The Creative_Business Gap
Five dynamics that shake up consultancies and agencies
Recently, we’ve become quite used to headlines of giant consultancies snapping up creative hotshops. Or big-name agencies spinning their own consulting departments.
Undoubtedly, the markets for professional consulting and creative services are changing dramatically. With new players entering the market, with consolidation and the rise of in-house departments. And those changes go far beyond executives wearing sneakers, or innovation hubs sprouting out of the ground everywhere. They will affect the business models of consultancies and agencies alike at their core.
We are witnessing the disruption of the disruptors.
Digital transformation is challenging a decades-old structure: Consultancies and agencies peacefully co-existed, being no threat for the other one’s business model and kings in their own kingdoms.
Consultants celebrated their work-hard-play-hard lifestyle and produced armadas of conformity robots for decades that can crunch, twist and tweak any number, but struggle with creative output. Agencies produced an abundance of content for often irrelevant campaigns, profited from young, cheap labour and an almost metaphysical guru status of their leaders, celebrating themselves on award shows, giving credit for work that only sometimes was outstanding, but most of the times just mediocre.
When Deloitte as one of the first major players started their digital department and acquired talent from all corners of the agency industry, a movement started that won‘t be reversed. For those traditionalists among you: Good luck putting that genie back into the bottle.
Analyzing the market and talking to colleagues from all directions, I see five dominant dynamics that make it necessary to adapt business models and diversify the market approach.
1. Massive professionalization on client side
Since clients’ staff is becoming more and more crowded with former agency or consulting people, the system immanent advantage of the external partner in terms of conceptual superiority continues to vanish. That goes along with a stronger inhousing of the strategic aspects of our work and thus a stronger commoditization of the industry’s services.
Agency strategists find themselves at meeting tables with former BCG guys that outperform them by miles when it comes to analytical excellence of campaign planning and marketing consultants have to understand that their glossy change management slides are now challenged by former agency executives that are able to call a bullshit story when they see it. The consequence is tougher talk, more sufficient controlling, less space to hide and especially the need for fancy concepts to actually work in real life.
2. Erosion of margins
With purchasing departments more and more taking over the decision process of the creative supply chain, the time for irresponsibly humongous budgets and unnecessary projects is definitely over in most companies.
Pitches turn into mainly cost comparisons for commodity work, with prices in both consulting and agency work falling way below former moonrates. Especially the agencies have to fight extremely hard to hold up their margins and cope with the increasing labour costs while struggling to keep up their day rates. Profit margins drop by several points and there is not too much hope in sight that this is going to change any time soon.
Instead, with increasing commoditization of their services and the rise of the in-house agency, this development will continue to erode margins to a point where an agency is actually struggling to stay profitable to finance all the benefits that keep their workforce from leaving for the big corporations’ big money calls. The consultants — at least the high-profile ones — see themselves more protected by a strong shield of executive relations and solid retainer budgets. However, the need for better solutions and more and more operational know how in former off-topic fields like UX or SEO is leading to a compatibility of services between the two types and eventually raise the question: “Why exactly do we pay 2.500€ per day for a customer journey mapping?”
3. War for talent
Since the startup movement and the digital-hub culture in large corporations spilled over from Scandinavia and the US, creative companies — especially those with a technological background — suffer from a lack of sufficient talent supply.
Salaries are skyrocketing and make the business model of cheap, young labour doing all the work more or less impossible in the future. The best talent is looking for places that offer a healthy work life balance, sufficient salary and convincing benefits — none of which a classic agency structure or mid market consulting firm can provide without losing significantly on margin points. That development hits consultants more in their growth fields than in their core business, but it leaves them with a difficult issue to fix when wanting to grow in new business models and extending the value chain to save market shares and synchronizing client budgets.
4. Massive wave of consolidation
Since US based consulting giants are strongly investing in diversifying their solution portfolios towards technology and creative, the solid structures of the industry are starting to shake.
Moves like Accenture buying digital champion SinnerSchrader were rare in the past and leave a major hole in the owner operated agency landscape — and therefore in the offer of nimble, highly specialized creative service providers. At the same time the giant structures allow almost unlimited access to new business and cross-selling between the groups’ different service entities. It almost looks like the eternal rush after new business as the major challenge of creative executives turns into the challenge of finding enough talent to fulfill all those capacity needs that come along with the massive amount of new projects in the context of digital transformation and agile development. This wave will leave behind a much more consolidated market with a much stronger position for global multidisciplinary players and a chance for small niche players to fill those holes that are too tiny or too specialized for the giants. But especially in the mid market segments for companies between 100 and 500 people, this development will leave major problems and not too many places to go.
5. Synchronisation of scope
And finally: The former highly separated project perspectives of strategy consultants and creative weirdos are now strongly growing together.
Especially in the context of digital development, the ability to rapid-prototype an idea instead of producing endless Powerpoint decks is finally arriving in European board rooms. Combined with the strongly growing importance of digital, data and technology for clients’ core business models, the agency topics become more relevant and the consultants have to fight much harder for their existing model to stay relevant. With the rise of young, digital natives in executive roles this trend will continue. The structurization and strategic guidance will be taken in-house more and more. Suppliers will be more and more asked to quickly develop tangible, testable solutions instead of month-long conception periods. This leaves major challenges for both players.
The consultants need to learn extremely fast to stop producing 400-slide decks that nobody reads anymore and the agencies need to learn to talk business and deliver what they promised. The time of pure show and fancy presentations is over. Clients need people that understand their business model and the core challenges of their products’ user experience. And they need people who know how to actually improve both.
Combining these five dynamics leaves some major questions unanswered:
Who is going to fill this gap between business and creativity? Will consultancies be able to keep creative cultures alive or will creativity vanish from the minds of their newly acquired talent when confronted with the harsh performance culture of a consulting environment?
Will the agencies be able to sit at the adult table without giggling about the ugly finance slides and hiding behind their MacBooks? And will clients finally start talking to each other internally and understand that collaboration requires that they also actually get moving?
We don’t have the answers to all those questions as well. But there’s one thing we know:
There’s great value to be unlocked for those organizations that manage to build a working culture that channels business and creative thinking. That’s when remarkable products and services emerge.
