Full Service vs. Specialist Ad Agencies: Which is the Right Model?

In the Digital Marketing arena today, clients have two options: small specialist agencies or full service agencies that can provide a holistic, integrated solution.  Ironically, after three decades of spinning off specialist divisions it is the big network agencies that now seem to prefer the full service strategy.

It is a confusing situation for both clients and agencies alike and the uncertainty creates an environment where incompetents and charlatans thrive. (I am amazed at all of the “social media experts” who claim to have 10 years of experience in the field).  However, by understanding the basic underlying forces at work a lot of the confusion can be cleared up.

Integrated vs. Modular Organization

The specialist vs. full service dilemma is a classic case of what business theorists call “integrated vs. modular organization.”  An integrated organization is similar to a full service agency and almost everything is done in-house.  A modular organization structure involves teams of specialists working separately.

Management guru Clayton Christensen (see What is Disruptive Innovation?) specifies three conditions that need to be met for a successful modular organization:

Specifyability: People need to be able to explain exactly what they need.  Terminology must precisely describe what is to be done in a way that is widely understood.

Verifiability: Widely accepted metrics need to be in place so that it’s clear that needs are met and goals are being delivered upon.

Predictability: Things need to work together in a smooth, predictable manner.  Interfaces must be “plug and play.”

The key here is that standards need to be built up before functions can be separated.  If well known and accepted standards don’t exist, an integrated approach is preferable.  Generally speaking, as an industry matures it tends to become more modular.

The Auto Industry

A good example of how it all works is the Auto Industry.  In the early 20^th century, when cars were a new innovation, integration was dominant.  At Ford’s famous River Rouge Complex, metal was stamped and shaped, components produced and cars were assembled all in one place.

It was only later, when standards had been built up, that manufacturers were able to concentrate on building efficiencies in specialist areas.  Today, the big Auto companies mostly design and assemble cars.  A network of hundreds of component companies actually manufactures them.  However, since the interfaces between customers and suppliers are so good, the whole thing works together quite well.

The Evolution of the Advertising Industry

The advertising industry had its golden age in the post war years of the 50’s and 60’s.  The consumer culture was just emerging and there was an enormous demand for people who could build brands.  Advertising legends like David Ogilvy and Leo Burnett rose up to meet that demand.  The industry was new and full service agencies ruled the day.

In the rougher economic times of the 1970’s however, clients began to value price over creativity and the industry was mature enough so that functions could be separated.  Everybody knew how to work with each other.

Independent media agencies found great success by offering greater financial accountability and lower commissions.  After all, they were the lowest paid people in the agencies anyway and now they didn’t have expensive creative people to pay for.  The trend continued and independent PR, Event, Sports Marketing, and BTL agencies became large and growing businesses.

We can now appreciate the delicious irony of the current situation.  The specialist agencies that big network firms spun off are now building full service subsidiaries.  Companies like Zed Digital and Neo@Ogilvy describe themselves as “fully integrated” and propose clients a full service offering, while specialist digital agencies tend to be independent of the networks.

What to Expect

Digital Marketing is moving so fast that the network agencies are too big (and admittedly too slow) to move into emerging areas.  There is an approval process that needs to be followed and often the money is not enough to be attractive to large concerns with big overheads. So the result is a confusing hybrid of full service and specialist approaches.

Small independent players are stepping into the void.  Individuals or small companies can take risks that big companies can not.  They can propose risky new ideas without having to worry about losing a multimillion dollar account.  Many of these small shops won’t make it – some (but certainly not all) are little better than con artists – others will grow and thrive.

Many clients, even large ones, prefer the small specialist agencies for specific promotions when they need expertise in an emerging area.  However, they usually work with a larger agency to integrate their online efforts.

If the past has any predictive value for the future, I would expect that most of these small independent players will either become fully integrated or be acquired by full service agencies.  The lack of standards benefits a full service, proprietary approach.  As digital marketing matures, standards will be built up and different functions can be separated more effectively.

Then, we can start all over again…

– Greg