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Could AI tools cut link between agency growth and headcount?

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By Sam Bradley | Senior Reporter

July 25, 2023 | 9 min read

AI efficiencies could untether commercial growth from headcount for service businesses. That’ll have implications for agencies, clients and staff.

Two hands hold a snapped rope

Agencies need to grow their staff as they bring in more clients. AI could change that dynamic / Adobe Stock

As any agency executive will tell you, the advertising business is a people business. Agencies bill in ‘man-hours,’ place premiums on face time and go to market with ideas plucked from the minds of professional thinkers.

And if an agency business wants to take on more clients, it needs more people. During the advertising boom of 2020-21, agencies were held back by their lack of staff. Some had to turn away business because they didn’t have enough hands on deck.

There’s always been a link between headcount and the capacity of a service business – from legal practices to marketing agencies – to take on new customers. But if generative AI tools enable agencies to service more clients without hiring new faces in line with growth, that link could be weakened or even cut entirely.

That possibility was first voiced by Media.Monks co-founder and S4 executive director Wesley ter Haar, who told investors in March that tech would grant Media.Monks “the ability to compress headcount but still keep output at the same level or even scale it.”

His colleague Louise Martens, executive vice-president of global operations, says: “The ‘man-hour’ is changing. It will be much more output- and value-based in the future.”

She predicts that “the work will outpace the growth of staff.” In fact, that effect is already being observed. “We don’t have to scale as hard as we used to on, for example, copywriting or illustration. “A creative nowadays… when working on a pitch, they’d need people to visualize their ideas. They would need a wider crew to make that idea a reality and visible to clients. A creative with taste and tech savviness can now do a lot more by themselves. That’s powerful.”

Media.Monks, she says, now uses an ‘AI ratio’ for each role to establish a coefficient between salary and AI-enabled productivity.

She explains: “They now have tools to accelerate their productivity. [Copywriters] can do more in a day by automating lower complexity tasks such as proofreading or translation; maybe they’re generated and you go in and do a human check. That means some roles will have an additional 60% efficiency, so we’re talking about a 1.6 factor.”

Not all roles will be impacted equally, she notes. She imagines account management positions will be essentially unchanged. “A human connection is hard to scale.”

As well as tracking the impact of AI within its own organization, Martens says the ratio provides a way of discussing value and working hours with clients. “We have to be honest about it and also be fair to our clients,” she says. “The ratio will help keep us honest and push us forward to have interesting conversations about what kind of commercial model we see in the future.”

Legal risks

Bearing in mind the unresolved ethical and legal risks surrounding generative AI, Media.Monks established a committee to review new tools and “AI proof” each of its client contracts. For Brandtech Group founder David Jones, those issues aren’t likely to go away any time soon – and will likely mean that agencies must still hire in tandem with client roster growth.

“You’re not going to want to just let the machine run off and do its thing and hope that all works out well,” he tells The Drum. “We actually think this is going to lead to us needing more people, not less.”

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Brandtech, which recently acquired media agency Jellyfish and AI company Pencil, currently employs around 7,000 staffers. Speaking to The Drum the week after the latter deal was announced, Jones said he doesn’t expect its headcount to stay at that level. “We believe that this move makes us the number one in the marketing space and in generative AI, and that’s likely to create a large amount of demand. I think it’s actually going to be a large creator of opportunities and employment for the people who are excited about generative AI.”

This isn’t guaranteed by any means. MSQ chief executive Peter Reid is a skeptic. He recommends “taking things six months at a time…and then managing accordingly.”

Though “it’s a bit of a crystal ball gaze,” the primary benefit of AI-related efficiencies, he suggests, will be that agency businesses can increase their margins and forge more valuable relationships rather than more relationships outright.

“It may enable you to continue to grow without necessarily needing to hire quite so many people. But going back over 30 years, in some ways, agencies have been fighting against procurement departments and brands to maintain even a sensible margin.

“We get a slightly better one than most, but it has been a challenge. [Generative AI] potentially gives [the industry] the option to change the game a little bit. I would like to think that agencies capture a bit of the value if they create a better proposition for clients.”

Payroll pressures

In theory, changing expectations around productivity or the value of a working hour should not endanger the job security of advertising workers. In theory, agencies that manage to broaden their revenue margins the way Reid hopes could pass on some of those additional profits to staffers.

In practice, Media.Monks is probably going to cut jobs over the next few months. Parent company S4 Capital issued a profit warning to investors this week after declining tech client spending hit margins (The Drum’s interview with Martens occurred before that release). Considering that AI was listed as a reason for “confidence” in S4’s business model in its statement to the market, it’s not hard to imagine the company might hope tech can help it continue to grow in the long to medium term without increasing its payroll.

Martens herself is confident that agency staffers will need to become adept in the use of AI in order to stay in the industry. “We’ve always been a company where this is not a choice: you have to go forward. Any professional that is not doing [this] is just not going to be very marketable in the future,” she says.

It’s a point of view echoed by Reid and Jones. The former says: “You’d be mad not to take it seriously.”

Jones is more definitive. “Those who think it will go away and want to be dismissive of it... they probably haven’t got a great future.”

Agencies Agency Culture Artificial Intelligence

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