Huge consulting firms are coming after the ad agency business — here’s how agencies are fighting back

Thank you Tanya Dua!

  • Ad companies are increasingly responding to the threat from consulting firms by making acquisitions, creating new divisions or reorganizing internally.
  • Omnicom nabbed the Dallas-based consulting firm Credera recently, while Grey launched a new global enterprise practice called Grey Consulting just last week.
  • Others, like R/GA and 360i, have also made inroads into various types of consulting services.

Ad agencies are starting to fight back.

Giant consulting firms like Accenture and Deloitte have been increasingly encroaching on agencies’ turf. In fact, several have been buying their way into advertising through creative acquisitions .

2018-02-14-144144863-Deloitte_-McKinsey_-EY_-KPMG_-PwC_-Accenture_-BCG_-IBMNow agencies are starting to respond by going down the same route.

A growing number of large traditional ad agencies are looking to lay claim to an ability to offer consulting services — promising not just to make ads and buy media, but help improve their clients’ business.

They are doing so by acquiring smaller consultancies, creating new divisions, dialing up their data offerings or reorganizing internally.

Agencies are promising clients one-stop shopping

Omnicom, for instance, announced that it was purchasing the Dallas-based consulting firm Credera last week. The next day, the ad firm Grey launched a new global enterprise practice called Grey Consulting by tapping into 150 existing technologists and creative and strategic planners to create a new global enterprise network.

WPP’s Kantar, on the other hand, streamlined its consulting services , bringing together four of its existing brands under a single entity earlier this year.

“Agencies are … not taking this [threat] lying down,” said Jay Pattisall, principal analyst at Forrester focusing on ad agencies with a research report detailing this trend coming out later this month.

Agencies are rethinking the scope of their work beyond traditional advertising

From clients cutting back on fees to taking more work in-house, ad holding companies are facing strong headwinds. Thus, with the current advertising agency model under pressure, agencies have been forced to rethink their scope of their services.

“Ads don’t transform businesses,” said Andy Main, principal and head of Deloitte Digital. “So the ad agencies are being put under major pressure to prove their value.”

One way of grappling with the current upheaval is through buying companies with capabilities that complement what agencies already do. This theoretically enables agencies to connect data, analytics, research and their creative offerings in new ways.

Omnicom, for example, acquired Credera to augment its existing creative and data capabilities by adding management and IT consulting capabilities in the mix. The aim was to have as many capabilities that help clients navigate complex technology choices better in-house, without having to outsource the process, the company said.

“We’re very much trying to reinforce and support something we are already doing, and increase the value of a service we’re already providing,” Luke Taylor, chief executive of Omnicom’s precision-marketing group, told Business Insider. “It helps us fill in some of the gaps to drive precision marketing scale for our clients.”

Another approach to establishing a consulting practice is to simply restructure internally, as Kantar did — so that different entities within the company could work together in a more integrated manner.

“We had those assets available for clients for a number of years,” said Wayne Levings, Kantar Consulting’s president. “It was about bringing them together in a way that made them even more relevant for the marketplace, and allowed us to more effectively scale and invest in this area.”

And clients are demanding a more diverse range of services too

A lot of the change is being driven by clients themselves. Marketers are asking for help and thinking that goes beyond communications more than ever, says Leo Rayman, CEO of Grey Consulting, so it makes sense to give them a more concentrated offering.

That is why Grey Consulting was created. The rationale is that the more agencies can enhance their existing capabilities, the more entrenched they can be in other aspects of the client’s businesses.

“It allows us to codify the know-how we have, weaponise our creativity by marrying it with even more commercial strategy and allows us to move upstream, providing answers to the kinds of questions clients ask long before they get to defining the creative brief,” he said.

Plus the consultancy threat means that they must adapt

Of course, consulting giants like Accenture and Deloitte encroaching on agencies’ turf is big factor, whether agencies admit it or not. 73% of marketers said that they were open to using consultancies for digital marketing work, according to a recent Forrester study.

“I think often agencies seem to think they’re disrupting consultancies, but most are in fact having to respond to the very real fact that management consultants are moving downstream into their business,” said Saneel Radia, R/GA’s global head of consulting.

