How Advertising Agencies Are Changing

Structural Trends in Advertising Agencies - ‘This extract from the book Managing Organizations in the Creative Economy is published with the permission of the authors’

Textbook_Cover_JPEG.jpegSince the birth of the advertising agency at the start of the 20th century, organisations that provide creative output for clients have undergone a significant structural evolution. The latest development has been strongly influenced by the rise of home based creative production and digital communications technologies, and the increased accessibility, awareness and professionalisation of the creative arts.

At the time James Walter Thompson set up one of the first advertising agencies to offer clients creative services in 1878, the industry underwent its first structural change. It moved from selling advertising space for client-prepared messaging, to developing creative content such as copywriting, layout, package design, trademark development and market research. This led to the ‘full-service’ advertising agency structure, with multiple functions, each with their own department, all under one roof. For example, one department would be devoted to account management, another to creative services, and another to media planning and buying. This template has dominated the structure of ad agencies well into this century.

This approach was well suited to an environment where income growth was reliable and personnel costs could be kept low. However, today this model has proven to be a large and unyielding beast. Its problems include: advertising revenues being spread more broadly across platforms, channels and services; increasing employee costs through health insurance, superannuation obligations and other entitlements funded by employers; and the nature of a larger organisation being less able to quickly respond to client needs and changes in technology and culture, compared to smaller more focussed companies.

One of the major changes to this model developed in the 1990s when large agencies started to outsource their internal media planning and buying departments. This was driven by the increasing overhead costs required to run large, fully integrated agencies, and increased competition between agencies. The experience of outsourcing media departments to become independent, yet affiliated businesses expanded to other agency departments in the 1990s, with a number of larger agencies also outsourcing their creative and digital departments. This has led to a new form of networking and collaboration.

The creative agency landscape now provides business opportunities for smaller, specialised agencies who are able to operate with lower overheads and collaborate easily with other smaller specialised agencies. With lower employee overheads, simpler space requirements, and highly improved communications technology, these businesses are not only proving to be highly profitable, but are challenging larger agencies for projects and clients. Business owners were becoming concerned at the expensive overheads of larger agencies, which impacts the fees they are charged. They began to appreciate the faster, more tailored services offered by smaller agencies.  

John-Sealey.jpgIt is true though that for some clients, having a village of agencies can become a management nightmare. And when budgets get tight, it is often the smaller specialist agency that is jettisoned first. In a recent conversation with my colleague John Sealey, an international pitch and marketing consultant from The Observatory, he observed: “although a stable of smaller specialist agencies offer clients more direct, focused and specialised solutions (as well as often better value for money), unless clients have a strong ability to understand, prioritise and co-ordinate these creative activities, they often feel confused about which agency to give the overall creative leadership to. They are often suspicious that each specialised agency will only push a solution that is in their own mediums’ and business’ interests.” This creates an opportunity for an over-riding creative consultancy which is not affiliated with any one agency and can strategically direct, manage and co-ordinate all outputs.

Although decentralised and networked models for creative output have their advantages and disadvantages, technology is disrupting both the integrated agency model and the networked smaller agency model. Practices and processes are being transformed, which can be attributed to: production technology for creative services becoming largely desk-top based; communications options between colleagues, collaborators and clients becoming as easy as a video conference on a mobile device or a text conversation across continents and time zones; and working environments becoming fluid and interchangeable, from home offices to hot desks to cloud based workplaces.

These changes are seeing a number of agencies working with a new matrix structure where highly specialised freelancers and sub-contractors are engaged on a project basis. This eliminates additional employment costs and (in that often tasks can be completed off-site) the cost of providing office space. For larger agencies, the matrix model can also be used with full-time employees, where rather than working in permanent teams and for fixed clients or projects, individual employees can be engaged across departments, project, clients and even areas of activity. Just as in the music industry example provided in this chapter, it is becoming increasingly popular for creative agencies to downsize their core teams (and also their fixed overheads) and employ specialist freelancers on a job-by-job arrangement.  I was engaged by the international design and branding agency METADESIGN during their change to a matrix structure. Then head of new business at METADESIGN, Melanie Rönnfeld described the process: “A disadvantage initially was that clients lost a sense of ongoing continuity and management. But clients are becoming less interested in which creative team is developing their campaign than in the past, and it is more cost efficient for agencies to use external and even international freelancers who have specialised and target audience experience, rather than the more expensive internal personnel.”

BenCooperAleksAntonijevic.jpegIt should be acknowledged that structure is subservient to two other factors in the ad agency world: the quality of relationships between the agency and the client, which is paramount, and the overall strategic approach which the agency drives, that informs all the more specialised creative inputs. In a recent meet-up, Ben Cooper, Group Innovation Director at M&C Saatchi and Co-Founder of Tricky Jigsaw observed to me: Success of any model is built on human relationships. The future workforce requires emotional intelligence, that is In-tune with the needs of the client; the skill sets of a team; and a focus on an outcome.”

Although we are witnessing a transition in agency structures, young people wanting to work in the creative industries must be prepared to function professionally in any one of these environments. Agility and flexibility are important factors. As is offering a relevant skillset, accepting personal accountability to deliver an outcome no matter what the setting, and the ability to develop trust through strong professional relationships as a collaborative team member.

Ian W Thomson. Head of Faculty, Advertising & Digital Media, Macleay College.


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