Turf War? Consultancies and Ad Agencies

Consulting firms have always sized-up the marketing space as a potential service offering. They have flirted with it for decades. Most large-scale forays have ended up in retreat after just a few years. Meanwhile, ad agencies have long-looked to shore up their dusty, old revenue models and expand by purportedly delivering more strategic offers. This too, has been largely episodic and unsuccessful.

Stick around and I will tell you why neither have historically worked but why they may work now. First off let’s substantiate that this mash-up is taking place:

Eight of North America’s top 10 agencies are owned by consultancies. Accenture has acquired at least 40 of them. Deloitte, Accenture, KPMG, PwC, and McKinsey now haveagency arms.

Deloitte is out to create “the world’s first creative digital consultancy.” Meanwhile, IBM’s digital agency unit, iX, has over 10,000 employees and 1,000 designers in 25 offices worldwide.

Del Monte Foods selected Epsilon as its U.S. creative agency of record reflecting a fresh focus on data-driven marketing and a move away from traditional advertising agencies.

PwC made waves in 2016 when they appointed their first Chief Creative Officer. It should be noted that PwC also named a Chief Purpose Officer, which seems very much like an agency-thing-to-do.

Omnicom created Hearts & Science, an integrated digital agency leveraging technology to scale customer relationships. It has attracted Proctor & Gamble and AT&T as clients.

Razorfish, a division of Publicis Groupe, partnered with Adobe to build its own digital marketing platform.

Starcom MediaVest Group launched marketing consulting brand Zero Dot and sibling Zenith soft-launched a media-focused consultancy called Apex.

R/GA and GroupM now offer broad-based consulting services for the purposes of higher margins while securing traditional ad business.

This is the strategy of O&M’s strategy consultancy, Ogilvy Red. Carla Hendra, global chairman of Ogilvy Red, is quoted as saying, “If we sell $1 of consulting work, down the road it can lead to $3 to $4 dollars of communications work.”
Clearly, traditional lines are crossing and blurring but why?

Why Do Consultancies Like Marketing?

Consultancies currently have the upper hand. In this time of change they have deeper pockets and own the perception of technological savvy. The consultancies are both acquiring and building marketing capabilities for a few key reasons:

Chief Marketing Officers are more digital and technologically-driven then ever before. This year Gartner predicts the largest portion of a company’s IT spend will come from the CMO not the CIO. CMOs are buying technology that facilitates the entire marketing process. Technology has been the purview of consulting firms so they see it as a natural fit.

Digital marketing brings the promise of actionable analytics and so is highly attractive and familiar to management consultants.

Management consultants are extremely good at upselling and cross-selling. If they have credible marketing services it would be a seemingly easy way to grow revenue and achieve deeper client penetration.

Why Do Agencies Like Consulting?

Agencies are in a more precarious position and are on the defensive. They are pigeon-holed as awareness builders only and sometime not even that. These are the reasons they are creating and building consulting capabilities:

Agency margins are being squeezed and they leverage junior staff way too much. Clients are questioning the quality of product. While this leverage model has always existed in consulting (one partner overseeing tens of junior consultants), they charge more.

Agencies know they need to influence not just advertising strategy but enterprise strategy. Management consultancies have historically satisfied those high-level strategy needs. Now agencies recognize that strategy leads to communications work, execution and deeper relationships.

Agencies delver decent digital creative but clients still see consultancies as the professionals capable of uncovering more credible data-led strategy that delivers business strategy insights (not just consumer or advertising insights), innovates products, and lays out differentiated customer experiences.

Conflicts and Commonalities

When you think about it, both consultancies and agencies are “ideas” businesses. Further, they also must be “execution” businesses. Or as Bill Gates famously said, “Vision is free. And it’s therefore not a competitive advantage in anyway, shape or form.” So it is great to talk vision and strategy but unless you can implement it is a lot of hot air. Consultancies have been implementing either enterprise or specific strategies with clients for decades so have the advantage yet I will hedge a bit here because more “creative” execution of strategy could be owned by agencies.

This debate leads to a cool observation I have held onto for years. I have a 70-page Word document of quotes collected over 20 years. The specific quote comes from Allan Stenmetz, CEO, Inward Strategic Consulting. Allan has made Consulting Magazine’s Top 25 Consulting List. His observation is at least 15-years old but captures the historic conflict between the mindset and operating models of consultancies and agencies.

There is a fundamental disconnect between the priorities of an advertising agency and the priorities of a management consulting firm. Both want the client to be successful, but the tactics they use to achieve that objective are diametrically different. Advertising agencies always look for that big idea. It’s all right brain. With management consultants, it’s just the opposite. They’re looking for a process, a business solution that attempts to solve the client’s problem and help them be more successful. It has nothing to do with creativity. It has to do with repeatable, trainable, and coachable processes that are sustaining, rational, logical. And that is just so foreign to the creative people that it creates a conflict.

Financial analysts Exane BNP Paribas produced a report in 2015 predicting an even split in market share between consultancies and agencies for what it calls “convergent digital marketing”. So this seems like a war where the proceeds could be divided equitably, however, technology companies and even publishers are now purchasing marketing businesses. In the near-term, it will be a messy game and a poorly defined category as all of the players try to sort it out.

Where This Will Lead

All of the players, experts and media have characterized this as a turf war; that consultancies are encroaching on agencies and visa versa. They are all wrong. It was once a story of traditional lines being crossed but now it is far more simple and complex at the same time.

If you look at the organic and acquisitions strategies you will see there is a theme. Both consultancies and agencies are not truly trying to emulate each other or steal traditional share. In reality, what is actually happening is they are cherry picking the good things from both models and keeping the well-noted bad stuff out. The goal is not a consulting and advertising Frankenstein but the building of a whole new type of business.

The winner will be the one who innovates this new business. Unfortunately, both consultancies and agencies are attempting to build it in the highly traditional ways they are comfortable with. That may be a prescription for expensive disasters and not what an entirely new category needs. Consultancies and agencies must challenge themselves to act differently as they challenge their clients.

This leads to a final and important question as this new category forms; has anyone asked clients what they want?

Author Jeff Swystun. Jeff is well-placed to comment on this evolution having worked in marketing practices at both Deloitte and Price Waterhouse and headed marketing for both Interbrand and DDB. He now consults to both consultancies and agencies on business and brand strategy.

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