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Rooted in the past: can media agencies escape the technology burden of legacy strategies?

Legacy media strategies.

This post is by Shane Mitchell,  Chief Product and Transformation Officer at Exact A.I., building intelligent automation systems that help companies unleash their human potential. 

As we grapple with how our employees interact in lock-downs and consider how to retain our company cultures post-pandemic, many of us hope that growing productivity losses can be minimised or offset. Much faith is being placed in technology. New communication and project management technologies promise better interaction, and on-site technology is being updated for remote use.

But could this resetting of workplace technology use also give media agencies a unique chance to escape the technology burden of past business strategies, and create more value for advertisers?

Organisational efficiency as strategy

In the late 90’s and early 2000’s many of today’s top media holding group bosses were early in their careers. IPG, WPP, Publicis and Omnicom groups were eagerly swallowing up smaller rivals in the name of scale. Markets pushed their share prices to record highs as profits climbed and margins widened, through efficiency strategies of centralising services, outsourcing, offshoring and computerising manual processes. Between 1993 and 2001 WPP’s operating margin more than doubled from 6.7% to 14% while its share price increased tenfold.

Few would have read Michael Porter’s influential 1996 Harvard Business Review essay What is Strategy? Porter, the founder of the modern strategy field and one of the world’s most influential thinkers on management and competitiveness had earlier argued that the inherent competitive dynamics of a market, such as choice and the emergence of alternative supply chains decided whether participants had any kind of control over prices and margins. Porter asserted that in diversified markets, only those with multiple layers in their value chains, who specialise, or offer a distinctive difference would thrive. Efficiency focused businesses would see a decline in their pricing power, and falling profits.

Over time, media buying supply chains multiplied and diversified. Large digital platform suppliers dictated their selling terms. Advertisers began shifting to in-house direct buying and powerful competition emerged from management consultancies. Prices for media buying services, as Porter predicted, have plunged.

Media holding groups, with one foot wedged in their legacy model are attempting to awkwardly pivot their buying businesses towards a more valuable creative, analytical and data-led positioning. Increasingly, the legacy technology that turbocharged profits twenty years ago is now becoming a barrier.

The technology trap

In the 2000s new ERP software promised companies more operational efficiency. First designed for manufacturing businesses to manage inventory, scheduling and production processes, ERP systems now provide an integrated management tool for sales, supply chain, HR and finance. Between 2000 and 2020, market leader SAP alone grew annual revenue from €7.3billion to €27billion.

Specialty ERP systems for media buying emerged to bring campaign budgeting, planning, booking, media measurement and finance together. Today, after industry consolidation only a handful of companies provide ERP for media agencies. These companies have spent decades setting up robust integrations and data feeds with thousands of suppliers. This has required huge and ongoing investment, and the cost to prospective competitors of duplicating these systems is now prohibitively high.

Despite this investment, popular systems lack many essential data tools and marketplace connections that agencies need. Instead, agencies must buy new data sources, trading connections and analysis tools from hundreds of other companies. Not just for digital, where separate walled gardens demand unique tools, but also across traditional media such as TV, radio and OOH.

Last month Mediaocean, the world’s largest media agency ERP company announced it would finally add “walled garden” ad buying such as Google and Facebook to its portfolio by acquiring ad tech startup 4C.

CEO Bill Wise told AdExchanger the two companies are a good match, as among other synergies they both operate as “pure” software companies, managing media investment but only making money on licensing fees, not campaign CPMs.

While appealing for transparency advocates, this type of software licensing presents challenges for agencies. For example, once its customer base stops growing, an ERP company must play for increased platform usage, more users and rising per-seat prices to grow revenue.

The game is therefore won by preventing new competition and extending customer dependency. Agency CIOs report significant obstacles in combining specialist software with core systems, controlling seemingly irreducible technology costs and preventing application sprawl.

All this begs the question: how has years of price-led procurement and agency software proliferation changed the nature of media agency work, and just how much media agency time is available to deliver on their brand promises of innovation and creativity?

The creative cost of how media agencies use time

In media agencies the cliché “do more with less” would more aptly be “do more, do less”. Shrinking headcounts, task fragmentation and increased software use mean less and less time can be spent on activities that deliver on agencies’ brand promises.

Employees report that agency work is becoming more dull, distractions more frequent and errors take longer to resolve. Creativity and strategic thinking in many roles is simply overwhelmed with the urgent need to complete tasks. According to Exact A.I.’s detailed analyses of agencies in Australia, UK and Singapore, employees now spend half their available work time on wasteful or administration activities, while productive, creative work is getting harder to execute .

In his book, “The Shallows: What the Internet Is Doing to Our Brains. Nicholas Carr’s research reveals attention fragmentation created by internet use negatively affects creativity and depth of reason. “We willingly accept the loss of concentration and focus, the division of our attention and the fragmentation of our thoughts, in return for the wealth of compelling or at least diverting information we receive.”, he says.