Consulting firms claim that their expertise in tech and business strategy as well as data and logistics helps them meet the needs of modern CEOs and CMOs far better than ad agencies can, which isn’t entirely exaggerated, according to Radia.

“Those organizations are quite good at understanding how to measure ROI, reduce cost, streamline process and leverage automation,” he said. “So of course [them] moving down into marketing is a pressure any advertising agency is feeling today.”

Marketing and consulting are colliding

360i president Abbey Klaassen
Michael Seto/Business Insider

To be sure, consulting isn’t an entirely new arena for ad agencies. A number of agencies, including R/GA and 360i ,have had consulting divisions for years. French advertising giant Publicis acquiring the consulting giant Sapient in 2015 at a deal valued at $3.7 billion.

And last year, Publicis teamed with tech consultancy Capgemini to help McDonald’s with its digital transformation.

“Marketing services and management consulting collided years ago,” said R/GA’s Radia. “The idea that anything is one type of company’s turf or the other is likely outdated.”

But the pace of change has accelerated more recently. Brands are seeking partners that help them drive efficiency as well as simplify efforts in an increasingly complex digital ecosystem, and both agencies and consultancies are stepping up.

The consultancies remain confident of the value they bring to the table. To transform client businesses, they say, you need everything from strategy, innovation, design, and creative to technology, analytics, organizational design, supply chain and finance — areas which they have owned for years.

“It takes years and years to build up those capabilities,” said Main. “Consultancies such as Deloitte Digital, with in-house creative and advertising capabilities, have much more to offer than ad agencies who acquire small, narrowly-targeted consulting companies.”

Traditional consultants may bring myriad analytical frameworks to the table, but agencies are also convinced that they’ll be able to tackle them head-on. According to 360i president Abbey Klaassen, consulting firms lack hands-on experience in execution and creativity.

“Part of the reason we’ve been successful in our consulting practice is because we’re not just process makers; as a creative and media agency, we’re also process users,” she said. “Being able to understand all the intricacies of a client relationship and how they come together – search, social, creative, media, leading inter-agency teams – makes us more effective as a consulting partner.”

Both agencies and consultancies must evolve their business models to meet changing client demands

Analysts aren’t so sure that agencies can suddenly match consulting firms. It is one thing to have a consulting unit, and another to attract and retain talent and even sell those services effectively, said Brian Wieser, senior analyst at Pivotal.

“That’s one of the biggest challenges for agencies,” he said. “You can do the work if you can sell through at a higher level than the CMO, and most agencies don’t have those connections.”

Agencies also need to focus on integrating their consulting practices within their broader cultural frameworks, said Forrester’s Patissall.

“Cultural integration is the hardest, Publicis is still working through the branding and positioning of Sapient and where it fits,” he said. “What they’re trying to do is build additional structures; the next step is appointing leaders to bring them together globally.”

Either way, what’s certain is that both agencies and consultancies must evolve their business models to meet changing client demands.

“We’re squarely in the era of disruption, many incumbents are investing in their own transformation,” said R/GA’s Radia. “It’s competitive, and the companies that serve as able hybrids will prosper most.”

 

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Getting a sharper picture of social media’s influence

New research shows that buzz plays a greater role than previously thought in getting consumers to buy and that the pool of the most effective influencers is largely untapped.

Over the past decade, marketers have increasingly turned to social-media networks like Facebook and Twitter to create buzz around their products. But what impact do tweets and other recommendations have on sales, and how can companies get a bigger return on their investments in these important channels?

To get a clearer view, we examined the purchase decisions of 20,000 European consumers, across 30 product areas and more than 100 brands, in 2013 and 2014. Respondents were asked how significantly social media influenced their decision journeys and about instances when they themselves recommended products.1 The research compiled social and demographic information, as well as data on social interactions on Facebook, Twitter, and other social networks. The data gathered cover a range of decision-journey touch points leading up to purchases, as well as social activities after purchase. We found that the impact of social media on buying decisions is greater than previously estimated and growing fast, but that its influence varies significantly across product categories. Moreover, only a small slice of social influencers are creating the buzz.

