Marketers increasingly want revenue-spinning ideas as well as campaigns but the challenge of providing innovation at scale to make it a worthwhile investment is difficult for agencies, as Ogilvy’s bosses can attest.
Getting “better” and “faster” was how Annette King, the UK chief executive of the agency, justified the decision to shut down Ogilvy Labs after nine years earlier this month. In its place will be “new capabilities” she continued, albeit without going into detail as to what they are or who will be managing them. Despite how the situation might seem, the agency insists it can still innovate.
But beneath the platitudes lies a deep-rooted issue that’s shackling many agencies – they are set up currently to make money from ads, not entrepreneurial thinking. There’s a reason why Ogilvy Labs’ boss Nicole Yershon and her team are no longer required at the agency even though it admits innovation is an “integral” part of its DNA. While it may well be integral to the sales pitch, innovation isn’t an integral part of its business model in the same way a specialist agency might generate revenue by growing a client’s bottom line or owning a share in the equity of the business that they grow.
“We’re moving away from traditional advertising,” says Yershon. “I can say that because I’ve got 27 years’ worth of advertising experience. I know where it was and I know where it needs to go. Innovation [in advertising] is never going to be easy because you’re trying to affect change that’s changing the business model and making people see there’s an issue with how things currently are… Judging by the Cannes Innovation Lions this year, there is enormous hope for what is coming out of that space for our industry.
In spite of those challenges, Yershon and her team were able to successfully self-fund some of their projects with startups, accelerators and other ventures for nearly a decade. As a collective they also worked to change Ogilvy internally, initially funding behavioural economics practice Ogilvy Change before regularly introducing the likes of object-oriented programming language Ogroovy to the wider agency with senior brand planner Tara Austin, who was key to getting non-traditional work produced across the business. Further partnerships with innovators in educational learning allowed the group to unearth and fund talented kids who wanted to break into the industry so that it could diversity its business.
All of this was only possible for two reasons; firstly, a model that revolved around six Rs – revenue, reputation, recruitment, relationships, retention and responsibility; and the second – and the most important – was that Ogilvy Labs had the backing of some of the agency’s high rollers including vice-chairman Rory Sutherland and worldwide executive director and EMEA chairman Paul O’Donnell. But support from on high can only go so far, especially once an agency brings in a new management team – of which King is part of the one at Ogilvy – that have their own ideas for the agency’s future.
Margins are increasingly tough to grow at agencies, especially when, as O’Donnell said earlier this year, clients’ aren’t spending as much on ads as they used to. And that’s why agencies to date have struggled with innovation, suggests Cameron Worth, founder of internet of things startup SharpEnd. “When the big creative agencies take a chainsaw to innovation it’s not because they’re trying to protect the clients' interests. It’s because they’re trying to protect the business model. They can always default back to a TV ad which will make them a huge margin,” he adds.
Yet clients increasingly want more than a TV ad. Marketers from L'Oréal,Airbnb and Made.com, to name a few, have all talked to The Drum this year about why they need to create services not campaigns to avoid the risk of their business models becoming redundant in the near future. Wholesale innovation does work to an extent, they concede, but has very low levels of productivity compared to boutique agencies focused on a problem, hence why some advertisers like Pernod Ricard and Sony spend some of their budgets with smaller shops dedicated to innovation, such as Fearlessly Frank and Redscout.
“I’d sooner see £100m spent on 100 startups then have £20m a year of people trying to sit in think tanks innovating,” says Mel Morris, the ex-chairman of King.com, which he also has a stake in. “I have yet to see productivity come from core wholesale innovation. There was one company I was going to invest in; I stopped the investment because every Tuesday in the month they had an ‘innovation day’. I don’t think innovation is something you can sit down and force. Innovation comes because you have some adversity or a challenge.”
That’s not to say creative agencies can’t do innovation properly. Karmarama,The Sunshine Company and Lucky Generals are among a small group hiring the talent needed to make a business model like that work. Perhaps part of their success to date has been because, unlike Ogilvy, they are free from the constraints that come from operating within a wider network like WPP.
Regardless, agencies know more effort is needed, as evidenced by the Institute of Practitioners in Advertising (IPA) scheme this year to effectively ease some of the tensions that have been brewing between agencies and startups for some time. There’s a long-held view by some observers that agencies aren’t incentivised enough to work with startups the right way, while there are others who argue the latter lack the commercial nous to work on the scale usually required by a brand or agency.
There is no right way to innovation. The IPA’s initiative is attempting to get all parties to realise that innovation demands special working conditions and rules if it is to be effective. Or as Nigel Gwilliam, consultant head of media and emerging tech at the IPA puts it: "There is no universal skeleton key for innovation success. But agencies are unquestionably well positioned to be part of the solution. One only has to consider the appetite of platforms to hire agency personnel to sell platform-led innovation. Or the appetite of management consultancies to buy agencies that put an innovation sheen on pre-packaged efficiency models.
"Agencies have the talent, they have the skillset. But a clear model for delivering this has not yet emerged. We are on the path to delivering that. There are already notable examples of success (and indeed failure) which provide lessons to all. Agencies can't be complacent, but they have to raw talent, skills and relationships to prosper."
If there’s growing evidence to suggest marketers are interested in innovation as a discipline rather than innovation as a department, where should they go? “Brands are looking to companies like us to help them navigate their way through change because we’re wired to get them out of these situations. It’s how we make money and grow equity holding in new products and services,” answers Ben Little, co-founder of innovation consultancy Fearlessly Frank.
The agency, which has recently worked with Nissan on a “new urban mobility product”, is often either brought in to businesses to either act as a “fox in a henhouse” internally or address a specific challenge that will usually see it working with the C-suite rather than just the marketing team. “A lot of these innovation departments aren’t treating it as a discipline,” Little continues. “I think these agencies should take these departments and make them external with clients along with their own P&L and their own opportunity to succeed because that's the way the marketplace is definitely going.”
As more agencies cotton on to this process, it could lead to a flood of innovation consultancies similar to the raft of digital, mobile, social and content agencies that have emerged in recent years to mine the latest trend. “Positioning yourself as someone who works in innovation is like doing a creative response for a client and then saying how ‘cool’ the idea is. If it was that good then you wouldn’t need to tell me,” argues Worth as to why those opportunists may struggle to turn innovation into a business.
“There’s going to be a huge trend towards those who have a defined specialism or have set up their own business working with brands who only want to partner with small agencies because they get the best results for less money,” he adds.
“There needs to be some consolidation around those guys because right now we’re incredibly under serviced… the more innovation starts to depart from the big nests of the creative agencies, I think people’s attention will turn to how we can start building synergies between these specialists.”
To that point, Morris also sees innovation in marketing evolving from the smaller, independent businesses: “People who are actually immersed in the industry very often fail to see the wood for the trees. It’s not to say they can’t and some good products come out from that, but I think more and more people are attacking markets with technology. The problem is not going to be sold by masses of people. If someone has a great idea in a large organisation most of them are probably better off to leave and do that themselves than try and run the politics of how they get support and backing. It is easier to control your own destiny, so put your money where your mouth is.”