Consultants are eating the agencies' three-martini lunch

Many management consulting firms and technology companies are creating advertising agencies, mostly through the acquisition of agencies that have capabilities in user experiences, digital marketing, design, web and mobile.

In the past few years, management consulting firms are ramping up their creative expertise as they are expanding the traditional set of agencies competing for marketing dollars, challenging giants like WPP, Publicis and Omnicom.

According to Ad Age magazine, 8 of the top-10, and indeed, all the top 3 ad agencies are not those legacy names that might visit your home nightly with their TV commercials. Instead, they are consultancies like Deloitte, Accenture, KPMG and PwC!

Even McKinsey is slowly building an agency arm; and tech companies like Adobe, Oracle and Epsilon have added a service component in the form of an agency to their core product offering.

While the holding companies have slowed down their M&A activity of yesteryear, the consulting firms are engaged in vigorous acquisitions. In 2015 and 2016 alone, Accenture has acquired 40 marketing firms while Deloitte has acquired the full-service advertising agency Heat. This is the latest in a series of investments for Deloitte, and results in what it refers to as “the world’s first creative digital consultancy.”

Within a single week in July 2016, IBM acquired three online ad agencies. Its digital agency unit, IBM iX, has over 10,000 employees and 1,000 designers in 25 offices worldwide, becoming the world’s largest digital agency.

IBM is moving aggressively because it recognizes a broader trend in the marketplace that favours e-commerce and digital management as it transitions from legacy hardware and services into a cloud computing company centred round its Watson analytics. IBM iX was further bolstered by the acquisition of The Weather Company and even bought a video streaming service.

The disruption created by the digital revolution inspires marketers to seek a different engagement model with customers, to introduce new services and experiences powered by technology, and to transform their marketing operations.

The changing business landscape means marketers are demanding scale and business partners that can provide IT skills across everything from data to analytics to customer service. The rise of marketing clouds, and mobile, shifts the way many CMOs are now approaching marketing and how they view their communications partners.

At the same time the squeeze on margins has led many agencies to resort to a flawed approach: they push the work to the lowest paid tier of their staff. The result is that agency services are not aligned with client needs.

I have written, many times in the past, that just doing ideation and acting as creative vendors is not enough. If you want to have an impact you need to own the high-level business strategy, something that ad agencies have completely abdicated, as explained in one of my previous articles, Agencies can’t deliver strategy!  The management consultancies deliver on those high-level strategy needs, as well as creative solutions and campaign analytics.

I wouldn’t call where we are now the death of large legacy agencies just yet, but there is certainly a death of the legacy agency thinking. Consultancies are inspired by the shift toward the centrality of user experience: The time between consumption of a brand story through mass media to the actual experiencing of the brand has shrunk to a single click.

There’s tremendous pressure to create authentic experiences, therefore, the opportunities for erstwhile system integrators to augment capabilities and get into the CMO consideration set.

It is not difficult to understand what is attracting management consultants into marketing services: By 2017, Gartner, the technology research company, estimates that the largest portion of a company’s IT spend will be controlled by the CMO instead of the CIO, from data and analytics to front and back-end IT spend. The management consultancies see the future of technology spend coming from the CMO. This is what they are after.

The management consultants are very good at upselling. They already have C-suite access, and their upscale perception has much to do with taking the place of agencies as advisors to the CEO.

In a fast-moving and often commoditised environment, the focus is on reinventing products and businesses. That is something that management consultants have historically been good at, while ad agencies have largely been focused on marketing communications, and have been less responsible for building experiences in things like e-commerce and less involved in revenue generation.

Ad agencies have a history of partnerships with marketers, and a legacy of work. But management consultants and tech firms are catching up. They recruit top notch creative talent, and close the gap rapidly through acquisitions. This is what would make it tougher for ad agencies to compete in the next dispensation.

By Avi Dan, CEO of Avidan Strategies.

Additional reports by ‘Dele Dele-Olukoju, Marketing Communication strategist, and publisher of the online Marketing Communication Digest. He writes from Lagos, Nigeria.