Inside agencies' fight against disruption in Asia Pacific
In part one, we wrote about about how management consultancies, publishers and technology firms are starting to offer digital marketing and advertising services to their clients in Asia Pacific. This is part two, where we find out how agencies are responding to these developments.
The Drum reached out to the agencies of holding companies including WPP, Interpublic Group, Samsung, Publicis Groupe, Dentsu, as well as independent shops and industry experts, who shared their thoughts with us. Havas and BBDO failed to respond to our questions by press time.
One could say that the writing has always been on the wall and advertising agencies should have seen it coming because management consultancies traditionally work from the top-down when offering business transformation services, inevitably touching marketing and advertising strategy.
However, as consultancies started to acquire digital and design agencies by the dozens, as well as build innovation labs to offer marketing and creative services to help their clients navigate technology disruption, holding companies instead reorganised agencies in its stable to accommodate clients’ needs that are non-marketing related.
As the traditional agency model, which is to work from the bottom-up, focusing on marketing initiatives like creative or media strategy and execution, has now been disrupted, how should agencies in Asia Pacific respond?
David Fox, chief executive of Ogilvy Australia, urges agencies to continue to evolve, innovate in their business every day and try to live their purpose, which is to make brands matter.
On Ogilvy’s part, Fox says the agency has, and will always focus on the recruiting and retention of talent as it cannot control what the competition does. He says it can only control what it does and how well it does it because the agency of the past is gone and every agency needs to "feel the heat of the burning platform below them."
“We need to face the challenges of being nimble and fast yet remaining effective and provocative,” he explains. “Being cost effective yet having the best talent. Developing ideas that do things and don’t just say things. The challenges are many, however all good businesses are always in transition and ours is no different.”
Over at MullenLowe Profero, chief executive Wayne Arnold says the Interpublic agency is not resting on its laurels, even though he says it has been doing experience-led transformation through digital channels longer than most other agencies, both in the region and globally as far back as 1998 globally and 2002 in APAC.
Instead, Arnold stresses that MullenLowe’s focus is ensuring that it is consistently doing it better than anyone else across its global and regional client base.
“In APAC we have brought the entire organisation under one leadership team with a single profit and loss statement, whilst creating centres of excellence based on where the best talents are, to ensure we have a balance of specialism with broad capabilities,” he says.
He adds that while these are simple things, being able to leverage the entire team in Asia as one already puts MullenLowe at an advantage, as most networks and consultancies have to work towards local P&L and key performance indicators first, which prevents them from working holistically towards the bigger picture.
Independent digital marketing business AdParlor meanwhile, attributes the arrival of consultancies and publishers to increasingly ‘confused’ chief marketing officers, who are facing an overwhelming amount of change and need help to cope.
Says Matt Sutton, chief executive of AdParlor: “I think what it shows is that that the agency of record model, which has a one size fits all approach and a heavy focus on brokering media, is failing brands. They are not getting the level of consultancy they need on digital marketing transformation from that model. I believe our key advantage is that we already offer digital-focused consulting to brands in Asia.”
Sutton adds that the the future of marketing is people marketing and all brands need to be moving faster on this transformation journey. “Firstly, we are a deep vertical digital specialist that offers full scope digital marketing transformation services. Secondly, we are an agency that is also a technology company, with technology being an integral part of all marketing solutions. Also, as a telco joint venture, we have a deep understanding of data science and are already leveraging that and other forms of data to enable business goals for brands. To enable segmented targeting using data, we offer digital creative alongside the communication plan. Our specialist offering is what differentiates us from the rest,” he says.
However, Sutton says there are merits for brands to use a consultancy as he feels that sophisticated CMOs ditching their agency of record of model in favour of working with the right specialists to solve their specific business and marketing challenges, is a very healthy thing.
There are some agencies on the other hand, that feel the arrival of these consultancies and publishers is a warning shot across the bow and are taking up arms in preparation for the battle ahead like creative shops, R/GA and VML.
R/GA, which launched its consulting practice as part of its business over three years ago, is rapidly ramping its practice with up to at least 150 people in the agency to working on consulting projects at one time and expects to see a 50% growth in its practice by the end of this year.
Jehan Leanage, executive director of business transformation in APAC for R/GA’s consultancy practice, feels that the agency is lucky that it had a head start and an existing portfolio of customers as part of its growing practice, because it learnt early on that integration of different teams and processes isn't easy and R/GA is still trying to get the balance right.
