How is the agency model changing? Part one

Michael Nutley’s report for 2013’s Top 100 Digital Agencies began with the assertion that “now, more than ever, the only generalisation that you can make about the way marketers and agencies are working together is that there are no generalisations to be made”.

I’d go further in 2014 (see the latest Top 100 agencies report) and say that in many areas of marketing, client methodology is as varied as it has ever been, media volume is higher than ever and technology is eliciting tension in traditional agency models.

At the same time, customer expectation is soaring and transparency, or at least value, is increasingly the elephant in the room.

The aim for agencies is, of course, to provide value, but the continued digital transformation of clients is also making it harder for the agency to provide the right support.

Maturing marketing channels are increasingly integrated, dictating a converged media strategy. This is often better served by in-house expertise or by the embedding of specialist agencies. Project work, too, is on the increase.

“Change is constant” is one favoured aphorism of the marketing analyst. For agencies, if anything, the rate of change is constant, too.

By Ben Davis June 18th 2014 17:34

PepsiCo: changing the agency model

In 2013, Pepsi took a departure from its previous agency dealings to create a new approach that the group calls “Galaxy”.

The name, while sounding a little gaudy, effectively sums up the new strategy. 180 LA, an Omnicom agency, provided a number of execs with account planning and management expertise.

These execs then cherry-pick appropriately skilled and senior talent from the Omnicom network, recruiting from a single agency if suitable, or from a mix, thus creating a bespoke team from a ‘galaxy of talent’.

This is a powerful idea of a meritocratic system that could represent a strategic advancement in the way an agency works. Though this Galaxy model would seemingly still require working closely with a large agency or agency group on a beefy retainer, it would offer the flexibility and leanness of a group of specialists.

Agencies, despite the pull of many tech giants, still house extremely talented and creative pools of employees, but not all of the talents therein can be defined as a service-offering.

The agency has to be able to identify experts, however niche, and use their skills where required. This is healthy for employees and clients.

PepsiCo’s President of Global Beverages Group, Brad Jakeman, has discussed the new model (in this article from AdAge) in light of the benefits a broader pool will bring. He pointed out that specialists will have broad brand experience and won’t have been living and breathing Pepsi.

This speaks to a trend that has been disrupting client-agency relationships for some time, that of the client’s tendency to declare “no one understands the brand better than we do”.

Where previously agencies may miss a brief, here activity is managed on a smaller or more visible hierarchy, possibly allowing the client to keep tighter control and reduce wasted time.

The agency can once more act less like a vendor and more like an adviser. One would be forgiven for thinking Galaxy isn’t too far from a form of freelancing, which brings us nicely on to the topic of in-house skills.

Digital and broader business

In last year’s Top 100 Digital Agencies Report, Econsultancy co-founder Ashley Friedlein wrote about the need for agencies to embed themselves in the strategic decision-making of the brands they work with.

This applies even more so in 2014, as marketing’s remit broadens, expanding into the purchase of more tech and software and often fuelling the digital transformation of entire businesses.

Agencies used to dealing only with marketing departments need to appeal to a wide range of stakeholders within their clients’ businesses in order to continue to grow.

In many ways, this trend helps new players in the space like Deloitte Digital and Accenture Interactive, companies with a heritage in business change. Indeed, IBM Interactive Experience placed second in 2014’s Top 100 and Deloitte was eighth. As clients’ procurement teams take the lead finding agencies, creative agencies will have to up their game when it comes to the bigger strategic picture.

The in-house effect

The 2014 Society of Digital Agencies (SoDA) report showed that the number of agencies clients are working with has remained fairly consistent.

However, what has changed is the number of marketers working with no agencies whatsoever (13% of respondents). This proportion has risen as in-housing grows.

Digital production is being brought in-house, giving greater control and preventing waste. This is to be expected, given it has happened with most media formats as they have matured.

Digital expertise on the client side has continued to grow for a number of reasons, including:

New talent at both blue-chip and challenger brands.
The continuing development of client-side teams with direct responsibilities for digital.
The hiring of former digital agency professionals.
The increasing incidence of embedded agency partners within client teams.
The maturation of digital as a whole.

Agencies are reporting that their clients are more strategic and generally have better qualified marketers than, say, 15 years ago.

Clients are aware of skills gaps and are looking to learn from agencies as much as employ them. This entails agencies plugging gaps but also training internal teams and giving strategic consultancy to reinforce ideas or gain internal buy-in.

Agencies may also assist with the building of client teams, working alongside brands to identify where they need new skills and helping them to recruit personnel.

Of course, agencies need to ensure they are themselves always well-equipped for change. In attempting to counteract the commoditisation of digital, the innovation lab is emerging as an agency priority. 50% of agency respondents in the SoDA Report had a product incubator or innovation lab.

Agencies cited funding/company spin-offs (24%), talent retention (49%), and new business (52%), as benefits of establishing an innovation lab (31% saying it was too early to tell what the outcomes would be).

In part two, I’ll look at how speed and agility are increasingly important for agencies. I’ll also discuss how data is disrupting agency models and how pricing methods are changing.

This article was originally part of the Top 100 Digital Agencies 2014.