Jenny Chan 陳詠欣
May 12, 2017

Hacking the (independent) agency's business model

We got access into a closed-door meeting of independent agencies that deconstructed the agency of now to try to reconstruct one of the future.

Hacking the (independent) agency's business model

Independent shops see the years ahead as their time to raise their stature and take more business away from their holding-company affiliated competitors, at least judging from discussions at a recent conference held by Worldwide Partners Inc (WPI). WPI has lauded a stronger independent spirit ever since headline-rocking Brexit became a ring for the same theme of independence for the network.

Taking a look at today’s business climate, the client landscape and the agency competitive set, John Harris, WPI's president and CEO, kicked off the group's annual closed-door global meeting, held in Taiwan last month, by charging that the "networked agency" is now in a pivotal position compared to "agency networks".

Independent agencies will now use networks to "drive their reach in skills and capabilities, not just geographical reach". In a move toward the ways of the digital world, agencies are starting to look for more flexible, scalable networks to create an ecosystem of talent, technologies and tools, he said.

WPI describes itself as the world’s 10th largest advertising and marketing communications network, made up of 65 independent agencies employing 4,500 people in over 100 offices.

It is owned by the agencies that make up the network, like a "reverse WPP" that is more obliged to strategic alliances than shareholders, it says, in an unavoidable reference to the British holding company.

WPI membership is equivalent to a gym membership, Harris said. "If you don’t get your butt into the gym and use the facilities, it’s not going to work," he implored.

To extend that metaphor, the gym facilities in question are the local expertise and resources of each WPI agency that can be harnessed by its partners.

It's who you know

Who you know means the difference between getting a seat at a client's C-suite table and being left out in the cold"How can we position our value to clients as in not what we do, but who we know?" Harris (pictured below) asserted. 

Marketing your client’s brands by knowing consumers intimately is only half of the equation, agreed Sean Tonner, president of R&R Partners' Denver office.

Today's evolving marketplace requires agencies to be able to lock positions with regulators and politicians. This is a true 360-degree understanding of the chess-work and situates the agency leader at the same table as the C-suite, he said.

Since 2000, the majority of global corporations' profits can be attributed more to political and regulatory action, and less to marketing campaigns, he said, making reference to the United States right now. "When political hands come into play, the advertising can go into the wayside," he chuckled.

He made his point by quoting former General Electric CEO Jack Welch who said “Face reality as it is, not as it was or as you wish it to be”. 

Trying to fit business objectives into the political environments of different markets is what Tonner's team does mainly for its client Uber. For the agency's other clients, non-market forces are impacting brands so much so that many in their C-suites are former attorneys with a strong "protect stance", he said.

If independent agencies are not familiarising themselves with the "dark arts stuff like regulatory and political influences", they are not thinking in 360 degrees, he urged.

"You won’t be able to give the client CEO the macro level of insight that his team didn’t give him or her if you’re concerned too much about execution-level tasks like developing a new mobile app or putting up billboards at a new resort," he said.

Macro view: how companies outside adland hacked their models 

"Who’s sick of hearing about Uber as a case study for the new world?" Asked Patrick Hollingworth, author of The Light and Fast Organisation: A New Way of Dealing with Uncertainty.

Hollingworth's presentation made a case that traditional models of top-down agency leadership, developed for hierarchical structures during times of relative stability and certainty, are facing increased levels of scrutiny, he said. Or more bluntly put, they are no longer working.

Despite the earlier provocative remark, Hollingworth allowed that in the space of eight years, Uber built an estimated market cap between US$75 and US$100 billion. A decade ago, this would not have seemed possible, he said, arguing that "complexity" drove a lot of business models like Uber's to emerge.

"There is a system we refer to as 'complex' and a system we refer to as 'complicated'. Not just a subtle difference in vernacular, but two different approaches," he told attendees.

What’s a complicated system like? A jet engine, he said. If we dismantle a jet engine into different parts, we can assemble it back again. It is a sum of different parts; also a straight line with cause-and-effect logic. It is about repetition and commoditisation, he stated.

Take BHP Billiton, one of the largest mining houses on earth, for example. The brand is a classic example of taking a complicated view of the world, he said.

Things in the complex domain, on the other hand, are about exploration and de-commoditisation, beyond the sum of the parts. Outcomes are non-linear and unpredictable. That is the way that brands like Uber are seeing the world, he noted. 

In the complex world's reality, the unexpected will continue to occur, but having a willingness to embrace paradox and conflicting ideas is key, he told the roomful of independent agency owners. 

Quoting Gordon Moore, the Intel co-founder who famously stated that the processing power of computer chips doubles every 24 months (later amended to 18 months), Hollingworth pointed to "exponential growth" happening across multiple industries apart from computing.

And unlike Moore's Law, such exponential growth is not linear, he reminded. “Linear thinking is our crutch. We are obsessed with linearity." 

What's the new agency leadership solution? A "light and fast approach", he said. That is less about reactivity and dependence and more about independence and interdependence.

