Intellilink's Christopher Montgomery provides ad agencies with a detailed blueprint for survival amidst chaos in the business.

Abstract: A changing industry climate is forcing advertising agencies to rethink their strategic positioning. Some are updating their public images, others are finding new ways to deliver client messages to targeted audiences. Fewer are making significant investments to transform their operations. In order to respond to client and industry demands, agencies must revamp client service, develop talent management, and improve financial management and control.

Industry Demands

Paradigm-shifting changes have hit the advertising industry. Industry consolidation and globalization has, almost literally, caused the ground to move. Projects often run across divergent organizational cultures, making global account management more prevalent. Multinational clients that previously bid out their advertising region by region are consolidating their advertising contracts. For some agencies these trends present big opportunities, but they also raise a set of complex challenges. 

Challenge 1: Client Service
Consumer habits and new technology are forcing agencies to broaden their portfolios and think outside the traditional box of TV and print advertising. TV commercials, the industry staple, are losing their appeal to clients as viewers "TiVo" them out.  Innovative strategies such as building the plot of hit shows like NBC's The Apprentice around a product (e.g., iPod and Nescafé) or product placement within the lyrics of hip-hop songs (e.g., Big Mac, Courvoisier) have been successful in gaining consumer attention. As the use of these complex marketing solutions increases and internet-based advertising continues to rise, ad agencies will need to offer an array of solutions to meet the needs of clients.

Challenge 2: Talent Management
Clients demand the right people with the right skills to execute these diversified demands. This raises the challenge of talent management across organizational lines, and in some instances, across continents. Agencies must coordinate a vast range of creative disciplines while at the same time localizing their client's message in multiple markets around the world. Office and department delineations blur as the number of global accounts increase, and agencies have to find and deploy the best creative talent and account management, irrespective of their geography.

Challenge 3: Financial Management
Creative tactics alone, however, do not address all the underlying industry problems. There is still a need for better cost control and reporting. Clients want more visibility to agency costs. Agencies too need a clearer picture of their internal costs if they are going to maximize profits. Publicly owned parent companies, such as WPP and Omnicom, also face strict government regulations, such as those imposed by the Sarbanes-Oxley Act.

To complicate the situation, clients have become highly cost-conscious, viewing advertising through the lens of strategic sourcing. Longtime relationships are being tested as clients' procurement departments take a hard look at what they get for their money. Commission-based fees are vanishing, replaced by fees based on agency costs. The trend to best service for the lowest price means shrinking margins.

So what's an agency to do?

Re-examine the business model

The changing industry climate has prompted agencies to start asking how they can find innovative ways to manage their businesses.  Ad execs are asking:

• How can we become partners with our clients and proactively develop solutions to meet their ever-changing advertising needs?
• What tactics should we pursue to be able to locate and deploy the best talent to satisfy these evolving client demands?
• How do we more closely track and manage agency costs in a climate of tighter profit margins?

Revamp client service: Clients today are looking for agencies with which they can build solid partnerships. Clients want to feel confident that their agencies can offer all of the strategies they need to get the message out about their brands. More importantly, given the evolution of the 'commercial-free' media, clients want agencies to use the most creative options available to reach consumers.
 
Agencies must develop a full spectrum of multi-media solutions based on client needs. Account directors will be required to masterfully develop advertising strategies that bundle print and TV ads with digital media and integrated marketing solutions. By broadening their service portfolios, agencies can establish themselves as 'one stop shops' for clients.
 
Once agencies can deliver the services to satisfy clients, they must motivate account executives to sell the services. Agencies will need to retool account management in order to engrain a partnership approach. One step would be to structure compensation such that ad execs are motivated to offer clients a breadth of services, i.e., rewarding account executives who successfully develop and implement creative solutions beyond traditional print and TV advertising.

Develop talent management: Many multi-national clients are engaging in global accounts to standardize their branding from coast to coast and country to country. This alters the model where agency execs pursue accounts with clients in their own backyards, and assign creative and account management staff from their own offices. This model made sense as execs could mentally track the skills and client experience of staff in their offices. However, resource decisions become more difficult when a client based in Hong Kong needs a graphic designer in Los Angeles and a print producer in New York. Tip-toeing down the hall is no longer the best solution to find staff for a global account.

Agencies should consider implementing talent management systems to find and assign the best talent to work on client accounts.  Talent management systems enable agencies to track staff skills, industry expertise, and client experience. Ad firms can also use these systems to track staff availability across departments, regions and offices. 

Once the resources are identified, they need the right tools to work together. Agencies must enable virtual collaboration to globally share client information and creative material. This has wide implications for agency technology infrastructure, from office systems, networking, to communications.

Improve financial management: Agency margins are shrinking. More and more, chief marketing officers have to justify ad spending and track return on investment. Clients are hiring cost consultants to scrutinize their advertising spend. They want to itemize costs and track every hour agency staff spend on their accounts. However, most agencies do not have systems in place to reconcile staff hours worked and report costs at the level of detail clients want. If agencies cannot effectively track staff costs for clients, they will also have trouble managing their own finances and accurately calculating their profits.

Job cost tracking is a crucial first step in agency financial management. Effective cost tracking requires clearly defined responsibilities, well-managed processes, and job tracking software to monitor cost and time factors at every stage of every project. Agencies need state-of-the-art systems to integrate project cost tracking into their corporate financial management. Agencies should streamline multiple systems into a single global financial management platform. Too many agencies are saddled by legacy in-house developed systems or ones that are incompatible across organizational lines.
 
Ad agencies need systems with the requisite financial functionality as well as solid advertising-specific capability.  These systems should be able to generate a full scope of reports across the agency's locations, departments, and projects and also accommodate the various billing structures clients demand; e.g., fixed fee, time and materials, or commission based billing. The advertising industry is limited in the number of solutions available -- current systems have either good advertising functionality but weak general financial capability, or robust financial management but lack estimating, project costing, and other advertising needs.

Conclusion

Amid swirling industry demands and shrinking margins, agencies must be prepared to make some fundamental changes to the way they operate. Client service will need to be revamped to offer the full range of solutions to clients, talent management will need to be developed to ensure that an agency possess the right skills, and business-critical financial systems and processes will need to be implemented to improve corporate governance and control.

Christopher Montgomery is an Associate Principal at Intellilink Solutions, Inc. -- a boutique consulting firm specializing in automating knowledge worker organizations. His areas of focus include advertising industry transformation, project financials, IT governance, and resource management. He can be reached at info@intellilinksi.com