Required Reading: Ad Agencies Need a Radical Makeover

Advertising agencies face rising challenges in today’s digital age. In Madison Avenue Makeover: The Transformation of HUGE and Redefinition of the Ad Agency Business, industry strategist Michael Farmer takes a behind-the-scenes look at a strategic overhaul at global digital agency HUGE. Picking up where his last book, Madison Avenue Manslaughter, left off, Farmer explores the radical shifts in store for Madison Avenue and challenges advertising agencies with a call for total transformation. CRM editor Leonard Klie recently discussed what’s needed with him.

CRM: You say advertising agencies today face rising challenges in the digital age. What are these challenges?

Farmer: The modern digital age began around 2000 when Google first accepted ads.

Then creative ad agencies ceased being paid via 15 percent media commissions, being paid instead on the number of hours they allocated to clients.

By 2004, ad agencies also faced growing workloads, declining fees, and increased competition from new digital creative agencies that led them to take on clients who would pay them rather poorly.

Creative agencies today need to do more with less, and this has been done at the expense of creative quality. Clients began to review agency performance at regular intervals and change agencies frequently. This made agencies very risk-adverse and more service-oriented, giving clients what they want rather than engaging them in vigorous debates about the kinds of advertising they should do. Senior management of agencies began dedicating themselves nearly 100 percent to new business development.

Downsizing and fee pressures forced agencies to eliminate their most expensive people, making them more junior-oriented, which contributed to a decline in the quality of work.

You say agencies need to undergo a strategic overhaul. What would this entail?

Agencies need to re-establish themselves as strategic partners with clients, ceasing to do simply what they are asked and instead engaging in a vigorous dialogue with clients.

Agencies need to change their missions to “we exist to help our clients perform and grow more strongly in their markets,” rather than “we exist to bring creativity to our clients.”

Agencies cannot become strategic partners if they continue to be paid for employee hours rather than the work they undertake. Agencies will need to be paid for the quantity and type of work they do rather than on some guesstimate about the number of bodies/hours it will take.

You single out HUGE as an example of the transformation needed. What did that agency do, and what results did it see?

HUGE changed its mission in October 2021 to “we exist to help clients accelerate their growth.” HUGE decided to specialize in experience transformation, technology realization, and accelerated growth and reorganized and began to retrain all employees to create a new culture.

The HUGE transformation was largely completed at the end of 2022, so it is very early to assess achieved results. New clients have been brought in, and the associated performance-improving programs are much larger and more ambitious. Still, the direction is clear, and the transformation is a success.

HUGE, in being paid for the work it does rather than the hours it incurs, is isolated from the worst effects of AI. Other agencies that have not transformed could see their hours and revenue cut by AI in a devastating way.

Is HUGE unique, or can any agency do this?

Any agency can, under strong CEO leadership, change its mission. Any agency can be paid for its workloads rather than its hours. Any agency can change the dialogue with clients when they begin working together.

The largest barrier to change is the lack of courageous leadership. CEOs are motivated to make their numbers, not to transform. Surely, there will be disruptions in sales growth and profit margins. Generally, holding companies are intolerant of this, even in the name of transformation, so it takes courage for a CEO to take on transformation.

Can internal marketing departments benefit in the same way?

Internal marketing departments do vast quantities of digital/social work on behalf of their companies, but to date their mission has been do this as cheaply and quickly as possible. This is not entirely wrong, but they need to ask, “What work should we do cost-effectively and efficiently to make a difference for our brands in the marketplace?” This question is neither being asked nor answered today. This needs to change.