Offering a mountaineering analogy, Hollingworth pushed for the "alpine style" of leadership. Switzerland's Ueli Steck "completely revamped" the way of climbing with such a style, he said. From the 96 hours it takes to scale Bernese Alps, he reduced it to less than three hours by challenging the norm of climbing mountains with ropes. [Steck was unfortunately killed on 30 April in a mountaineering accident near Mount Everest. -Ed.]

In conclusion, running an independent agency alpine-style means to have distributed (vs centralised) leadership, self-reliance, quick responses, risk-embracing attitudes, and intrinsic (vs extrinsic) motivation, he summed up. 

You also have to be 'running' other agencies, apart from your own

Lindsey Slaby, founder of Sunday Dinner, a sort of "CMO fill-in" agency that orchestrates partnerships between a brand's agencies, revealed that dissatisfaction about agencies among brands is at an all-time high because of "a lot of issues with value and delivery".

"I'm like an interior designer making different pieces of furniture work in the same room," she said, adding that 90 percent of her clients are senior marketers from Fortune 100 companies including Samsung, Microsoft, Target. the other 10 percent she described as "agencies in transformation".

The surge in the number of independent agencies is "huge" of late, said Slaby, making it tough for brands to navigate the market. "It's very overwhelming for them to know who’s good and who’s not out there," she said.

Take content marketing for example, there are too many overlapping agencies with no clear ownership. Clients have inquired, "Is it the creative or social agency?" 

As brands are spending a lot of time thinking how to brief, staff and approach a cross-functional project involving external and in-house agencies, Slaby said she "literally spend(s) hours and hours with clients to create project schedules, as no one is servicing them the right way".

Her team tries to crack briefs in workshops with think-tank processes and hold structured dinners as part of fostering creativity.

Tips from Slaby: 

  • Work hard to 'de-silo'. Create cross-functional teams that can slowly break down silos. 
  • Create checkpoints at key collaboration moments. Make sure the correct people are quickly pulled in when they should be involved.
  • Internally, be clear about how you will make money on an account. Do you have to do it all? Do you need X person for the entire project? Can you tap the internal team at the client for some of the work? 
  • Give clients different options for staffing on a project (and always one at their price point) so they can react and choose.
  • Be upfront. Abandon senior management and bring in the real team at the beginning of the project, so the client do not think they fell for a bait-and-switch tactic to get them to "fall in love with the president or senior VP who may not touch the real work later".
  • Share scopes of work with competing agencies. Why not? People will be very clear who is accountable for what in a $10 million account.
  • Dedicate a 'content bucket' everyone pulls from. This is crucial as content creation should be fluid. 

Being fluid and future-proof requires leaving egos at the door

As a creative idea makes its way downstream, the idea is soon owned and executed by multiple parties outside the agency itself, agreed Phenomenon's chief strategy officer Jason De Turris, who worked for the Central Intelligence Agency before he got into advertising.

Wanting to 'do it all', especially for independent agencies which position themselves as 'full-service', is sometimes a bottleneck, he said, as great ideas have to be free to permeate and morph as necessary.

The independent agency of the future is defined not by its specialist skillset (be it digital, social, communications, traditional, direct, etc) but by its ability to solve a business problem "at whatever stage in whatever form the solution must take", De Turris said. 

Creativity and ideation should be applied first to the business solution, not focused on just the end execution, he added.

This may be hard for independents who may be fixated on 'owning' their creative work (for a related article on this topic, see "Redefining creativity: From owning to sharing").

De Turris is convinced that advertising and marketing alone have lost the power to move people and businesses. 

The next competitive advantage is being first, he said. First to identify an unmet need. First to leverage a new technology or to use technology in a new way. First to define a new marketplace. First to go to market with something.

Advertising and marketing are actually the "last mile", he pointed out. "If we only come in at the last mile, we lose a lot of opportunities."

Map out current conventions to find white space, to dig deeper and then get to being first, he said. The independent agency should exist to decode and chart the unknown for clients. "Champion invention over convention," he entreated. 

"But even if we come up with a business transformation idea, we almost always never get to own it," he warned. "So, be precious about partnership, not ownership."

Applying a 'hack mantra' to typical independent agency models

The hack mantra of John Winsor, founder of Speakeasy Guild, is simple: "If you want to change the world, all you need is the right people and not enough time”.

The idea is built on the premise that initial spontaneous ideas, and decisions made, are often as good as—or even better than—carefully planned ones.

Time may be running out as organisations outside advertising have proved fast in future-proofing themselves. According to Winsor, the future lies in transforming "from a pipeline business to a platform business; from resource control to resource orchestration; from internal optimisation to external interaction".

To Winsor, one interesting frontrunner is Deloitte. It officially launched its enterprise crowdsourcing service, code-named Deloitte Pixel, which manifested the above qualities, during May 2016 after two years in a pilot phase.

(Main article continues below)

How to implement tangible hacks in your agency (independent or otherwise)?

