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Digital Opens the Opportunity for Organizational Transformation

  |  September 15, 2011   |  Comments

Agencies need to make changes to their business models, organizational structures, and internal processes in order to thrive in this new digital world. Part two in a two-part series.

In my previous column, "Digital Requires the Remodeling of the Relic Agency Model," I talked about the many ways in which the agency-client relationship is changing. In this column, I will propose the changes that agencies need to make to their business models, "org charts," and processes, to survive and also thrive in this new world.

Why do we need to undergo these transformational changes? Let's consider the following: 1) What should agencies do if clients no longer want to commit to agency-of-record (AOR) relationships and instead move towards a project-by-project model? 2) What if clients need strategy and new ideas that are different and better than the ones hurriedly put together during the brief and frantic pitch process? 3) What if clients think they can find lower cost resources to execute your proposed Chinese menu of tactics, or even execute them themselves? These are very real and very current challenges slapping traditional agencies in the face.

Business model. Get paid for the valuable idea, then price out project-by-project.

In the good old days of "Mad Men" advertising, agencies could afford to give away the big creative idea because clients were not going to run off and produce the TV ads themselves. So agencies became accustomed to giving away ideas during the pitch process and getting paid for the production and placement of the ads, assuming they won the account.

Today, however, clients may be able to find resources from across the globe or from smaller companies with less overhead willing to do the execution or production for lower cost. So the margins on production have plunged into negative territory after years of decline. If agencies can no longer make revenues or profit on production, the old business model must be thrown out.

The value that modern agencies should bring is not necessarily in production and execution but rather in providing the depth of experience to guide clients through the maze of new disciplines, channels, and metrics and orchestrate a fully integrated marketing plan. Notice I didn't say "execute" the plan. The value is in putting together the right idea, the right plan, and the best practices in the execution - i.e., the strategy. This value needs to be recognized by the client and the agency compensated for the time, expertise, and processes required to create it.

If this is done, then the following phase of execution and production can indeed be "bid out" to multiple vendors and the most appropriate (balance of affordability and strategic value) vendor chosen. This production phase can be broken up into projects because there are clear deliverables and clear deadlines. And agencies may indeed be able to submit competitive pricing because they are no longer forced to recoup the costs incurred in the pitch process during this production and execution phase.

Organizational structure. Maintain a skeletal internal staff of generalists, build an external ecosystem of specialists.

But if the production phase is shifting more toward a project-by-project basis, where there will be peaks in workload interspersed with valleys of inactivity, how can the agencies support the full-time staff it previously had? The answer is, they can't. So the old organizational structure must be thrown out.

The new organizational model should resemble more of a skeleton crew internally and an ecosystem of partner companies and individuals with known specialties and proven track records in those specialties. This way, as the spikes in workload occur, the skeletal internal teams can be rapidly augmented by the ideal external resources - just during the course of the project, with no continuing overhead once the project is over.

This has many benefits, among which is staffing the most appropriate resource on the project rather than using whoever is on staff at the time, just so they can be made billable. This also implies a shift toward hiring for skills and experience, not necessarily for knowledge in specific industries or fields. In other words, the skeletal internal staff should have broad generalist knowledge but deep consultative skills and client service experience. The specialists in the surrounding ecosystem can be brought into just-in-time teams to serve specific clients on specific projects in specific industries requiring specific knowledge. This also has the effect of blurring or destroying the old departmental lines that separated IT from account from strategy, etc.

Internal processes. From command-and-control to north star approach.

Not only are the departmental lines blurring, but more and more of the staff could be "externalized" and on contract only when their particular specialty or expertise is needed on a project. This means new processes are necessary to ensure knowledge transfer, continuity, integration, and efficient collaboration. The old command-and-control model where rank-and-file individuals need layers of approval from above before they can act is not speedy enough and in most cases simply doesn't work in this new scenario. So it must be thrown out.

Team members formerly in different, siloed departments - e.g., PR, web, analytics, search, social, mobile, etc. - now need to work synergistically in order to provide clients with the right, integrated results. This can only happen when each of the team members knows, understands, and agrees with the overall strategy for the client, so that even when they are executing their highly specific tasks independently, they are still pulling in the same direction as the rest of the "oars" of the ship. This is more akin to the analogy of a north star guiding the direction of the ship, while each crew member executes their unique and different tasks. The "north star" approach eliminates the "communication overhead" of the typical command and control structure and the wasted time and resources due to miscommunications.

Conclusion

So as traditional agencies struggle to evolve and survive given clients' shift to project-by-project work, demands for lower cost execution, and need for speedier and better integration, the above are three areas that they can start to change to take advantage of the new digital world.

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ABOUT THE AUTHOR

Augustine Fou

Dr. Augustine Fou is the senior digital strategy advisor to CMOs, marketing executives, and global brands. Dr. Fou has over 15 years of Internet strategy consulting experience and is an expert in social media marketing strategy, data/analytics, and consumer insights, with specific knowledge in the consumer packaged goods, financial services/credit cards, food/beverage, retail/apparel, and pharmaceutical/healthcare sectors.

He is a frequent panelist, moderator, and keynote speaker at industry conferences. Dr. Fou is also an Adjunct Professor at NYU in the School for Continuing and Professional Studies and at Rutgers University at the Center for Management Development, where he teaches executive courses on digital strategy and integrated marketing.

Dr. Fou completed his PhD at MIT at the age of 23. He started his career with McKinsey & Company and previously served as SVP, digital strategy lead, McCann/MRM Worldwide and group chief digital officer of Omnicom's Healthcare Consultancy Group (HCG). He writes a blog "Rants, Raves about Digital Marketing" and can be found on Twitter at @acfou.

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