What Are The Challenges Facing Agencies In The Digital Revolution?

Posted by Jenni Armstrong on 14 November 2013

This week WPP CEO Sir Martin Sorrell was interviewed in Ad Age, and one of the things he was asked to do was gaze into his crystal ball, and predict the future of advertising. Squared Senior Tutor Nick Watt takes a look at what he had to say, and explore some of challenges facing agencies in this brave new world.

New Competition

Sir Martin’s first prediction for the next five years…

“You never know what will come out of left field, but what is different now is all these new layers of competition: our direct competitors; others, like Nielsen, Ipsos; companies like Adobe, Salesforce.com; the Google, Facebook, Amazon, Apple group. All the differences will become less and less—we will morph into each others’ territory much more”.

This new layer of competition also includes the more familiar management consultants such as Bain, McKinsey, Accenture, and the restyled IBM, as well as a plethora of smaller digital consultancies who have sprung up, and are also being invited out to play. With all these new players in the market, it seems that agencies no longer have a monopoly when it comes to ideas or creativity. For many brands and organisations digital is increasingly about business solutions, not just marketing solutions, which explains why media owners, software vendors and technology companies make up the new competitive set.

However, Sorrell’s prediction also hints at a bigger opportunity for agencies to go beyond their well-defined communications role to play a more consultative position in a world where digital is about every part of business, not just marketing. But how can agencies transition to this new role?

The biggest challenge to taking on this new mantle is technological know-how and the ability to integrate it into business strategy. It’s clear that agencies need to learn fast – reskill, refocus and reenergize by acquiring a new mindset. As David Smith, founder of Mediasmith points out

“The new challenge is really understanding the technologies and how to integrate the technologies into client solutions.”

However, Adobe’s recent research, “Digital Distress: What Keeps Marketers Up At Night”, also highlights a big challenge that agencies face in engendering trust in these newfound skills. As Adobe’s recent research highlights only 18% of marketers go to their agencies for digital marketing advice”.

 As we saw in my last article, Martec’s Law suggests that “change within organisations – how they think and behave – is still hard and slow…and the larger the organisation, the greater the resistance to innovation and transformation”.

It will be fascinating to see which agencies lead the charge in helping brands to join the dots and enable them to integrate digital across their whole business, not just the marketing department. As Sorrell points out “we’ll be focused more on math men as well as mad men and more focused on the CIO’s (and no doubt the CDO’s) as well as the CMOs ”.

Size Matters

Sir Martin’s second big prediction…

“Bigger companies will have the advantage of size, clout, technology and investment. Smaller companies will have the advantage of more responsive structures, more entrepreneurial, flexible people. Power will move to the big. It will be much more difficult for the small.”

As he points out advantage of small organisations is agility; in that they are less encumbered with complex structures that can often stifle what Citizenbayfounder Paul Bay calls ‘curiosity’. Innovation is not always an easy bedfellow within large organisations. As John Winsor (right), chief innovation officer at Havas points out

“Agencies are typically closed systems that are being challenged by open systems and an open way of doing things”.

One-issue clients increasingly face is navigating an agency world that continually seems to fragment. Although the big six agency networks continue making acquisitions and create new allegiances that increase their capabilities, how effective are they at providing a one-stop shop? It started with the split between media and creative in the mid 80s, followed by the rise of specialisms in direct and experiential marketing, and media-neutral planning. Digital has spawned a plethora of new specialists – search, social, mobile, content and data to name a few – all with the potential to nibble away at the margins of the incumbent ‘lead’ agency. So as Sorrell identifies a big challenge is to work out how to (re)integrate all these specialisms into one tangible offering. The big networks are certainly increasing their technological capabilities, as he points out “we now sit with 35% of our business (WPP) in digital”, but what other skills do they need to add to mix to ensure thought-leadership in this space?

So What’s Missing?

One of the big issues that Sir Martin seems to have avoided is the issue of commoditization. As Mike Fromowitz President and Chief Brand Officer, Mantra Partners contends

“Commoditization may be the biggest threat facing ad agencies today, and yet we hear precious little about it, and few are taking strategic action to combat it.”

Increasingly ideas, creativity, and media, are being perceived as nothing more than tools that are now more easily acquired than ever before. The industry has been disrupted by an increasing number of ‘frenemies’ and the agency world’s expertise is starting to look increasingly commoditized, making it tough to differentiate offerings. Everyone’s now an expert. And to make things worse we too often hear exactly the same advice coming from an increasing number of talking heads that all seem to have read the same playbook.

One thing, however, that Sir Martin does predict is “there will still be more disruptive technologies”. And with more disruption there is a need for more learning. The challenge facing agencies is the same as that facing their clients. Acquiring the right skills and the mindset needed for growth and survival is key, but do agencies have the determination to invest the required time and money into their people and grow a better future?

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