The Insidious Impact of Project-Based Agency Relationships

While reading the myriad year-end wrap-ups and predictions for 2012, it occurred to me that one of the most defining phenomena impacting digital marketing today is not technology or channel-based nor shifts in consumer behaviors. Instead, the change in agency-client relationships away from retainer-based contracts toward project-based relationships has become the new normal in the last couple of years.

Many of you on the agency side of the digital marketing marketplace will be nodding along with me as you read this while brands and client-side marketers may be shrugging their shoulders in a resigned way and thinking, “Deal with it.” But we should all acknowledge the impact this shift has on the strategic outcomes and business health of both agencies and clients. It is far from a best-case scenario for anyone.

How Did We Get Here?

Economic necessity mostly. When business collapsed in 2008, marketing budgets were slashed to the bone. Like everyone else, brand shepherds were asked to do more with less. As media and production budgets got chopped, brand marketers couldn’t justify or afford agency retainers. Brand marketers instead started to use agency partners where for rare discreet projects they could not execute with internal resources. Agencies were happy to maintain the connection to the client and feed the work to their teams in those troubled times but it was the start of the end of the committed two-way relationship between marketer and agency.

Emphasis on testing. As more marketers became attuned to the test-and-assess mentality that is so much a part of digital marketing, it bred confidence to take baby steps into both established and new digital channels like mobile and social. A test is by definition a short-term trial approach – a project by any other name.

The rise of social media. Almost everyone is still trying to figure out this channel and to quantify its impact. As new paid-earned-owned opportunities sprout almost daily, it requires regular testing. When you see an entity that has put a long-term stake into social media and has made a similar commitment to its internal or agency social media partners, it has usually evolved beyond projects and incorporated testing into a regular, planned approach to optimize social media results.

The Impact on Agencies

Provides no incentive for strategic planning or thinking. If the only commitment you have from the client is for this next project, you are less likely to think long-term and invest in specific talent, industry knowledge, or competitive tracking. The project approach institutionalizes short-term thinking.

Loss of dedicated staff. Having dedicated staff that wake up every day thinking about the client’s business brings positive results. If agencies only can plan for projects, that is how they must staff.

Loss of margin. Every project needs to be sold in. This leads to spec work and an outsized investment in business development. Agency staff spends way more time selling and doing spec work than they ever did before. This puts expensive talent on non-billable work for a good chunk of their day. Client lead times to get projects approved has lengthened considerably, further magnifying the impact as layered approvals and multiple presentations stretch the decision over many months. If an agency is lucky enough to win the project, it may not even recoup its investment. That may sound like a bargain for marketers but you want your agencies to have healthy businesses to continue to reinvest in talent, technology, and think time on your behalf.

The Impact on Clients

Supports short-term thinking. Discreet projects may or may not be connected in a common strategy thread that helps to move the business forward over time. It’s also harder to take the learning from one project to the next if different teams or people are working on the projects or doing the planning.

Loss of continuity. Customers are always on – why aren’t you? If you are only messaging, responding to, or communicating with your customer base inconsistently, you may be missing opportunities to maintain a valuable presence, dialogue, or listening post.

Clients lose valuable partner perspective. Agencies used to have a unique perspective on the business that added significant value. They had enough insider knowledge and enough investment to be informed, but yet enough distance to avoid group think and could question/prod/move the business in ways not possible from the inside. If agencies have only a partial mandate and partial information, they cannot offer that perspective reliably or effectively.

The Impact on the Industry

New hiring realities. Full-time jobs are harder to come by in agency land. Agencies have to staff in a way that mirrors the commitment they get from their clients. That means lots more freelancers and more virtual workers today. On the one hand, it allows talented specialists to stay busy working for lots of different agencies. Before it may have been a lifestyle choice for some freelancers, but now it is a necessity. For those who might have flourished in a team environment, this is a shame.

New management challenges. Ad hoc teams impose their own challenges and require more intense project management to keep any kind of order, results, or profit margins in the picture.

It should be recognized, of course, that there is a legitimate place for project-based digital work. They include: trying out a new partner; having a distinct need that your current partners can’t meet; having sudden budget infusions; or encountering a new digital opportunity. In a best-case scenario, that project would go to your long-term agency partners because they have the background and insights to help you integrate, succeed, and learn from that one-off effort.

As we continue to climb slowly out of the recession, it behooves marketers to advocate for the return of one of their most effective support structures – their agency partners. But agencies can only really be partners if they are empowered as such. It is time for us all to stop thinking short-term and fuel all our businesses with the commitment and strategic thinking that bring true results.