Are Advertising, Design and Management Consultancies heading for a collision?

HYPOTHESIS: The advertising agency, the design studio and the strategic consultancy are colliding in clients and services offered. They are going after the same budgets and offering ‘innovative solutions’ as differentiators. 

The ADVERTISING AGENCY

The advertising agency has a long history. Scenes from “Mad Men” (a more recent form) pop into our head of bureaucratic organizations charging clients through their noses for creative services. Agencies have traditionally focused on campaigns through television and print. Ad spending has seen a sea change with the advent of the internet and social networking. TV is becoming the second and third priority for advertisers. The audience is changing, and fewer people are watching programming the way it is broadcasted, using DVR and watching on your devices through services like Hulu. The audience is increasingly fragmented, and it is difficult to get the same number of eyeballs on traditional media as even five years ago.

Clients of large ad agencies are becoming tired of their lack of transparency and accountability, according to John Winsor (@jtwinsor), former executive director of strategy and product innovation at Crispin+Porter+Bogusky. $10,000 for every minute of a video that will go on You Tube is a joke. Costs are bloated because of agencies’ history and size: they have to support large staffs of artists, designers and copywriters, along with account executives, media planners and buyers, directors and partners. Such agencies are no longer agile, and their business model is broken.

“The big agency business has become a lifestyle”, says John Winsor. He recently left Crispin+Porter+Bogusky to co-found a new model of advertising agency called Victor & Spoils. In my discussions with him, it became clear that clients are are willing to experiment with smaller agencies such as V&S, (which offers more detailed and lower billing statements along with a host of measures to keep billing transparent). V&S employs five core people including strategists and creatives. “When working in a team of four to five people, you might get one amazing idea, three or four good ideas and three or four terrible ideas; Multiply that when you crowdsource (by a hundred) and you get a hundred great ideas, a few hundred good ideas and many terrible ideas”, says John about his inspiration for the model of curated crowd sourcing. “Our job is to curate (i.e. sort through and evaluate) those ideas to filter out those hundred great ideas”. V&S is still working out its business model, but it is keeping transparency at the core of it all. Clients are charged for the ideas that they use and not the ones that they don’t. Services are broken down into parts and offered to clients as pieces of a pie.

Is the crowd-sourcing model working for them? They seem to think so. So far, they have executed five projects helped by the crowd and the clients seem to be satisfied. Ask the creative community, and they are up in arms against the whole crowd-sourcing movement. As seen in the backlash against the recent Moleskine logo competition hosted on popular design website designboom.com, Moleskine seem to have alienated their core market with this move. Designers are worried about losing their jobs because increasingly clients are looking to the crowd for design solutions.

Another example of a small agency beating out larger agencies globally is AKQA. They are an advertising agency that was focused on digital media from their start. When digital media marketing came onto the radars of marketers, the space was highly fragmented, with small agencies trying to get a piece of the pie and large agencies scrambling to develop talent and skills required to advertise in the new environment. AKQA was agile enough to take advantage of fast- changing digital technologies and won many global pitches competing with several large and established agencies. They were a young team, who consumed the digital media themselves, were able to come up exciting new ideas to take advantage of the offerings of the new digital media space. Older ad agencies used existing strategies applied to traditional media into this new media space and were not able to excite clients. AKQA is now the largest independent digital advertising agency with offices all over the world.

The DESIGN STUDIO

Industrial design studios are increasingly looking at ad agencies and saying to themselves, “Why are we not going after those marketing budgets?” Design firms have traditionally milked product development and R&D budgets that are much smaller than marketing budgets. But what significant advantages could they offer over advertising agencies?

Design studios have typically differentiated themselves by their creative process and their focus on the user. Using research techniques and design thinking methodologies (read: multiple iterations), design firms have offered disruptive user-centered product or service-design strategies. In a gross generalization, the business aspect of designs are not given due consideration. A focus is laid on usability and aesthetics, which is what their strengths have been traditionally.

John Gleason (@johnmgleason1), past director of design partnerships for P&G is no stranger to hiring design firms for creative work. He has seen pitch presentations from over 600 design firms during his time there. “Everyone has the same pitch more or less: we have the best people, we have this amazing process, great projects and these awesome clients. We differ in the experience of working with us – give us a shot”. He says only 5 or 6 have actually stood out in his experience. They have been the ones who have been able to say no to projects and are able to clearly define their core competencies. An example is a firm (not named) whose core competency is to turn around failing brands. They have recognized that is what differentiates them from the rest and are able to use it to get projects that are in line with their competencies. And they turn down projects that they don’t have capabilities for whereas most design firms would scramble to hire talent to allow them to add those capabilities in the process diluting their focus.

