Friday, June 18, 2010

MEDIAPOST: Strategy vs. Tactics; An Issue Of Compensation

Does your agency focus their attention on tactics, rather than strategy?

Many people talk about the agency model being “broken”, and the primary reason is that most agencies are compensated by their clients based on tactics, not strategy. When you compensate your agency partners for the tactical side of the business (the media plans and the banners or websites they create) rather than the strategic side of the business, you get what you pay for.

The marketing landscape is littered with agency reviews that stem from the age-old bait and switch phenomenon where the agency pitched the business with “the a-team” and the client ended up being serviced by “the b-team”. This happens because the pitch is when agencies put their best foot forward and they show strategy to demonstrate their approach to business and provide an example of the work they’re capable of providing. Unfortunately after the pitch, when the agency wins the business and it comes down to the day-to-day, the budgets go tactical, the work gets less strategic and the team changes. Of course, both sides are at fault when this happens. The agency is at fault because they should never even have a “b-team” that gets assigned to business and they should always be strategic in nature. The client is at fault because 9 out of 10 times their fees are being paid to the project management team (also called “account management”) and the tactical team, with very little being applied to the senior, strategic team that should be driving the business. A quick calculation of the fees that most clients pay their agencies will show that, on average, about 10% of fees go to strategic work while around 90% go to tactical execution. In that equation, how come everyone is so surprised that they get the ”b-team” and lose the strategy they fell in love with?

This is why client/agency relationships last about 4-5 years now, vs. the 15-20 they used to last. The business has gotten more efficient, but the fees aren’t recognizing this fact.

To make matters worse, the structure that sets up agencies to focus their efforts on tactical needs vs. strategic needs also creates a situation where most agency employees aren’t even trained to be strategic. The majority of staff within major agencies are less experienced and woefully under-trained in the art of marketing. Some agencies have training programs in place, but most of these take a back seat to client business (as well they should since that’s where the revenue comes from). Of course this creates a self-fulfilling prophecy because if your team isn’t trained in the art of strategy (and yes – it is indeed an art), then you won’t retain the business in the long run. Too many agencies are focusing their efforts on owning the client’s data in order to make them reliant rather than adding strategic value. Data can be a very important tool, but data can be aggregated from almost anywhere these days and just owning the data is not a strategic benefit.

So what can be done about this, other than complaining about it?

If you’re an agency, you need to charge for strategy. You have to find ways to monetize the senior team that can lead your client’s business and you need to maintain a focus on strategy if you ever hope to retain your clients. Agencies are hired because of people and approach, and the right people with the right approach can be a very difficult relationship to unseat. If you lead with strategy, and your client recognizes and pays for that work, then your relationships will last longer.

If you’re a client, you need to buck up and start paying for strategy. Agencies are full of smart, ambitious people who want nothing more than to help you build your business. They are creative and strategic thinkers, even if they don’t all know it yet. Of course, if you’re going to pay them for their strategy, they should be willing to risk part of their fees on performance and “put their money where their mouth is”. We do it in our shop and many other agencies have started to follow suit, but strategy is an art, and in some cases it can be a gamble, but it’s an educated gamble.

I’m something of an idealist when it comes to the agency business, so that’s why I’m sharing these thoughts in this column. I want the business to succeed for everyone, and strategically I think sharing the solution will make everyone better. Don’t you agree?