“Once being a mere player is acceptable, the culture must be transformed.” Alan G. Lafley

	“Wishin’, and Hopin’, and Thinkin’, and Prayin’” will not get you there. Dusty Springfield

Rel-e-vance

The dictionary defines relevance as: bearing upon, or connected to, the matter at hand.

The question today is how relevant are advertising agencies to the needs of contemporary marketers? How well do they bear upon marketers’ vexing problems. How well are they connected to the interests of marketers?

Could it be that agencies are losing their relevance? And if so, what does it mean. And what can be done about it?

From Whence We Came

The setting for AMC’s hit show Mad Men is a Madison Avenue agency in 1960. If you haven’t already done so you owe it to yourself to view it. I’m often asked, “Is that the way it really was back then?” My answer is, “Yes.”

Obviously, as in any dramatization, Mad Men tends to overstate the intrigue, the smoking, the drinking and the sex. But they were all definitely there. But the lurid stuff is really beside the point.

As an agency practitioner, the important thing to watch is the dynamics between the agency people, the clients and the impact the agency’s campaigns had on the marketplace. The show’s portrayal of how the agency related to its clients and how the agency’s ideas leveraged consumer behavior are quite accurate.

The influence the agency had over the client’s economic success cannot be overstated.

Brand Custodians

In those days clients really trusted their brands to their agencies. In many respects, it was an almost blind faith. The success of the brand was placed in the agency’s hands. A brand could rise or fall based on its advertising. Almost alone.

Clients didn’t entrust this responsibility to their agency just because they necessarily liked them. Or the people in them. But rather because they needed what the agency could do. Something they could not do by themselves.

Agencies were in fact the client’s brand custodian. And great brands were built. Built by changing the beliefs, and ultimately the behaviors, of consumers.

It was a golden age of agency relevance. Agencies were solving some of the biggest and most important problems facing marketers. Both marketers and agencies understood this.

The Business of Behavior Modification

When you look clinically at the role of agencies back then, the conclusion is simple. Agencies were squarely in the behavior modification business. Their job was to change the behavior of consumers for the benefit of the client, the consumer and society. Agency people were crystal clear on that responsibility.

Creating great advertising was important, but not enough. Keeping the client happy was important, but not enough. What really mattered was changing consumer behavior.

The Agency’s intense focus was on outcomes in the marketplace. Usually measured by sales. Advertising awards were nice. But were insignificant compared to client sales.

Agencies lived or died by that simple metric.

Of course, the tools they used to accomplish that were TV spots, print ads, brochures, PR, etc. But they clearly understood that these tools were not an end in themselves, but merely a means to an end.

Their unwavering focus was on changing consumer behavior. They never forgot that was the business they were in.

That’s what drove giants like Leo Burnett, David Ogilvy, Bill Bernbach and Jay Chiat. And if you watch Mad Men, that’s at the core of what drives Don Draper, too. Even while he may be having a few dalliances on the side.

Fast Forward to Today

You’ve seen it all. Hardly a week goes by without a new study or report describing the turbulent environment for agencies. It’s a different world.

A world in which marketers are redefining the role of agencies. A world in which agencies are struggling to clarify their purpose. A world in which the best and brightest young talent are choosing other professions. A world in which it is increasingly difficult for an agency to earn a fair return. A world that ultimately calls the traditional agency business model into serious doubt.

Some Facts You Already Know

The Consumer
First, and most important, the consumer (including B-to-B) has changed. In the old days a brand’s message content, delivery method and timing were under the control of the agency and its client. The power was in the hands of the sender. The receiver was a passive audience member. Not so today.

Control has shifted to the consumer. The receiver is now in charge. Today’s consumer decides what commercial messages she wants to receive, from what medium and when.

They are in charge. And they expect personalized one to one marketing. It is a complete role reversal.

This has turned traditional advertising and marketing doctrine on its head. A reality that has pushed some agency leaders into a state of denial.

Media Fragmentation
The consumer’s ability to wield this new power is aided and abetted by the explosion of ways commercial messages can be delivered. The available choices are mind-boggling. The days of a successful campaign just employing TV, a few print ads and maybe some radio are gone forever.

Pandora’s Box has been opened. It cannot be closed.

Client Perceptions
While agencies hate to hear this, repeated studies show that senior executives of marketers tend to view agencies, even their own, quite narrowly. Many believe that while agencies are excellent at doing TV spots and ads, and maybe some brochures and PR, they lack the necessary skills to be effective in new media. And lack the flexibility and innovative spirit to adapt to this new age.

And that the holding companies, for all their efforts, have not been very successful in coalescing harmonious multi-disciplinary solutions from their wide array of marketing communication service providers.

As a result, many marketers have assembled their own ad hoc teams of outside providers. No one of which has the mantle of brand custodian.

And, ironically, this lack of having anyone serve as brand custodian causes sleepless nights for marketers’ senior management. So much so that big name consulting firms are being invited in to fill that gap.

A crucial position that used to be held by agencies.

Have We Shot Ourselves in the Foot?

To make matters worse, it looks like agencies have compounded the problem.

Many agencies have allowed themselves to become perceived primarily as providers of TV spots and print ads. Of course, most are capable of doing a lot more than that, but the perception they have enabled, rightly or wrongly, appears limited to their expertise in creating TV spots and ads.

A Forrester study shows that only about 50% of marketing executives believe that their agency is well-equipped to help deal with changes in Internet advertising. And shockingly, only a third of those marketing executives believe that their agency can help them with consumer generated media.

A stunning vote of no confidence.

There are a lot of reasons for this perception. Perhaps most important is the fact that many agencies still get most of their money from creating and producing TV spots and print ads. And maybe some traditional collateral and PR too. These have become the cash cow. Maybe even a sacred cash cow.

