How to prevent agencies self-destructing

Speaking at a Secrets of Agency Excellence conference this week, renowned agency consultant Michael Farmer described the ad industry today as “a loser’s game” for all parties.

In his presentation he made these points:

• Ogilvy UK’s average pay per unit of work has gone down from $450,000 in 1992 to just over $150,000 today.
• The industry has “no action plan to put a floor under those declining prices”.
• Even the most creative agencies aren’t paid more than their competitors in all but exceptional circumstances.
• The continual pitch cycle is a “loser’s game” for every party, including the clients themselves.
• New business wins are won today at commodity prices. "When clients bring on a new agency they’re paying them less than the agency they just got rid of."
• “Go through the list of major advertisers and they are all very unhappy with where their brands are today – they haven’t cracked millennials, they aren’t growing and aren’t getting the right work from their agencies.”

He also has strong views on whether independents should sell their businesses:

• Agency independents should not sell to holding companies as they are “squeezing the life” out of their agencies.
• Holding companies are encouraging actions which are not in the interest of the agency, but of the holding company. 
• "Don’t sell to the holding companies because your life’s going to be pretty miserable when you understand what you’re going to have to deliver every year, no matter what’s going on with your clients.”

All rather scary. So what's the answer?

Luckily he claims he has the solutions, in a recent book of his: Madison Avenue Manslaughter.

To summarise his answers:

• The agency of the future will be one that starts from the mindset of a consultancy rather than only the creator of campaigns. Agencies need to become “consultancies with creative capabilities.”
• In order to do that, agencies need to get their own houses in order, including managing and measuring workloads closely.
• The problem is growing workloads and declining fees. When workloads are not carefully measured properly, the knowledge of this problem is not crystal-clear, causing CEOs to downsize. If they knew the facts they would pause on that.
• Agencies need strong CEOs who are prepared to grapple with three challenges: 

1. THE WORKLOAD CHALLENGE

Agencies must document, track and measure their workloads carefully. 

2. THE MISSION CHALLENGE

Agencies must change the thinking from creativity and big ideas to results for clients. This will require an upgrading of skills.

3. THE ACCOUNTABILITY CHALLENGE

Agencies must run their agency like a business. Create a strong sense of accountability throughout the organisation, office by office, client by client. This won't kill creativity. On the contrary, creativity is being killed on a daily basis by the very lack of accountability.

He also emphasises that these are CEO challenges. No other executive in the management structure has the stature and authority to bring about these transformations. They are insider challenges.

"I rather doubt that an outsider would have the credibility to overturn the agency culture, which is what is called for here. Take it on! Disrupt the agency! Don't expect to be applauded! It may not be a lot of fun, but it is what is needed."