A growing importance

Social recommendations induced an average of 26 percent of purchases across all product categories, according to our data. That’s substantially higher than the 10 to 15 percent others have estimated.2 SeeConnected Marketing: The Viral, Buzz and Word of Mouth Revolution, edited by Justin Kirby and Paul Marsden, Oxford, UK: Butterworth-Heinemann, 2006. For the 30 product categories we studied, roughly two-thirds of the impact was direct; that is, recommendations played a critical role at the point of purchase. The remaining third was indirect: social media had an effect at earlier decision-journey touch points—for example, when a recommendation created initial awareness of a product or interactions with friends or other influencers helped consumers to compare product attributes or to evaluate higher-value features. We found that in 2014, consumers made 10 percent more purchases on the back of social-media recommendations than they had in 2013.

Nuances are essential

Consumers, we found, access social media to very different degrees in different product categories. At the low end, only about 15 percent of our respondents reported using social media in choosing utility services. For other categories, such as travel, investment services, and over-the-counter drugs, 40 to 50 percent of consumers looked to social recommendations.

Product categories tend to have their own discrete groups of influencers. Our data showed that the overlap of recommenders between any two consumer categories was very small—a maximum of 15 percent for any two pairs of products we analyzed. Timing matters as well: a first-time purchaser, for example, is roughly 50 percent more likely to turn to social media than a repeat buyer.

While the role of digital influence is expanding, the analog world remains important. Among the more than 100 brands we studied, about half of the recommendations were made offline—in person or by phone. Offline conversations were up to 40 percent more likely than digital interactions to influence purchase decisions of products such as insurance or utilities.

Power influencers and the long tail

Our research shows that a small number of active influencers accounted for a disproportionate share of total recommendations (exhibit). These power users are even more significant for product categories such as shoes and clothing: 5 percent of the recommenders accounted for 45 percent of the social influence generated.

Exhibit

Navigating in a changing environment

As companies look to maximize returns from their social strategies, they can both encourage would-be customers to engage in more social interactions and inspire more influencers to express enthusiasm for their products.

On the demand side, our research suggests that online articles written by journalists prompt consumers to seek out social media to further inform purchases (and that public-relations spending to generate such articles may be a worthwhile investment). Consumers who use search engines to gain some initial knowledge of a product are also more likely to tune in to social media before a purchase. Companies that spend effectively on search-engine optimization (to move their product mentions to the top of search results) can expect to benefit from a greater social-media impact, as well.

Television advertising, by contrast, tends to act as a substitute for social media rather than complementing it. Relatively few customers were prompted to seek out social influences after viewing a TV spot.3 Interestingly, this contrasts with consumers’ use of social media to comment on TV-show episodes. See “Living social: How second screens are helping TV make fans,” Nielsen, August 4, 2014, nielsen.com.

On the supply side, prompting the long tail of less active influencers may require creativity and a greater use of data analytics. Our research found, paradoxically, that if companies allowed endorsements only, they generated a less strong response than companies that invited any sort of comment. Positive remarks were three times more numerous than negative ones, and some companies demonstrated that they could turn negative vibes to their advantage by responding quickly.

Other companies are amplifying positive noise by making the recommenders’ data “speak.” Through machine learning and the application of advanced analytics to recommenders’ profiles, they obtain a granular understanding of product preferences and purchasing behavior. That analysis becomes a key input into sophisticated recommendation engines that identify potential customers and send them messages such as “purchasers like you bought this appliance” at key points along the decision journey. These engines are highly effective at converting customers,4 Others have estimated that these engines are responsible for more than 50 percent of purchases or viewer activity at digital leaders such as Amazon and Netflix. See JP Mangalindan, “Amazon’s recommendation secret,” Fortune, July 30, 2012, fortune.com; and Tom Vanderbilt, “The science behind the Netflix algorithms that decide what you’ll watch next,” Wired, August 7, 2013, wired.com. though with an important caveat: the influence the engines generate can be as much as 75 percent lower if messages aren’t highly personalized and targeted.

The pathways of social influence are shifting constantly. Looking ahead, better mobile devices and more robust social applications will make it even easier to share experiences about products and services. Companies can’t afford to fall behind this powerful curve.