Winsor and his assistant Britta Larson (director of business development at Speakeasy Guild) divided the attendees into six groups for a 'hackathon', then consolidated comments and outlined themes into an action plan below:

1: Hacking the agency's differentiation and positioning

  • Position yourself as curators of talent, creativity and communication
  • Focus on a single category and become the expert on the category's audience, adjacent categories and category trends
  • Move upstream to become business consultants through knowing the category and applying your unique lens
  • Create whitepapers and thought leadership opportunities for your team to share your knowledge
  • Reshape teams to be nimble and agile enough to respond quickly
  • Reframe your approach to execution within your agency

2. Hacking the value you add for your clients

  • Be the go-to partner because of your speed and ability to be on-demand problem solvers
  • Provide superior, thoughtful, indispensable customer service
  • Build relationships across the client's organisation, not just in marketing
  • Lead clients through their own uncomfortable change

3. Hacking the mentality inside your agency

  • Ensure your leadership team is truly aligned
  • Co-create a vision for your agency’s path forward
  • Establish an ongoing dialogue on ongoing challenges
  • Have one-on-one discussions to hear concerns about change
  • Outline roles within the agency's change process and a plan in how you’ll achieve it
  • Set up a 'sharing module' for articles or TED talks, etc, that support change

4. Hacking the agency's reward and incentive structures

  • Give your team toolkits and guardrails; reward those who define a new process based on a problem
  • Revamp your reward and incentive structures to acknowledge the onset of change

5. Hacking the agency's approach to resources

  • Reground in your core disciplines, outlining what skillsets are needed in-house
  • Start a network for shared resources whether in legal or accounting
  • Identify areas where open tools can augment your agency business, like in research & development
  • Put in place a financial model around your outsourced resources to reposition your profit centres

Viveca Chan, chairman and CEO at WE Marketing Group, the only Chinese agency in the WPI network, said her hack for her own company has been to intentionally venture into areas where most agencies do not tread, like e-commerce and warehouse management four years ago.

"We needed an agency business model that has sustainable growth," she explained. The key to her is how to appeal to and get money from unconventional investors in order to build scale.

"Billions flow out there without good assets to invest in," she said. "Startups are still too risky, but we [as in industry] have created solid foundations in marketing and creativity." 

Creativity: What does 'local' really mean in a marketing strategy?

The lack of understanding of cultural gaps can hinder the effective activation of a global marketing strategy at the local market level.

Julian Train, on-premise national sales manager at Coca-Cola Amatil, overseeing an alcohol portfolio of Jim Beam, Canadian Club and Maker’s Mark, had these observations about the marketing-hardened Australian alcohol market: 

  • Brand loyalty wavering as consumer appetite for new variety in flavours grows
  • Consumption volume declining overall, but increase in spend on premium alcohol products
  • Health consciousness increasing, meaning alcohol brands with natural, organic (or perceived) benefits are trading better
  • Competition swelling in markets like Sydney, where 70 new bar licences were granted in the last three years, and local breweries distilling their own stuff are cutting into market share of more traditional big suppliers
  • Regulations getting more restrictive for promotional activity and lockout hours

These local market characteristics are why Coca-Cola Amatil's B2B bottling customers "won’t take a promotion that someone else is also activating", said Train—they want to stand out. 

To influence them, Train realised it is essential to change from "just a service deliverer of alcohol to being more of a partner for the outlets and venues to do cool shit".

"We just gotta learn how to do more cool shit, find agencies that are a bit quirky and are able to challenge us," he told attendees.

Case in point: Coca-Cola Amatil's agency, Hunter, was tasked to build a bespoke, pre-packaged Maker’s Mark cocktail experience for one of its trade customers, Tryp Hotel in Brisbane.

"We needed something quick and easy to serve but not necessarily plastered with branding," reads the Tryp ‘Hip-Flasks’ case on Hunter's website. "Knowing the hotel was a contemporary, urban homage to all that is sophisticatedly cool, we needed to create something that was beguiling enough to feel part of Tryp’s fabric yet cut through and raise more than just a smile amongst guests."

Cue a collaboration with New Zealand-based ceramicist Taus aka Tim Grocott. 

"We kept getting new orders because they kept getting stolen," said Hunter CEO Simon Hakim.

Doing "cool shit" that is locally relevant drastically improves your cred in the local market, and sales will flow as a result, Train emphasised.

"Many big, global businesses talk about being nimble, responsive and high-touch, but most are afraid to actually do anything about it. Local needs will always trump 'a global positioning' for brands."

In the same vein, localised content is content that correlates to the 'key emotion' of that market。

Greg Fournier, APAC executive director for strategic partnerships at Unruly, told attendees that in Australia, one emotion is felt two times more by Australians than consumers of other nationalities: sadness. "But that does not mean they are miserable; they have an ability to be empathetic and feel for people," he clarified.

Emotional ads contribute up to 23 percent sales lift on average, he shared.

Editor's note: The reporter also acted as emcee for the event.

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