“Acquisitions make integration more complex because you have different cultures to deal with - the industry is littered with acquisitions that haven't quite worked due to a clash of cultures,” he explains. “Because we built our practice from the ground up we’ve been able to instil our culture from the outset and focus on delivering customer value, augmenting our internal systems, processes and teams to put customers first.”
For VML, Tripti Lochan, the agency’s chief executive for SEA and India says as the consultancies and publishers are gearing up, so is the agency. “We’re not sitting idly by and we are being extremely proactive in learning how to create frameworks that address ROIs from a business standpoint, while simultaneously building on our competitive advantage. We are constantly doing everything that we can to up the ante, in order to maintain the edge that we already own in terms of brand building – this being something that will take consultancies more time to come to grips with.”
Lochan claims that VML saw this disruption coming as digital is now ubiquitous and consumers now interact with brands predominantly through digital and mobile channels, saying that it is unsurprising then, that the main priority for the c-suite moving forward is to transform the enterprise into one that has digital at its very core.
“It was really only a matter of time before consultancies started to move into what has traditionally been the domain of digital agencies, in order to get a bite of the digital transformation pie,” she adds.
She points out that as an agency, it has one massive advantage over consultancies: an existing creative culture that permeates the entire DNA of the company.
“This is not something that can be bought, or easily replicated. We have had to make up the processes and rules along the way,” she explains. “Creativity isn’t a synthetic appendage that can be tacked on to your existing offering; it evolves organically and comes through in everything we do. Over time, while this acquisition route that consultancies are going down will allow them to expand their offering, they’re ultimately going to find it hard to reconcile these different components of their offering in an integrated and coherent way.”
On the other hand, there are agencies that embrace working with consultancies as they recognise that they lack certain skill sets, like Dentsu Aegis Network’s Isobar, Publicis Groupe and Samsung-owned Cheil, whose group chief executive for Greater China, Pully Chau says that while the agency offers a complete communication ecosystem including consultancy, data analytics, go to market strategy, CRM, creative product and media delivery, it also collaborates with Prophet as Samsung's brand consultancy on work like global consumer segmentation and quantitative concept testing.
“This type of brand consultancy complements our precise consumer strategy resulting in more focused creative work, media planning and returns on investment,” she adds.
Publicis, which has a consulting practice in Publicis.Sapient, recently ‘scored one’ for the agencies after beating off Accenture Interactive to win McDonald’s account to create mobile and digital kiosk ordering systems. However, they did so by partnering with technology consultant Capgemini, who will be in charge of systems integration and change management.
Kim Douglas, vice president and managing director for APAC at Publicis.Sapient explains that this is because pure play consultancy and communications is not the agency’s business as they sit in the middle. He also adds that the consultancy mindset is in Publicis’ business and in the core of Sapient, rather than a pure advertising mindset.
“In truth, we play against the likes of PwC and EY all the time, and win. We win where the art of possible, and the consultative framework and capabilities are in balance. If it is just pure play consultancy, say against McKinsey, then we can partner with them,” he says. “We do not hire high-end consultants nor do we sell to set out the organisational designing framework for a bank, for example. But we implement the transformational aspect of that bank and programme their next steps for the next three to five years.”
Isobar believes there is a big enough room for consultancies, publishers and agencies to play because everyone’s starting points are very different, according to Sandipan Roy, chief strategy officer for APAC at Isobar.
He explains that the consultants are better at starting with using fulfillment to shape up to meet needs, which means that they are more focused on internal systems, culture, processes, something agencies are not very good at, while for Isobar’s digital transformation work, which is a global framework, the agency’s starting point is the customer.
He says this is based on demand and supply, which is the fundamental of business, adding that Isobar starts looking at the need before looking at how to supply the need. “If you think about it, nobody disrupts a business. The business actually destroys itself because it stops focusing on the customer and meeting the needs of the customer. Our starting point is to meet at the customer's unmet needs because it is these needs that start the transformation process.”
“If I am reaching out to a set of customers with my products and services, are there unmet needs amongst customers that my products and services are not meeting?” he asks. “If there are, I am at a risk of getting disrupted, because there will be somebody who comes to meet those needs and scale up to meet the needs of my current customers.”
