Are Strategic Alliances Right for You?
By Mike Carlton
Like most people, I have considerable ambivalence about change. I love the excitement and sense of adventure it brings. Change can be energizing and inspiring. It makes the adrenaline pump. And can be a lot of fun too.
But I also know how disruptive change can be. It takes me out of my comfort zone. And I’m pretty comfortable where I am right now. So if truth be told, I like to look at change a bit vicariously while I cling to that which I’m used to.
I suspect a lot of agency leaders feel the same way.
But of course, like it or not, change is inevitable.
And as we all know, the advertising agency industry is confronted with more change today than it has seen in over 50 years.
Naturally the first question is why are we experiencing so much change right now?
Next, what are the business implications for advertising agencies?
And finally, what can we do to turn all this to our advantage?
It appears that this unprecedented period of disruption is being driven by the confluence of four key factors. They are:
1. The needs of each client are different
Now there is nothing surprising here. This has been true since the beginning of time. Every ad and every campaign an agency creates is unique. Creativity, by definition, requires differentiation from what has been done in the past.
Fundamentally, every solution an agency provides to its clients must be different. Thus the creative product of agencies does not align with economies of scale. There is no, nor should there be, a standardized formula.
Yet economic growth in most industries has come from standardization. The mass production business model has served society very well. Yet, that business model which works for most industries is not really available to advertising agencies.
So agency leaders must find other ways to maintain and grow profitability.
2. Ways to reach consumers are growing exponentially
It used to be fairly easy for an agency to launch a campaign. Success could usually be achieved using only a few communications tools. Maybe print and TV with possibly some direct mail, PR and promotion thrown in. Choosing the tools to reach and influence the target audience was not very complicated.
But new technologies have changed all that. Websites, mobile, social, search, marketing automation, etc., etc., have dramatically increased the variety of ways the public consumes commercial media. Not to mention the increase in dialogic communications that has given the consumer a much more powerful voice in the marketplace.
And the number of new communications tools an agency can use increases each day. With no end in sight.
3. No agency can be expert on every needed tool
The variety and scope of the tools needed require a much broader range of talents than ever before. This poses a real challenge for all agencies. Because no agency, no matter how large, can be skillful with every technique that may be appropriate for each client.
Highly specialized people are needed. Ones who are hard to find, expensive to hire, and often difficult to keep busy.
4. Clients are increasingly moving to project engagements
To compound all this clients seem to be moving away from agency of record status and are using their agencies for a series of discrete projects. Thus denying their agencies a steady stream of predictable income. The effect of this change is to create greater volatility, and increased uncertainty, in agency income flow.
Thus forecasting staffing requirements more than a few months out can be very difficult. Making it exceptionally risky to hire full-time specialized talent that may be needed right now, but may have nothing to do a few months from now.
What a dilemma! Agencies need a much larger and more diverse talent base. Yet clients are reluctant to support the cost of that talent except when they need them. Is there is a Catch-22 here?
One might say that it’s a double-whammy that flies in the face of the traditional advertising agency business model. That is to build and retain a permanent full-time staff that can meet the full-service needs of every different client.
That business model is in trouble. Try as we may, that way of doing business just won’t work the way it used to.
The Good News
Under all this turmoil the reality is that the root needs of clients have not really changed. They continue to need their agencies to help them solve their business problems. And to do that through modifying the marketplace behavior of their customers and prospects. That has been the role of agencies for ever.
The other piece of good news is that at a very basic level consumers have not changed either. While they consume media differently and engage in more dialogic conversations with marketers, their wants, needs, hopes, fears, desires and pleasures are pretty much the same as they have always been.
The Road Ahead
So, while change is closing one door it is opening another.
The closing door. Agencies can no longer afford to have full-time on-staff talent experts for every possible tool a client may need. Yet without that capability agencies are at a competitive disadvantage. And their ability to orchestrate holistic integrated solutions is diminished. As well as their ability to generate a fair revenue stream and equitable profits.
The opening door. At the same time, the availability of top-flight contingent talent has never been greater. This talent can be engaged by agencies on an as needed basis. And strategic alliances can be the key to opening this door.
All an agency has to do is to adjust its business model away from a heavy concentration on full-time staffers to one with greater reliance on outside contingent talent that become the agency’s strategic allies.
And thus increase the agency’s capability of orchestrating comprehensive integrated solutions using a diverse mix of inside and outside talent.
The First Step
Maximizing the potential of outside contingency talent first requires a basic shift in an agency’s staffing strategy. We see this as embracing a three tier staffing concept. Those three tiers are Core, Support and Contingent.
The Core Staff is a small cadre of agency principles. Senior executives, partners and/or owners. They are responsible for the agency’s vision and values as well as its relationships with clients, staffers, media, suppliers and prospects as well as guiding the agency’s work output and financial well being. They are the drivers. The permanent part of the agency. Their personal compensation should be variable and closely linked to the agency’s profitability.
The Support Staff is also small and generally made up of bright, young, highly energetic full-time talent. These folks implement the client work under direction from Core leaders. While they have client contact they are primarily tactical. And are not necessarily expected to stay with the agency for the long-term. Their personal compensation should also be variable and closely linked to the market success of the projects they participate in.
The Contingent Staff, your strategic alliance partners, are individuals or organizations with specialized skills who are not employees of the agency. They are independent contractors who are engaged as needed to advise and implement client activities within the scope of their expertise. They can be lone freelancers or specialized companies. They are generally brought in just for discrete projects with their compensation linked directly to the successful implementation of each project.
