A very thought-provoking article. Thank you.
A couple of thoughts by way of a response…
Clients are always likely to need agencies for two purposes: development because their resource requirements are subject to spikes when they periodically need to redevelop their infrastructure; and maintenance and operations because they need insurance against staff turnover and institutional capture (the problem that occurs when the ambitions and limitations of key staff members end up driving the corporate agenda).
Even though general demand is pretty much guaranteed running a successful agency is still a very difficult business.
The fundamental issues in my experience (thirty years and counting) are business acquisition, project risk, staff utilisation and value capture.
Elaborate pitching and unreliable tendering processes make business acquisition expensive. This is not a situation that seems to be getting any better.
Most agencies like big projects (because business is expensive to acquire) but the bigger the project the greater the intrinsic risk. Agile working is one way to reallocate risk as between development teams and the people that commission them. But it is rarely a complete success. Sadly, the kind of hard-arse project management techniques needed to push risk back to the client on a day-to-day basis tend to be anathema to the culture of a creative business.
At the heart of an agency is its culture and operating system. To sustain that culture and operating system you need a permanent staff. And once you have permanent staff then you have to deal with staff utilisation, in other words you have to keep the staff busy and chargeable even though client needs will be wildly variable. Having staff sit idle while still paying their wages and overheads is an easy way to lose (lots of) money.
Finally value capture. You woo the client, you win the work, you deliver something wonderful, you invoice and then bank the money. Depending on your costs of business acquisition and how you did on handling risk and staff utilisation you may or may not have made money on the job. What is certain, however, is that in the standard agency model you won’t capture any value beyond your fee for the job, no matter how much excess value your work has created for the customer.
Hence the long term struggle of running a successful agency.