Here are 5 things ad agencies can do to survive

As chief marketing officers increasingly must help steer their companies through massive disruption, their needs from their agencies are changing rapidly.

Agencies today must not only provide communication, creative and media services — but also come armed with broader business and technology strategy as well as data and analytics expertise.

That requires a whole new business model, according to a new report by market research firm Forrester, based on interviews with 50 CMOs as well as agency and consultancy executives. This new model must put clients at the center, scale critical capabilities and execute on creative efficiently.

“Clients now require partners who can help in not just marketing, but also business transformation,” Rishad Tobaccowala, chief growth officer at Publicis, told Business Insider. “This doesn’t necessarily mean doom, it means that for companies that change and adapt, this is a growth opportunity.”

Here’s how agency holding companies can embrace a new business model suited to their clients’ changing demands:

By taking charge and creating agile teams, fast

The modern CMO needs agency partners that can tackle a range of marketing problems — and fast, reports Forrester. This means quickly assembling teams on projects, but also not hesitate to swap members out as the needs of the project evolve.

“There is no question that the advertising industry is under a tremendous amount of pressure to adapt, but the biggest shift in the landscape is the need for speed,” Rick Eiserman, CEO of the ad firm Engine US, recently told Business Insider.

• One agency CEO in the Forrester report described a future in which client teams would be pared back for account consistency and staffed with the best people depending on the phase of the program.
• Another consulting firm executive described how routine it was for the consultancy to pull together a client team on a Friday to fly around the world to solve a client problem on a Sunday.

“No one is debating that having a more agile approach is what clients are looking for,” Pattisall told Business Insider. “It’s how they go about doing it.”

By chasing service opportunities and scaling them globally

Giant consulting firms have been quick to spot new service opportunities they can own, and then devote resources to chase after them. They have the advantage of having huge global presences.

To be sure, ad companies have also made efforts toward more integrating their services more globally, such as Publicis with its AI platform Marcel and Omnicom with its Omni platform. But they must create global practices in consulting, performance marketing and marketing technology implementation at a faster clip and with greater scale.

“Agencies can go further than they have already and move even more employees into practices where they can build their discipline and be ready to join an agile client team at a moment’s notice,” says the report.

By crafting a unified and coherent brand identity

The days of agency networks with hundreds of agency brands are over. CMOs no longer want to deal with a string of agencies with their own tribal cultures where employee loyalties are tied to individual agency brands — like WPP’s “internal fiefdoms,” says Forrester.

Instead, they want to be able to rely on fewer agency partners for more and bigger problems. Agency holding companies can make themselves more attractive to marketers by either adopting a single global brand or consolidating structurally. Publicis’ “Power of One” structure is an example of the former, while WPP’s restructuring of Kantar is an example of the latter.

“There can no longer be multiple brands, multiple P&Ls and different leaders,” said Pattisall. “There needs to be a reformulation of all that into a more cohesive, singular go-to market entity.”

By aligning financial incentives

On the topic of P&Ls, the compensation structures of today’s agency networks limit their opportunity to tackle bigger client problems, according to the report.

Building new models that foster collaboration is one thing, but the key to collaboration is an incentive structure that measures success in terms of outcomes, and not hours. Agency holding companies must push for performance-based compensation agreements with clients.

“[We] seek to create performance-driven compensation models with our client partners that reward successful business outcomes as opposed to costing FTEs and overhead rates,” says Dentsu Aegis’ CEO Nick Brien.

Scott Kauffman, chairman and CEO of MDC Partners agreed, saying that “tracking the impact of each piece of the equation — whether it was the strategy, the message or the medium of activation that actually drove the result will become more important.”

By cultivating new, progressive leaders

As ad companies make structural adjustments and consolidate brands, they also need progressive leaders to be able to ease the the transitions and preside over the transformation.

Such leaders must come armed with multidimensional skill sets including business strategy, design as well as technology chops. These leaders should also have direct access to the client’s C-suite, to be able to efficiently lead global capability practices.

This is what agencies are struggling with the most, according to Pattisall.

“The holding companies are well aware of the capabilities that are necessary,” he said. “But the people and the egos often get in the way.”

By integrating new service layers

Consulting firms have been encroaching on agencies’ turf by acquiring creative shops for years, but agencies have typically over-relied on media, creative and production revenues, which has prevented them from coming up with more innovative solutions for their clients.

That must, and has started to change, with agency holding companies starting to respond by making c onsulting acquisitions of their own. For example, Omnicom nabbed the Dallas-based consulting firm Credera recently, while Grey launched a new global enterprise practice called Grey Consulting. Others, like R/GA and 360i, have also made inroads into various types of consulting services.

This is the way forward, as it will not only satisfy the needs of modern CMOs but also create additional sources of revenue for agency partners.

“Holding companies can be hybrids by marrying the service layer of what we do well with more sophisticated ways to structure data and technology,” says Philippe Krakowsky, IPG’s chief strategy and talent officer, in the report.