You Can't Transform What You Do Not Manage

Now is a good time to take stock of the advertising agency business, but we'll have to do a better job of this than 4A's, the industry trade association, which just wrapped up its Transformation Conference last week in Miami.

There, attendees learned that ad agencies can't keep their talent -- turnover is growing at a faster rate than competitive industries, not only because there is a $45,000 entry-level salary gap between ad agencies and technology companies but mainly because there is "little opportunity for advancement," "lack of a long-term strategic vision" and "poor work-life balance" and "poor job security." Forty-six percent of those who left agencies were "dissatisfied with agency leadership."

And what was the 4A's take on these problems?

"The statistics actually show that we have an image problem," declared 4A's President Nancy Hill.

An image problem?  Maybe it's something a little more serious than "an image problem."

Agency creative workloads are growing, but relative to workloads, fees from clients are in decline. Advertisers change their agencies every 2-3 years, down from 7 years not very long ago. The Agency-of-Record (AOR) is dead, and advertisers now have an extensive portfolios of agencies -- which allows them to put creative work "out for competitive bid," further driving down the average price of agency work. Clients are bringing in-house a growing percentage of their creative and production work , and giving strategic and creative assignments to competitors like PR firms and management consulting firms. Clients are doing much of their own brand strategy development, and they organize the planning of individual Scopes of Work to dole out within their stable of ad agencies.

Agencies have surrendered these key responsibilities to their clients.

An image problem? Hardly. Agency operations and economics are in free-fall. Ad agencies have to downsize to meet their holding company profit targets, fueling the insecurity of talented employees and accelerating the decline of prestige with their clients.
I'd call this a leadership problem, and it's very widespread. An executive leadership problem.

At no time during the 4A's Conference was there a discussion of what agency CEO's should do about their desperate problems. Well, not exactly.  Jeff Goodby, Co-Chairman of Goodby, Silverstein & Partners, made a presentation entitled “How Vandalism Will Save Advertising” – and he showed an interactive piece that took users inside a Salvador Dali painting and a Photo Shop ad that took viewers inside the mouth of Stevie Tyler, Aerosmith’s lead singer. 

This type of digital creativity, cute and entertaining as it is, will certainly not save advertising.

Executive leaders can save their agencies, but first they have to tighten up accountability within their unmanaged organizations, and eliminate out-of-control and unpaid workloads. They then need to put a floor under declining prices by organizing their agencies to give clients what they really want and need, which is improved performance – something they’re prepared to pay for, as evidenced by what they are willing to pay management consulting firms.

Agency leaders are currently ignoring these responsibilities, and as a result, their ad agencies are failing.