About the author

Jacques Bughin is a director in McKinsey’s Brussels office.

 

From McKinsey: What ‘digital’ really means

What ‘digital’ really means

Everyone wants to go digital. The first step is truly understanding what that is.

July 2015 | byKarel Dörner and David Edelman

Companies today are rushing headlong to become more digital. But what does digital really mean?

For some executives, it’s about technology. For others, digital is a new way of engaging with customers. And for others still, it represents an entirely new way of doing business. None of these definitions is necessarily incorrect. But such diverse perspectives often trip up leadership teams because they reflect a lack of alignment and common vision about where the business needs to go. This often results in piecemeal initiatives or misguided efforts that lead to missed opportunities, sluggish performance, or false starts.

Even as CEOs push forward with their digital agendas, it’s worth pausing to clarify vocabulary and sharpen language. Business leaders must have a clear and common understanding of exactly what digital means to them and, as a result, what it means to their business (for a deeper look at how companies can develop meaningful digital strategies and drive business performance, see “Raising your Digital Quotient”).

It’s tempting to look for simple definitions, but to be meaningful and sustainable, we believe that digital should be seen less as a thing and more a way of doing things. To help make this definition more concrete, we’ve broken it down into three attributes: creating value at the new frontiers of the business world, creating value in the processes that execute a vision of customer experiences, and building foundational capabilities that support the entire structure.

Creating value at new frontiers

Being digital requires being open to reexamining your entire way of doing business and understanding where the new frontiers of value are. For some companies, capturing new frontiers may be about developing entirely new businesses in adjacent categories; for others, it may be about identifying and going after new value pools in existing sectors.

Unlocking value from emerging growth sectors requires a commitment to understanding the implications of developments in the marketplace and evaluating how they may present opportunities or threats. The Internet of Things, for example, is starting to open opportunities for disrupters to use unprecedented levels of data precision to identify flaws in existing value chains. In the automotive industry, cars connected to the outside world have expanded the frontiers for self-navigation and in-car entertainment. In the logistics industry, the use of sensors, big data, and analytics has enabled companies to improve the efficiency of their supply-chain operations.

At the same time, being digital means being closely attuned to how customer decision journeys are evolving in the broadest sense. That means understanding how customer behaviors and expectations are developing inside and outside your business, as well as outside your sector, which is crucial to getting ahead of trends that can deliver or destroy value.

Creating value in core businesses

Digital’s next element is rethinking how to use new capabilities to improve how customers are served. This is grounded in an obsession with understanding each step of a customer’s purchasing journey—regardless of channel—and thinking about how digital capabilities can design and deliver the best possible experience, across all parts of the business. For example, the supply chain is critical to developing the flexibility, efficiency, and speed to deliver the right product efficiently in a way the customer wants. By the same token, data and metrics can focus on delivering insights about customers that in turn drive marketing and sales decisions.

Critically, digital isn’t about just working to deliver a one-off customer journey. It’s about implementing a cyclical dynamic where processes and capabilities are constantly evolving based on inputs from the customer, fostering ongoing product or service loyalty. Making this happen requires an interconnected set of four core capabilities:

Proactive decision making. Relevance is the currency of the digital age. This requires making decisions, based on intelligence, that deliver content and experiences that are personalized and relevant to the customer. Remembering customer preferences is a basic example of this capability, but it also extends to personalizing and optimizing the next step in the customer’s journey. Data providers such as ClickFox, for example, blend data from multiple channels into one view of what customers are doing and what happens as a result. In the back office, analytics and intelligence provide near-real-time insights into customer needs and behaviors that then determine the types of messages and offers to deliver to the customer.

Contextual interactivity. This means analyzing how a consumer is interacting with a brand and modifying those interactions to improve the customer experience. For example, the content and experience may adapt as a customer shifts from a mobile phone to a laptop or from evaluating a brand to making a purchasing decision. The rising number of customer interactions generates a stream of intelligence that allows brands to make better decisions about what their customers want. And the rapid rise of wearable technology and the Internet of Things represents the latest wave of touchpoints that will enable companies to blend digital and physical experiences even more.

