of 2020. When I reflected on what agencies might look like on the other side of this crisis nearly six months ago, it was too early for much beyond speculation and “food for thought” questions for agency leaders. While we’re not yet “on the other side,” at six months in, agencies have a better understanding of what has worked for them and what changes they will keep for the longer term. The next iteration of agencies is becoming more tangible.
Here are some of my takeaways on what the future holds and where it might behoove agencies to devote extra attention.
Changes that are here to stay:
Shortcuts and stop-gap measures that led to doing things “faster, better, and cheaper” will continue as permanent features, because, as Mastercard chief marketing and communications officer Raja Rajamannar observes, “why wouldn’t you continue to do that?” (This New York Times article about how the pandemic has brought necessary change to a “bloated” ad industry captures this phenomenon perfectly.)
At the start of the pandemic, Darren Wooley reminded us that during the 2007 recession, “agencies absorbed the significant cuts in their client’s advertising budgets.” They “took it for the team” with the expectation that budgets would bounce back when the economy did. But once procurement knew agencies would accept less for the same work, agencies were stuck with a permanently lowered value. Likewise, there is no reason to expect that budgets will return to what they were after this crisis, either. It is on agencies now to make reduced budgets sustainable—or find ways to work around them.
Faster decisions enable agile, relevant marketing. “Less ‘overthinking’...“can lead to more intuitive decisions on work, [which] means fewer focus groups, [which] means we are able to bring work to market faster,” says TBWA/Chiat/Day New York CEO Rob Schwartz (in Digiday). Schwartz was referring to client-side decisions, but it could just as easily be applied to agencies, particularly where multiple layers of bureaucracy exist. Those who don't develop this capability tempt the laws of Darwinism.
Fewer in-person meetings. Campaign surveyed 21 of the biggest UK agencies and media owners recently and found that 95% of them expect to reduce business travel post-pandemic. While in-person meetings may be preferable in certain situations, most can be conducted successfully via Zoom. In the future, people may view unnecessary travel as an avoidable risk and expense.
Mixed virtual and in-office workweeks. The virtual work experiment has been an overwhelming success, and most agencies will keep remote working in their operational repertoire. This opens up greater opportunities for working parents and those located in disparate geographical locations. That said, remote work is not without its drawbacks. While introverted creatives may thrive working from home, extroverts have struggled without collaboration and interaction. Additionally, some speculate that company culture and junior staff will suffer in a wholly virtual environment. The bottom line: agencies love their offices and are eager to get back to them in some capacity.
Where agencies will continue to struggle with change:
Big, empty offices are still a thing, as many agencies plan for their teams to be in-office several days a week. Campaign found that most agencies do not plan to downsize their offices, despite 45% of them expecting less than 25% of their staff to go in at least once a week, and another 45% of them expecting between 25% and 50% of their staff to go in at least once a week. That seems quite a low number, and it may make sense when assuming we will soon be physically returning to the office at least three days a week. But as time goes on without improved prospects for safety, I wonder how many of those agencies will re-evaluate their decisions to keep mostly empty offices. At some point, more people may view the expense of maintaining big, underused office spaces as a missed opportunity to reduce costs and increase profit margins (and save jobs).
Agency processes still need to be re-evaluated. Agencies that have gotten through by making cuts and taking shortcuts to “make things work” may have yet to optimize their processes for long-term efficiency, sustainability, and profitability.
Jessica Hodgson of TIPi Group wrote in The Drum that agencies now “have the freedom to figure out what works for our businesses to get to where we want to be, without restriction.” She says, “we have the opportunity to ask ourselves, what will be the very best way to approach things and act accordingly, without [the limitations of] an accepted ‘norm.’” That is very much in line with Michael Farmer’s observations that agencies need to make strategic innovations, not just tactical changes.
“It’s time for agency CEOs to take a sober look at what has actually been achieved over the past few decades – not in technologies mastered, not in awards won, but instead at the depressed level of salaries paid, at the staggering amount of work that is being demanded, and at the inadequate skills that agencies are left with to solve their clients’ brand problems. Downsizing has eroded agency capabilities. Agency of the Future plans must begin with a recognition that current agency operations are a shipwreck – but if this is acknowledged, then some serious planning can begin.” — Michael Farmer, Chairman of TrinityP3 USA
Services must be revisited. With all of the change that has taken place this year, are your agency’s offerings still relevant? Are you presenting them the best way? Is it enough to maintain the same services you offered in 2019 but (in conversations) lead with the idea your agency is “agile” and open to project work? Or, is it time to reframe your services and talk about what your agency does differently for clients in ways that solve their current problems? For instance, if more businesses are engaging customers online than in-person, how can your agency support their e-commerce and digital experience?
Pricing models require attention. Don’t push off revisiting your agency’s pricing models and looking for ways to break out of the commoditized services race to the bottom. There are many creative ways to diversify your agency’s income streams and ensure that you are paid for your expertise and outcomes rather than billable hours. For further reading, Tim Williams of Ignition Consulting Group is a thought leader who writes about this often.
With the week-to-week flexibility that marketers now expect, the scope of work may become less relevant. Where it is still in play, you can negotiate based on fewer outputs, instead of just pricing.
The agencies that realize the greatest success in this arena will be well-versed in business and finance and able to document results proving bottom-line value. The fact that there have recently been multiple calls for agencies to develop their financial and business expertise is no coincidence. Make a note to address this if it's an area of weakness for your agency.
Agencies have risen to meet their challenges this year, and some have done so with great success. Many of the changes forced upon agencies have turned out to be for the better. But it’s come at a cost. Many jobs were lost, and agencies once again face devaluation and reduced budgets that are likely here to stay.
The best way through this for agencies will be to drastically optimize their processes and operations, creating business models that are profitable and sustainable. To give an example, ad-tech company Polar was just covered by Digiday for embracing the four-day workweek to offset the potential for staff burnout. Some of the process changes they made to facilitate that transition include reducing meeting times to 30 minutes, cutting back Slack channels from 200 to 30, and minimizing the number of sent Slack messages.
Polar’s approach requires discipline, and it may not be right for your agency, but the point is that agencies can look very different from what they have in the past. There is freedom now to try new things and untether ourselves from what no longer works. What better time to make that transition than in 2020, the year of the unexpected?
- What Will Your Agency Look Like On The Other Side Of This Crisis?
- Work From Home is the Future of Agencies
- Agency Closings and How to Avoid Them
- Holding Companies and the Agency Model of the Future
- Getting Paid: A Look at Agency Compensation Models