The STRATEGIC CONSULTANCY

Strategic consultancies hardly overlap with creative services that are offered by ad agencies and design firms. James Chiang, consultant at Boston Consulting Group, told me that they compete with design firms on very few projects. Their work is mostly management consulting and strategy for growth—  nowhere near a design firm’s comfort zone.

Analysis and quantification is extremely important to strategic consultancies. They analyze data heavily at every step in their process. Take for example a retail planogramming project that is given to both a strategic consultancy and a design studio. The strategic consultancy will start with gathering all data available on the existing models, analyze how people flow through, calculate footfall to dollars percentages and try to optimize the layout to get the most revenue out of the customer that comes in. The design studio will also analyze existing models, but they will talk to customers, worry about user experience and ease of finding groceries that you are looking for. This is the basic difference between the total left brained analytics of a strategic consultancy and right brained creative process of a design studio.

Their clients are C-level managers in large organizations. They cover many industries and many functions. Typical projects are growth related projects.  Also, strategic consultants are placed within their client organizations for projects. This differs from an agency or a design studio who are hired as outside consultants. These boundaries are blurring though.

The REAL PICTURE

The diagram below is how the venn diagram finally ended up through the course of my research. All of the people that I interviewed in design and advertising agreed wholly with the hypothesis. The size of the circles is proportional to the fee that each of these service agencies commands from the services they offer. Ad agencies and design studios are overlapping more in offered services whereas from the client’s side, strategic consultancies reach a much wider audience.

Moving Up The SERVICE VALUE CHAIN

An interesting development in all these three service firms is a shifting mindset in the service value chain. Strategic consultancies have traditionally targeted budgets from C-level management, advertising agencies targeted their clients’ marketing budgets and design firms are left with product development and R&D budgets that are usually the lowest in the chain. Design firms are trying to move upstream in the corporate value chain by increasingly tackling strategic growth problems for companies – a field that was dominated by strategic consultancies so far. They are also going after budgets that are higher up in the chain.

Advertising agencies are also moving their services up and down the chain. There is an increasing need for integration of marketing and product development, so ad agencies are adding more tactical design capabilities to their teams and moving downstream (packaging design is a typical example).

There is also a need to align strategic objectives of companies with the brands of their products and hence they are also required to move upstream to align strategic goals. For strategic consulting companies that are typically focused on intangible strategic proposals, some are differentiating themselves based on execution of those strategies through tactical and tangible output.

An example of this shift is strategic design firm Jump Associates who identified this opportunity early and have literally jumped on it. They classify themselves as a hybrid between strategic consultancies and design studios. They have their own take on the creative process and have reinvented all the tools that design thinking affords for their own use. Udaya Patnaik, partner at Jump warns other design firms trying to get into the strategic side of design. “Stick to what you’re good at”, he says, “the issue with most design firms nowadays is that they don’t know what their core competency is – there’s a mismatch”. He also spoke about the tendency of design firms to obsess with “cool ideas”. They focus on framing the problem, asking the right questions and embedding themselves deep within the client organization to understand the inherent culture. They then apply their design toolkits to develop disruptive solutions to problems that might have not even been framed by traditional management consultancies.

There seem to be a few different factors that seem to be causing all this shift in the service industry. CEOs are increasingly realizing the advantages of having many different departments working together instead of in silos. Apple is a prime example of this – teams are organized by products and services and not by capability. This gives them the advantage of having a tight focus and alignment amongst the various teams. It is difficult to replicate this internally within larger organizations that have not had this in their culture. External consulting firms are increasingly being hired to align strategic objectives and tactical capabilities. This requires a thorough understanding of both the strategic and tactical aspects of the organization.

Another factor seems to stem from the recent economic crisis. Companies are increasingly seeking to cut costs and the easiest from their point of view is external service firms. Service firms offering the whole range of services are being retained, while the specialist firms are losing business. In the longer term, this could be advantageous to the company – fewer consultants to deal with, easier alignment of values and objectives and cheaper. But this isn’t good news for specialized service design firms, as they continue to move deeper and deeper into their niches.

Several opportunities arise from this development. I strongly believe that there is a gap in the intersection of advertising, design and strategic consulting that has yet to be filled. What kind of services this agency would offer is still hazy, but it would somehow integrate all three horizontals to provide value to clients who are seeking a more integrated approach towards marketing, business and innovation.

It has been my effort during my time in gradID, Art Center College of Design to research this hypothesis further in depth by talking to as many insiders as I can. It is also my constant endeavor to identify the creative service firm that fits in that intersection of advertising, design and strategic consulting. If you have any insights or would like to strike a conversation, I’m all ears! Email me at sidv at workisplayislife dot com, you can follow me on twitter or leave a comment below. Thanks for reading!