Teresa Amabile similarly cautions companies not to expect consistent creative thinking from employees juggling a large variety of tasks. In “How to kill creativity” she explains “very high levels of time pressure should be avoided if you want to foster creativity on a consistent basis. However, if a time crunch is absolutely unavoidable, managers can try to preserve creativity by protecting people from fragmentation of their work and distractions.”

Fragmentation also leads to what neuroscientists call “task-switching costs,”. As the American Psychological Association explains: Although these costs may be individually small, sometimes just a few tenths of a second per switch, they can add up to large amounts when people switch repeatedly back and forth between tasks. Thus, multitasking may seem efficient on the surface but may actually take more time in the end and involve more error… even brief mental blocks created by shifting between tasks can cost as much as 40 percent of someone’s productive time.”

Escaping time traps to create value

Broadly speaking, media agency work can be divided between activities that aim to create new value for customers, and those that capture value that has already been created (or has been lost).

Creating new value in agencies means finding better ways to help advertisers grow their brands and drive advertising performance. It involves exploring, observing, questioning, thinking, analysing, understanding, strategising, creating and testing ideas. Good ideas require explaining, reasoning and adapting with other employee’s input. Great ideas provide clients with competitive differentiation.

Capturing value involves searching, matching, collating, checking, reconciling, chasing, reporting and fixing. It requires no creative thought, is largely process orientated and rules based. There is often little reward for the accurate completion of these tasks, but lots of downside if agencies screw them up.

Wedged between agency contracts that require specific, activity-based deliverables from prescribed headcounts, and a web of technology that eats up time and creativity, how do agencies find the time to focus on value creation?

Perhaps counter intuitively, one answer may involve finding greater efficiency through new technology. Just as ERP software was transformative in the 2000s, automation technologies such as RPA and Intelligent Automation promise to radically change the way we think about business operations.

As Leslie Willcocks, professor of technology, work, and globalisation at the London School of Economics’ Department of Management, explains “RPA takes the robot out of the human. RPA is a type of software that mimics the activity of a human being in carrying out a task within a process. It can do repetitive stuff more quickly, accurately, and tirelessly than humans, freeing them to do other tasks requiring human strengths such as emotional intelligence, reasoning, judgment, and interaction with the customer”.

Crucially, automation technology doesn’t in and of itself seek to exclude or replace existing ERP software use for critical knowledge work. Rather it installs “digital workers” who operate almost any type of existing software while tackling progressively complex and sensitive tasks.

Changes to core business systems creates risks at the best of times, and often takes years to generate a ROI. Changes in the midst of workplace disruption would create significant risks and exacerbate employee stresses. According to McKinsey however, two major benefits of the simplest form of automation, RPA, is it’s ease of deployment and a return on investment that varies between 30 and as much as 200 percent in the first year.

Organisational effectiveness as strategy

Despite spending two decades following a classic organisational efficiency strategy, thanks to technology traps and platform proliferation, media agencies may actually be very inefficient indeed.

A key measure of automation performance is the number and value of employee hours returned to the business. In fact a first step of any technology strategy is to fully understand how time is spent, what activities are valuable, and what waste is avoidable.

In some agency back office roles, Exact A.I. has found more than eighty percent of task hours can be returned to the business. Surprisingly, in some “strategic” middle office agency roles more than fifty percent of task hours can similarly be returned.

Media agencies are now faced with a choice of technology strategies. They can follow the legacy strategy of the 1990s and use automation and other technology to maintain current client service levels while reducing costs, or use technology to increase organisational effectiveness.

For agencies whose remuneration is concentrated on outcomes, or whose employee costs may have risen, the former offers a clear boost to the bottom line. Alternatively, agencies can focus on reinvesting these saved hours into business capacity for over-servicing their clients, piloting new services or truly creating space for innovation.

There are striking examples of the value of having relatively unstructured, unpressured time to create and develop new ideas. Scientists working at AT&T’s legendary Bell Labs worked under a corporate philosophy that big ideas take time, were given ample time to think creatively. Bell labs produced world-changing inventions such as transistors and the laser, and this ingenuity won several Nobel prizes.

The agency of the future – agile, inventive and efficient with data at the core and delivering bespoke context at scale – could be transformative for media and marketing. So, although media agency holding group bosses are not tasked with changing the whole world, a technology strategy that unleashes employee potential might just allow them to substantially change theirs.

Are your marketing technology solutions under-delivering on the promised results? Not sure what to do about it? Find out how we can help here

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Shane is Chief Product and Transformation Officer at Exact A.I., building intelligent automation systems that help companies unleash their human potential. Over 20 years, he has held senior commercial, strategy and technology leadership roles in media companies, tech companies and agencies, with a single-minded determination to help teams become more agile, connected and effective.

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