According to a global consulting firm PwC, most marketing agencies all over the world are using a no longer effective business model and should start making significant changes to catch up with their clients’ needs. They should take a much more integrated approach to all their operations. This article is an overview of the current situation in the industry and four models that can be implemented to create a next-generation marketing agency. Each strategy carries certain risks and requires to overcome some obstacles, but advantages far outweigh the disadvantages and provide new opportunities.

Over the last decades, most large agencies have taken over numerous smaller ones in spheres like digital, media planning and buying, branding, and creative services. Despite being financially accountable to their holding company, these subsidiaries act independently and even compete with each other. There is nothing wrong with competition, as it sure helps to drive progress and generate the best ideas, but today marketing agencies have enough outside rivals to compete with as it is, for example platforms like Facebook and Adobe or in-house agencies established by some companies. Procter&Gambe created its own marketing department and managed to save $750 million on advertising and production costs in 2018. At the same time clients are looking for unified teams including top experts from all necessary areas that could replace numerous agencies and save budget. 

In the table below, you can see what challenges agencies face on two fronts in terms of today’s market conditions and client’s demands.

External market pressures Advertiser pressures
  • Mobile boom
  • Linear and digital models convergence
  • Increased amount of data and automated media buying
  • Accelerating marketing funnel
  • New creators appear
  • Spread of new complex platforms and channels
  • Strengthening Facebook and Google
  • Tough competition for talent
  • Increasing production costs
  • Developed markets show slow growth 
  • ROMI maximization
  • Focus on efficient ad channels
  • Demand for lower procurement costs
  • Distrust because of transparency issues
  • Needs and expectations change rapidly
  • Client’s in-house agencies
  • Direct communication with the creator
  • Omnichannel marketing
  • End-to-end digital marketing
  • Direct-to-consumer approach

As you can see, agencies find themselves between two fires with a changing marketing landscape, emerging platforms and technologies and search for experts to cope with them. To benefit from innovations like big data or virtual reality they require massive investments that a standalone agency simply cannot get, so integration is the key to development. Another issue is clients, who scrutinize every dollar spent, constantly change their demands, and complain that the system where they have to hire several agencies to deal with different spheres is complex and inefficient.

Current situation and possible changes

The need for change is obvious, and as a response to clients’ needs and industry conditions some marketing giants have started to gradually integrate their operations, but these isolated changes are too slow. Holding companies need to completely reshape their organizational structures, coordinate back-office, middle-office, and front-office functions and be more actively involved into everyday strategic decisions to act in the best interests of their clients as well as remain competitive and reduce costs. The major obstacle on the way to greater collaboration is the competition between agencies, which is actually still encouraged by the corporate system. Individual agencies are mostly accountable not to the parent company, but to the local office, and there are no incentives, like systematic rewards, for collaboration. Even if companies are trying to achieve a higher level of integration, they aren’t reconstructing their systems but simply adding new features to the existing models, which isn’t as effective. Due to such insufficient changes there are numerous agencies in the market that share back- and middle-office functions, but at the same time appear to be independent, which is confusing and doesn’t help to win clients’ trust. To understand what further steps should be taken we need to understand where a company is currently standing in terms of transition to the new model, as well as take into account its general strategy, customer base and willingness to change.

As for back-office functions, there is already some progress because they ensure long-term efficiency and are usually tactical, not strategic. First go finance and IT followed by tax, legal, and treasury ,while HR is the last department to get involved in this process, because creative talent is what makes agencies unique and allows them to compete with each other. To speed up integration, that is already under way, companies should move transactions and some IT services that aren’t strategic into global shared-services organizations. It doesn’t mean, however, that region- or country-specific conditions should be neglected in an effort to unify all subsidiaries. Talent management should also be controlled at the parent-company level, because providing subsidiaries with an equal access to creative talent and investments will help parent companies eliminate competition between them.

There have also been some efforts to centralize middle-office functions: production, partnerships, analytics, data management, and acquisition. So far it has been the most successfully performed in production department, for example in 2015 Omnicom Group joined their studio production departments into a single entity through a hub-and-spoke model. Functions in this category should be taken to the parent-company level or entrusted to a specific agency. Integration in production will allow creating more content without spending extra money and satisfy clients’ need for more cost transparency.

As you might have guessed, front-office processes are the most difficult to centralize and such efforts are carried out on a more experimental basis. For specific large projects parent companies may appoint cross-agency supervising managers or encourage cooperation between their subsidiaries. But in some cases such isolated actions are not just useless, but also harmful, which is proved by the following incident. A large marketing company gathered a team of their top experts from various disciplines for an important meeting to impress their client, a global consumer-products manufacturer. But when the client realised that the members of the team were seeing each other for the first time and even mistook some of the client’s representatives for their colleagues, they terminated the contract.