The good news here is that there are an increasing number of highly talented specialists working as freelancers or as part of separate specialized businesses open to contingent engagements. These resources generally have greater experience and capabilities in their special skill set than anyone the agency could hire full-time. And, they only cost money when they are being used.
But embracing this model won’t happen by accident. Making a conscious shift in agency staffing strategy is required. Without this commitment there is a real danger in sliding back into the all full-time employees mode as soon as a few high-profit months come along. Only to be penalized when the next lean period comes along.
Now the Hard Part
Here is where it gets challenging. Building and maintaining a pool of contingent talent takes time and effort. It needs to be an ongoing effort. In fact, to achieve continued success it should take on the same importance as new business development.
That’s a big order. But deep commitment is needed. A staffing strategy that only gives lip service to contingent talent, or is just a sometime thing, will not deliver on its potential. And possibly even create more harm than good.
In building a successful strategic alliance program here are some things to think about:
1. Chief Talent Officer
Up until now, the ongoing attraction, development and retention of talent at most agencies has been kind of an afterthought. It only became critical when a specific skill was needed or when a key person chose to leave.
Few agencies give talent development as much priority as new business development or creative. That should change. A function that may have been reactive should become proactive.
Building and maintaining a diverse and comprehensive talent pool, including both insiders and outsiders, deserves high priority. A senior executive of the agency should assume the portfolio of Chief Talent Officer. Responsible for assuring that the agency has direct and immediate access to the best possible talent in every discipline.
An ad hoc contingent talent strategy will likely not work. It should be built around a carefully planned consistent program. One that fits the unique needs of your agency. This is a responsibility of the Chief Talent Officer.
It requires building a capabilities pool made up of the best talent available in each specific discipline. These can be individual freelance practitioners or independent specialized firms. And, with today’s communications technologies, they can be located anywhere.
The Chief Talent Officer will want to proactively reach out in recruiting, engaging and embracing these folks. Ideally, this should happen long before you have a specific client need for them.
Within this circle the agency will most likely establish and in-depth ongoing communication program so that a passion to work together will be there when needed. Avoid the out-or-touch, out-of-mind syndrome.
First and foremost, life is too short to for any of us to work with people we don’t like or trust. Collaboration with outsiders is difficult enough without adding the discomfort of having a less that enjoyable personal relationship. Strategic partners should be people who you will be comfortable with when it comes time to work together when things get tough and you are both down in the trenches.
Trust your gut. If the vibes aren’t right find another resource.
4. Client Understanding
Essentially the agency is presenting to the client a highly-skilled task-driven team made up of agency employees and outside contractors. The client should be clear on why this team has been created and that the agency is responsible for its leadership and the holistic outcomes it should deliver. The client should never be confused about who’s who or forget that the agency is completely in charge of the team’s output.
Here’s where it gets tricky. The best talent may reside within potential competitors. And if you want the best talent working with these folks may be in the best interests of your agency and your clients.
Co-operating with competitors can require some new skills that haven’t generally been necessary before within agencies. Yet the practice of co-opetition is growing rapidly, particularly within high-technology fields.
Now co-opetition opens up an almost Pandora’s Box of special issues. All are solvable but not without some careful thought. And careful attention.
6. Legal and Tax
The rules on the difference between an employee and an independent contractor are complex and can very between jurisdictions. You’ll want to make sure that your legal and tax advisors sign-off on the specifics of how you engage outside talent, how you pay them and the agreement documents you use.
7. Work Ownership
Another tricky legal area. You want to be sure that there is crystal clarity on who owns what and that appropriate legal agreements are in place in advance and easily enforceable.
And separately, it is a good idea to keep your client fully informed on the steps you are taking to protect them and get their full buy-in.
This is an area that also takes some careful thought up-front. Establishing uniform ground rules and non-disclosure agreements with outside contingent talent, as well as your own inside people, can make sure the outsiders get everything they need to be effective without compromising the trust the client has placed with the agency.
Again, your legal counsel should guide you on setting up enforceable rules and the use of devices like non-compete agreements, etc. Protections must be balanced. Care must be taken here so that the agency’s legal requirements are not so onerous that the best outside talent chooses not to work with you.
10. Scope Definition
The scope of the assignment to the outside talent must be precise and continually monitored to assure that scope creep, regardless of who initiates it, is quickly and effectively addressed. Nothing sours the relationship with outside contingent talent more than misunderstandings about scope and costs.
11. Internal Reactions
Usually an agency’s inside people work very effectively with outside contingent talent. But sometimes an us vs. them mentality can creep into the working environment. Obviously the strong esprit of the task oriented project team is vital to achieving effective results.
12. Murphy’s Law
It is almost a certainty that along the way something will go wrong in even the best strategic alliance. Misunderstandings and errors happen. It is easy for finger-pointing and defensive posturing to begin. Often at the core is the question of who pays for the cost of the mistake.
This is when agency leadership and the leadership of the strategic partner need to rise above the heat of the moment and resolve the issue based on what is in the long-term best interest the client, the agency and the strategic partner. Finding an equitable resolution may take some time and effort but it will be worth it.
A Different World
Successful agencies can no longer rely solely on their own full-time staff for all the solutions today’s clients need. Collaboration with outside talent is required.
This in itself is a big change. But perhaps more importantly there is an underlying shift in the agency’s overall role. Avoiding being just a doer of parts and pieces of a client’s program to becoming the orchestrator of a comprehensive outcome-focused program. The one responsible for bringing together and leading the best possible combination of talent for each different client.
The good news is that being an orchestrator of a client program is a higher calling which should reduce ongoing fixed talent costs and at the same time command improved compensation and improved profits.
I think everyone would agree that would be a change for the better.