Lessons from the Frontline of Agency Transformation

At a recent round table members event hosted by the Alliance of Independent Agencies, the debate focused on the importance of evolving and changing business models to future-proof agencies amid the rapid technological and commercial change that is currently developing in the industry.

Attendees came away with a clear understanding of what to expect of the outcomes of a business model transformation. The Alliance’s two guests were Caroline Johnson, co-founder of The Business Model Company(TBMC), and Nick Baker, founder of marketing consultancy Stick +Twist. Johnson runs business model change programmes for marketing services businesses and Baker has just completed a programme with TBMC, helping transform his own business to "be less reliant on charging for time and more about charging for value." As they shared the journey undertaken to transform from a time-based model towards a programme-based, consultative business, Johnson and Baker provided practical insights and examples of the post-transformational changes that were experienced.

Changing the business model involved three key stages. Firstly, recognising the need for change, secondly running a successful transformation process, and finally assessing the outcomes of change.

Recognising the need for change

In a recent Forrester Report summarised by Johnson, the future of agencies presents both opportunities and threats as the use of Artificial Intelligence evolves. The report clearly indicates that moving from service-led to solutions-led business model allows agencies to distance themselves from industry commoditisation.  Agencies that stay with only time-based charging, are likely to be on the road to extinction much faster.

Johnson summarised: "The point the report makes is not that our industry is dead or has no future, but that we have to change our business model before it’s too late. Agencies have a year to do that, in 2024." For business model change to be achieved, a clear transformational mindset must be introduced. She explained, “The hardest challenge is not the external marketplace, it is changing your behaviours, values and beliefs internally."

Stick + Twist's Baker then shared his insights on changing his business from a "commoditised and undifferentiated service model" to focus on "the value we were creating." He said: "The shift to programme-led solutions that will appeal to clients is something that can be achieved, so don't be afraid of it." A successful transformation process Baker offered clear words of advice for agencies embarking on a transformation process. "It requires dedication and hard work. It's not something you can just do overnight. “ His mantra included four key actions:

1. Challenge each other. Baker urged senior teams to ask tough questions of each other: "Are you pushing hard enough, are you moving quickly enough, are you driving the process based on those beliefs of the new world versus old, or just tinkering around the edges?"
2. The proposition comes right at the end. Focus first on pricing: "What's the commercial operating model? What is your ambition for target margins compared to the industry?" Engage clients relatively early on, talk about the value they want to realise. Then finally, decide on the proposition that will deliver this value. "This is a complete flip and reverse to the traditional way of thinking, " said Baker.
3. Commercial confidence must flow through the organisation. This involves getting team members to talk about the value they're delivering to clients rather than the effort they are putting in. Get people to understand and accept that it's taken them twenty years to build the experience that allows them to create value for their clients as effectively as they can.
4. Cultural change is important. Work hard on reflecting a shift away from service-led, people-pleasing behaviour to a focus on value-led programme solutions. This reflects that relationships with clients need to start from a different place where agency people are not servicing a client and where the focus is on relationships and partnerships. This not only takes time but requires investment in coaching and mentorship across teams of people. Assessing the outcomes of change.

Once this transformation process is in place, it's all about outcomes. Johnson said. "If you are authentic in your operating system, your commercial model, your behaviours, your commercial confidence... your clients will engage with you more easily. They will be happier and will invest more." This, she argued, will deliver clear commercial benefits to agencies that move from a service-based model, to one where they create a new language around outcomes and business value delivered. Businesses that achieve this in an authentic model should also expect to make higher net margins. Baker emphasised this point by revealing that Stick +Twist has introduced a clear "walk away price" where it makes no sense to take client work. "We don't talk about costs or price, we talk about client investment," he added.

According to Baker, when agencies realise this ambition, they build momentum. Clients gain confidence and more transformation projects come through the door because "we have the clear capabilities and targeted solutions to be able to address real business challenges, rather than delivering a commoditised service offering where you're competing on cost." Johnson and Baker are strong proponents of the need for the time-based agency model to change quickly. It is now imperative, due to the rise of AI and the low margins delivered by campaign execution. Agencies that focus on just delivering creative assets or parts of a communications campaign won't have much of a business going forward. Acting right now is therefore essential not only for success but survival.