Critics have long speculated that the trust issues between brands and their media agencies, because of the rampant lack of transparency and fraud in media, have opened the doors for consultancies and publishers to play a bigger part in advising brands on how to spend their money for media buys.
AdParlor’s Sutton admits that many agencies appear low cost at the front end, but are charging very high rates for very basic services when the hidden margins are factored in. He adds that in Asia, a lack of understanding on the buy side, coupled with a lack of trust and transparency when working with other partners, supports this ecosystem.
However, Sutton is keen to stress that AdParlor encourages all brands and any other partners in their ecosystem to work with it in a transparent way, with a detailed scope of work that is linked to business goals.
“This means providing transparent pricing for each element. In fact, we have a whole training module for brands we engage with on how to brief us and a department dedicated to building meaningful partnership agreements which have clear scopes of work with transparent pricing attached to them. We don’t arbitrage media. We see media buying as only one of a number of things we provide.,” he says.
Brent Banning, director of global client success for APAC at independent data management platform Lotame, meanwhile, argues that consultancies can be just as ambiguous at times as media and advertising agencies when it comes to dollars spent.
“Agencies and brands alike should keep in mind that many of these large global consultancies charge based on the fact that they have a brand name in a space and put a price on a company doing business with them,” he adds.
So what are the bigger agencies doing to retain clients who feel this way and think consultancies and publishers will solve this issue for them?
Ogilvy’s Fox claims that the agency is audited by the majority of its clients on costs and will never have anything to hide when it comes to how it spend its clients’ money, while MullenLowe’s Arnold says that as the agency is focused on delivering results for its clients, transparency does not become an issue. He also points to the agency’s client retention in APAC and globally over the last five years, which stands at 95%, declaring “we must be doing something right.”
Lochan of VML acknowledges many of these consultancies have a value proposition that agencies may be hard-pressed to replicate - an end-to-end offering that covers just about everything – from the strategy, consulting, execution and distribution, to supply-chain management, tax filing and financial management – it is worth remembering that clients today are crying out for more control and want to be actively involved throughout the process.
She argues that the outsourcing of their entire operation essentially represents a complete relinquishment of control, which only a rare few would ever be willing to take such a risk and at the end of the day, what consultancies and publishers are offering is not for every brand.
“Even while more players try to enter the ecosystem, let’s not forget that, as agencies, we’re still on home turf; this is very much still in our wheelhouse. All the more so the way things are evolving, with power now in the hands of consumers to define and build brands – and a very digital consumer at that. Who understands brand building using digital channels better than digital agencies?” she asks.
Still, most executives agree that changing business models and evolving technology trends, on top of transparency and fraud issues, means that consultancies and publishers should be viewed as a serious threat to their business at the present moment.
Kunal Guha, managing director at Essence, says that with continuous leapfrogs in advancements in technology and data analytics, it was always inevitable that there will be a greater intersection between management consultancies and agencies, while MullenLowe’s Arnold asserts that agencies who do not have a clear vision of their role or the talent to deliver digital transformation will be more likely to feel threatened.
AdParlor’s Sutton echoes Arnold’s views and adds that the AOR model has produced an ecosystem that cannot deal with the pace of change in Asia, and is not able to deliver digital marketing transformation for brands here. “Hence, there is a gap in the market to provide consultation to CMOs who are struggling. Any CMO who is struggling and not getting the advice and support they need, will see management consultancies as one route to figure it out,” he says.
Fox of Ogilvy notes that the consultancies hold the advantage because they have access to the CEO, which agencies lost some time ago because agencies and their principals used to talk business with the CEO, and now agencies only talk brands. “We have lost our relevance at the very top of our client’s organisations as their business became more complex and the agency’s focus on 30-second TV ideas and awards meant we became less valuable to company leaders,” he adds.
Patric Palm, CEO & co-founder, Favro, a project management platform, who wrote “The State of Creativity” e-book, which provides an overview of how the agency business is changing, opines that consultancies are trying to sell more complete gigs around product, which now includes marketing. That means that the agencies’ function is now being absorbed by consulting services selling an entire package, he says.
Even as they acknowledge the growing threat from consultancies and publishers, the agencies firmly believe that they hold advantage when it comes to attracting talent, which are increasingly having their heads turned by the new players.