To avoid such unfortunate outcomes companies need to perform an extensive restructuring instead of addressing separate issues.

Next-generation operating models

Here are four models varying in the level of integration.

1. Brand oriented model

The radical transformation process throughout all company departments we discussed before is not  always necessary, like with long standing brands, that might lose clients if they change. In such cases only back- and middle-office functions should be affected by the transition with front-office remaining as it is.

2. Discipline-oriented model

According to this model a company should form centralized units specializing in various disciplines like media buying, digital, branding etc. Such new entity takes either parent company or the strongest agency related brand name. When a number of independent agencies are united into one, a carefully planned rebranding and transition process must take place. 

3. Interdisciplinary model

This model represents an extended version of the previous one with further integration between disciplines. It unites branding and creative, media buying, and digital into a single business unit, because there is no marketing campaign that doesn’t include digital advertising channels. Another reason to do that is the fact that media-buying agencies have become the major profit driver in the industry, they also started adding creative part to their offers and competing with branding agencies. As you see, joining these two disciplines solves the competition problem. The opposite situation is with research units, that should be seen as independent, unbiased observers to earn customers trust.

4. One-brand, one-agency model

At this highest level of integration branding/creative, digital, media buying, PR, and research agencies are merged into one single entity, which might sound unnecessary but actually has significant advantages. For example it enables us to increase transparency and track the whole sales process horizontally at different levels, which is a feature clients are increasingly seeking right now. Such model also allows for having a few separate highly specialized agencies.

How to choose a suitable model?

When choosing a model, you need to take into account the holding company’s general business strategy, clients base and willingness to change. For example, if acquisitions play crucial role in company’s development, it’s recommended to implement a model with fewer  business units, because in such case it will be easier to create a roadmap for integrating acquisitions into your business. If a company is planning to work in customer experience consulting, it should stick to interdisciplinary model. Next thing to remember is you need to keep pace with your clients and align with their level of integration, but don’t overdo it by getting too far ahead of them. And the last factor to consider before launching the transition process is whether your company’s executives welcome such a massive transformation to avoid aggressive changes that aren’t always the best option.

Risks or potential advantages?

Even the model with the lowest level of integration bears some risks, let alone the others, so there will be enough opponents to the idea of change. But if approached carefully and carried out strategically, it should result in new opportunities and strong points. In the table below you can see how potential opportunities can be used to the advantage of the company.

 

The problem

Possible solution

Loss of the brand equity

Well known agencies will lose their name, identity and probably clients.

Brand agencies should be taken through transition gradually and carefully with emphasis on the idea that “the whole is greater than the sum of the parts”.

Loss of creative talent

Creatives may quit if they feel that their unique agency has turned into a “faceless” corporation.

Respect each team you bring into a single structure. Provide creative and career opportunities. And appoint young employees to be in charge.

Slowing down

Separate agencies may oppose the transition if they have to wait for a “corporate solution” for every move.

Firstly, introduce any change to one agency in a test mode and then spread it to other units. Also with fewer business units you will make decisions and launch new ideas faster.

Conflict of interests

With an integrated structure, large marketing agencies won’t be able to work with competing clients through separate agencies anymore.

This challenge should be least of your and your clients’ concerns. For example, PwC has been successfully using confidentiality terms and information barriers between teams working for competing clients.

Сompetition between agencies

The long-standing competition between agencies can’t suddenly just disappear.

Integrated work should be encouraged and rewarded. Profit & Loss reports should also be gradually taken to a business unit level.

Integration Roadmap

The most important thing is to carry out the process gradually and plan everything in great detail. In general three phases can be singled out.

1: Integrate flexible back-office functions, like finance; IT; and procurement.

2: Then address non-transactional, expertise-based back- and middle-office activities, such as privacy, talent and data management.

3: Finally integrate separate brands into business units.

The transition will be challenging and painful, but it will be worth it, because despite the risks it will create new opportunities, simplify processes, reduce costs and increase income.

Adoptomedia offers an advertising automation platform that is a perfect fit for such integrated agencies. Company’s unique product CheckMedia Solution V2.0 is just what you need if  you are a marketer of a large B2C company, that operates in multiple regions, spends more than € 1 million on advertising annually and implements various media channels to promote its goods and services, including TV, online, radio, OOH advertising etc. This tool helps to adjust media budget, identify the most effective ad channels, create smart media plans, automate advertising process and increase ROMI by 10-20% at the minimum.

 Request Demo