Some agencies have literally become stuff factories. Very efficiently turning out a high volume of very effective TV and print advertising. They are quite good at this. But their very strength in this one area makes it doubly difficult in trying to keep pace with the changing market. Much less leading it.

Voices from the Trenches

Recently we asked a group of very bright young agency people to describe the business they are in. Each answered in his/her own words. But the common thread to all their answers was, “We create and produce advertising for our clients.” Period.

This, of course, is a technically accurate answer. But, it is certainly not the correct one. If they see themselves as just makers of advertising, their view of their world is way too limited.

They are positioning themselves as tactical rather than strategic. They have let themselves become stuff providers to clients. And see that as their calling. Yet their clients really need innovative solutions to challenging business problems. Solutions that call for much broader conceptual thinking. And a much more diverse set of communication tools. A big, big disconnect.

If these young agency professionals don’t see themselves as being primarily responsible for changing the behaviors of their clients’ customers, how can we expect the client to see them any differently?

Stop. Think about that for a minute. Think about the message being sent. Then think about how your young talent would answer the same question.

Are they, in fact, marginalizing themselves? And your agency along with them?

A Downward Path

Thus the question. Are agencies becoming irrelevant? Is the advertising agency industry trapped in a legacy? A legacy of being great creators and producers of TV, print ads, collateral and press releases but not much else? A legacy that keeps agencies locked into an outdated business model?

A legacy that has diminishing relevance to market needs?

Alan G. Lafley

In 2000 Lafley became CEO of Procter & Gamble. While it’s one of the most powerful marketers in the world, P&G at that time was very troubled. Their business model which has served them well for many, many years was tired and in danger of becoming dysfunctional.

As Lafley described it, “You can get used to being a player without being a winner. There’s a big difference between the two. Once being a mere player becomes acceptable, the culture must be transformed.”

And, under his leadership P&G is being transformed.

It looks like too many agencies may have let themselves become mere players. But not winners. But, that can change. However, it will take transformative reinvention to do it.

Re-in-ven-tion

The dictionary defines reinvention as: to remake or make over, as in a different form.

Reinvention is not easy. Particularly since things have been cooking along pretty well these past few years. But the growth and prosperity agencies have enjoyed recently may not continue much longer.

Bob Coen, the respected industry forecaster from Universal McCann, is calling for flat or declining advertising spending (when you factor out the Olympics and the elections) for 2008. The only exception is a continued dramatic growth in Internet ad spending.

Looking further ahead, Business Week is anticipating a continued deterioration in housing prices for at least a couple more years. With a depressing effect on consumer confidence and spending. Not a pretty picture.

Some Questions to Consider

Against this backdrop, if you are thinking about the reinvention of your agency, here are some things you may want to ask yourself:

1. What Business Do You Want to Be In?
Do you want to provide solutions to marketers’ big, challenging marketing problems? Or do want to provide marketers with communications tools (ads, TV spots, brochures, PR, etc)? There is a significant difference.

The former has very high value and is intellectually driven. The latter has the characteristics of a commodity, and as such is price sensitive. Make no mistake; it is very difficult being successful at both simultaneously.

Yet each by itself can be a viable path. A conscious decision of which is right for your agency may well be in order.

2. Are You Consumer Centric?
This is a tough one. All agencies are constantly pushed toward client centricity. Simply because the clients pay the bills. Yet consumer centricity and client centricity should not be confused. They are quite different.

Now that consumers have taken full charge of what commercial messages they want to receive, and when and how they want to receive them, advertising is a changed game.

A true understanding and deep empathy with the consumer is the key to success. Without an unrelenting reaffirmation of this truism, client-think can creep into an agency’s psyche. Blinding it to marketing solution opportunities. And the resultant changed consumer behavior.

3. Is Your Agency Capable of Reinvention?
Reinvention usually requires the discarding of baggage. And many agencies have lots of baggage that has accumulated over the years. A couple of key baggage tests require looking at how much of your gross income comes from making ads, spots and other stuff? And how many of your staff are primarily engaged in this activity?

If much of your agency’s time and talent is focused on making stuff you may well be starting a slide down the commodity provider’s slippery slope.

Becoming an agency that is very well paid for solving difficult marketing problems for its clients may require fewer folks with radically different skills. A transition that can be painful.

4. How Will You Get Paid?
The preceding question leads right into this one. Much of agency compensation today comes from hourly charges for providing ads, TV spots and other stuff. Stuff that is primarily priced by the cost of labor needed to make it.

Solutions to big marketing problems are different. They are ultimately valued by the incremental economic benefit they bring to the marketer. A value that has little, if any, connection to its cost. And a value that may provide very long-term benefits.

Thus, the agency should consider some form of continuing compensation that recognizes, and is connected to, that continuing value. To do otherwise is to give away that which is most important in order to secure price sensitive commodity work. Not a smart business deal.

5. What is Your Agency’s Transition Plan?
Ok, let’s say you want to reinvent. As the old song goes, “Wishin’, and Hopin’, and Thinkin’, and Prayin,’” will not get you there. It takes a solid action plan. One that enjoys the support of your people. One that relentlessly moves ahead in spite of all the obstacles that come up.

Reinvention is a slow and difficult process. It will not come easily. Or overnight. It will take trial and error. It will suffer setbacks. People will lose resolve. But you, and your other leaders, can’t.

A practical plan executed with steadfast determination will be essential.

The Quick and the Dead

Like the Biblical judgment, marketers are coming to make choices. Choices that will determine your agency’s very future. As well as the future of every other agency and even the advertising agency industry itself.

Decisions that you make today for your agency can shape what that judgment will be.