Ogilvy’s Fox predicts that the consultants will have a ‘lovely honeymoon period’ with their new businesses and their new creative people, but when everyone realises that consultants are not in the advertising business, but are in the business of advertising, then things will start to get interesting.
“If a consultancy has paid a large multiple on a business, they will want to recoup and grow this investment,” he says. “Creativity is an outcome of a culture that believes in ideas. If the numbers are tight and there is pressure to recoup a large buyout, then sometimes businesses only focus on the margin and revenue. When this starts to happen, the business loses focus on what it is and it will struggle.”
Fox adds that some of the hires the consultancies have made seem to be done on reputation versus the ability to drive a growth engine for the future. “I see a lot of chiefs being hired, which can, if not watched, lead to an expensive operating model. In a world of client benchmark pricing and a need to bring agency costs down this could be challenging to their operating model.”
Most companies find it incredibly hard to change their DNA, notes MullenLowe’s Arnold, explaining that for a tech company, at heart, for example, it is challenging to pivot the company’s culture to become a creative business.
“Management consultancies will always start with organisation and process, whereas systems integrators will go for technology platforms and data, and digital agencies will use customer experience and creative thinking. This fundamentally dictates the pedigree of an organisation and there is inevitably some friction when different approaches are pushed together,” he says.
VML’s Lochan asserts that agencies have an exciting and dynamic environment where talent are constantly inspired, are amongst like-minded people, and where they can see their ideas brought to life. This is the environment that agencies are traditionally known for, she says, as creativity is practically a given for them.
“Management consultancies, on the other hand, are going to have a much tougher time changing the way they are perceived. No matter how many digital and creative companies they acquire, or innovation labs they build, it will be an uphill battle for these consultancies to break the mould. Overall, creatives would much rather work for a company which places creativity at its very core, as opposed to one where creativity is siloed,” she adds.
However, she admits that agencies will struggle to retain talent because they do not do a good job of communicating what makes advertising and marketing one of the sexiest industries to be in.
“We don’t do a good job of respecting what we create ourselves. We need to change the dominant narrative, steering it away from the negatives of agency life, like long working hours, and towards highlighting the positives – the dynamism, the creativity; the things that drew us to the industry in the first place. We need to remember what inspired us. And inspire them,” she says.
Looking ahead, the executives insists that the agencies will remain the primary option for brands seeking for ad and marketing services, and dismiss the notion that consultancies and publishers will gain a foothold in the industry.
Fox accuses the consultancies of ‘simply looking for new oil fields to drill in and agencies and their people seems a logical choice’. “Why would they do transformational strategies for clients and then hand over the baton to someone else to bring it to life?” he asks. “If their value chain includes a deeper end to end capability, then growth could be an outcome.”
Each player also needs to be realistic on the role they can play rather than succumb to the temptation to offer everything, says Arnold of MullenLowe, explaining that only then, success for both consultancies and agencies will come down to how well each can understand their value and role to play, and how well they are able to collaborate for the ultimate benefit of the client.
Leanage predicts that consultancies and publishers will continue to move downstream organically or through acquisitions, while more agencies will move upstream towards strategy. “Fundamentally, success will come down to who is best able to deliver customer value - whoever is seen as being most customer-centric, able to understand design and creative processes and actually make stuff will likely come out ahead,” he adds.
Palm foresees that some consultancies and publishers will try to develop creative teams, but ultimately fail. However, he says other consultancies will be incredibly successful and develop mature creative teams.
“These successful firms will cause the most trouble for agencies when competing for business. My second prediction is that big creative agencies will need to respond to this growing competition,” he says.“There are two routes bigger creative agencies can take to compete with consulting firms. First, large creative agencies could go down the path of improving their technical knowledge to broaden their offering. The other option for large creative agencies is to become more niche by working more closely with the client and improving CEO access at the client.”
“On the flip side, smaller creative agencies have a leg up in this competition because they can better compete with consultancies on the niche playing field because they tend to have a deeper skillset and operate as an extension of the client’s team — making clientele feel empowered and part of each step in the creative process,” he adds.
Still, whatever happens in the future, Sutton of AdParlor express his wish to see the industry having a more consultative, more transparent and more specialist-led ecosystem, while Fox says that the competition will make life far more interesting and hopes it will sharpen agencies up in the industry to raise the bar and become better client partners.