Real-time automation. To support this cyclical give-and-take dynamic with customers and help them complete a task now requires extensive automation. Automation of customer interactions can boost the number of self-service options that help resolve problems quickly, personalize communications to be more relevant, and deliver consistent customer journeys no matter the channel, time, or device. Automating the supply chain and core business processes can drive down costs, but it’s also crucial to providing companies with more flexibility to respond to and anticipate customer demand.

Journey-focused innovation. Serving customers well gives companies permission to be innovative in how they interact with and sell to them. That may include, for example, expanding existing customer journeys into new businesses and services that extend the relationship with the customer, ideally to the benefit of both parties. These innovations in turn fuel more interactions, create more information, and increase the value of the customer-brand relationship.

Building foundational capabilities

The final element of our definition of digital is about the technological and organizational processes that allow an enterprise to be agile and fast. This foundation is made up of two elements:

Mind-sets. Being digital is about using data to make better and faster decisions, devolving decision making to smaller teams, and developing much more iterative and rapid ways of doing things. Thinking in this way shouldn’t be limited to just a handful of functions. It should incorporate a broad swath of how companies operate, including creatively partnering with external companies to extend necessary capabilities. A digital mind-set institutionalizes cross-functional collaboration, flattens hierarchies, and builds environments to encourage the generation of new ideas. Incentives and metrics are developed to support such decision-making agility.

System and data architecture. Digital in the context of IT is focused on creating a two-part environment that decouples legacy systems—which support critical functions and run at a slower pace—from those that support fast-moving, often customer-facing interactions. A key feature of digitized IT is the commitment to building networks that connect devices, objects, and people. This approach is embodied in a continuous-delivery model where cross-functional IT teams automate systems and optimize processes to be able to release and iterate on software quickly.

Digital is about unlocking growth now. How companies might interpret or act on that definition will vary, but having a clear understanding of what digital means allows business leaders to develop a shared vision of how it can be used to capture value.

About the authors

Karel Dörner is a principal in McKinsey’s Munich office, and David Edelman is a principal in the Boston office.

McKinsey: The strength of ‘weak signals’

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Snippets of information, often hidden in social-media streams, offer companies a valuable new tool for staying ahead.
February 2014 | byMartin Harrysson, Estelle Métayer, and Hugo Sarrazin

As information thunders through the digital economy, it’s easy to miss valuable “weak signals” often hidden amid the noise. Arising primarily from social media, they represent snippets—not streams—of information and can help companies to figure out what customers want and to spot looming industry and market disruptions before competitors do. Sometimes, companies notice them during data-analytics number-crunching exercises. Or employees who apply methods more akin to art than to science might spot them and then do some further number crunching to test anomalies they’re seeing or hypotheses the signals suggest. In any case, companies are just beginning to recognize and capture their value. Here are a few principles that companies can follow to grasp and harness the power of weak signals.
Engaging at the top

For starters, given the fluid nature of the insights that surface, it’s often useful to get senior leaders actively involved with the social-media sources that give rise to weak signals. Executives who are curious and attuned to the themes emerging from social media are more likely to spot such insights.1 For example, a global manufacturer whose high quality and low prices were the topic of one customer’s recent social-media post almost certainly would not have examined it but for a senior executive who was a sensitive social “listener” and found its implications intriguing. Did the company have an opportunity, the executive wondered, to increase prices or perhaps to seek market share more aggressively at the current prices?

To find out, the executive commissioned research to quantify what had started out as a qualitative hunch. Ultimately, the low-price perception turned out to be an anomaly, but the outsize perception of the product’s quality was widely held. In response, the company has started funneling marketing resources to the product in hopes of building its market share by capitalizing on its quality and differentiating it further from the offerings of competitors.
Listening and mapping

As the manufacturer’s example implies, spotting weak signals is more likely when companies can marshal dispersed networks of people who have a deep understanding of the business and act as listening posts. One global beverage company is considering including social-media awareness in its hiring criteria for some managers, to build its network and free its management team from “well-rehearsed habits.”

Weak signals are everywhere, of course, so deciding when and where to keep the antennae out is critical. One such situation involves a product, market, or service that doesn’t yet exist—but could. Consider the case of a global advertising company that was investigating (for one of its clients) a US growth opportunity related to child care. Because no one was offering the proposed service, keyword searches on social media (and on the web more broadly) wouldn’t work. Instead, the company looked to social-media platforms where it might find weak signals—finally discovering an online content service that allows users to create and share individualized newspapers.

In the child-care arena, digital-content channels are often curated by mothers and fathers, who invite conversations about their experiences and concerns, as well as assemble relevant articles by experts or government sources. Analysts used semantic clues to follow hundreds of fine-grained conversations on these sites. The exercise produced a wealth of relevant information about the types of services available in individual markets, the specific levels of service that parents sought, the prices they were willing to pay, the child-care options companies already sponsored, the strength of local providers (potential competitors), and the people in various communities who might become ambassadors for a new service. This wasn’t a number-crunching exercise; instead, it took an anthropological view of local child care—a mosaic formed from shards of information found only on social media. In the end, the weak signals helped the company to define the parameters of a not-yet-existing service.
Spotting visual clues

It’s also useful to search for weak signals when customers start engaging with products or services in new, tech-enabled ways, often simply by sharing perceptions about a company’s offerings and how they are using them. This can be hard for companies to relate to at first, as it’s quite removed from the usual practice of finding data patterns, clustering, and eliminating statistical noise. Spotting weak signals in such circumstances requires managers and employees to have the time and space to surf blogs or seek inspiration through services such as Tumblr or Instagram.

As intangible as these techniques may sound, they can deliver tangible results. US retailer Nordstrom, for example, took an early interest in the possibilities of Pinterest, the digital-scrapbooking site where users “pin” images they like on virtual boards and share them with a larger community. Displayed on Pinterest, the retailer’s products generate significant interest: the company currently has more than four million followers on the site.

Spotting an opportunity to share this online engagement with in-store shoppers, the company recently started displaying popular Pinterest items in two of its Seattle-area stores. When early results were encouraging, Nordstrom began rolling out the test more broadly to capitalize on the site’s appeal to customers as the “world’s largest ‘wish list,’” in the words of one executive.2 The retailer continues to look for more ways to match other customer interactions on Pinterest with its products. Local salespeople already use an in-store app to match items popular on Pinterest with items in the retailer’s inventory. As the “spotting” ability of companies in other industries matures, we expect visual tools such as Pinterest to be increasingly useful in detecting and capitalizing on weak signals.
Crossing functions

As the Nordstrom example demonstrates, listening for weak signals isn’t enough—companies must channel what’s been learned to the appropriate part of the organization so the findings can influence product development and other operational activities. Interestingly, TomTom, a company that offers products and services for navigation and traffic, found that the mechanism for spotting weak signals proved useful in enhancing its product-development process.

As part of normal operations, TomTom monitored social media closely, mining conversations to feed into performance metrics for marketing and customer-service executives. The normal process changed after an attentive company analyst noted that users posting on a UK forum were focused on connectivity problems. Rather than let the tenuous comments get lost in the company’s performance statistics, he channeled them to product-development teams. To resolve the issue, the teams worked directly—and in real time—with customers. That helped short-circuit an otherwise costly process, which would have required drivers using TomTom’s offerings to check out connectivity issues in a number of locales. The broader payoff came in the form of new R&D and product-development processes: TomTom now taps directly into its driving community for ideas on design and product features, as well as to troubleshoot new offerings quickly.

At most companies, weak signals will be unfamiliar territory for senior management, so an up-front investment in leadership time will be needed to clarify the strategic, organizational, and resource implications of new initiatives. The new roles will require people who are comfortable navigating diverse, less corporate sources of information.

Regardless of where companies observe weak signals, the authority to act on them should reside as close to the front lines as possible. Weak signals are strategic enough to demand top-management attention. They are sufficiently important to the day-to-day work of customer-service, technical-development, and marketing teams to make anything other than deep organizational engagement unwise.
About the authors

Martin Harrysson is an associate principal in McKinsey’s Silicon Valley office, where Hugo Sarrazin is a director; Estelle Métayer, an alumnus of the Montréal office, is an adjunct professor at McGill University, in Montréal.

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