by Tim Williams
If you’ve ever watched an episode of the television series Mad Men, you have no doubt noticed that advertising executive Don Draper and his colleagues were quite well paid. They worked in large, well-appointed offices and entertained the clients with lavish dinners. While the narrative behind this Emmy Award winning show is fictional, the story it tells about the nature of the agency business in the 1960s is true to life.
That’s because most agencies in the Golden Age of Advertising were very healthy, profitable businesses.
Agencies back then earned their money via commissions on media and production. They were motivated to produce effective work because they knew if their campaigns helped sell more products, their clients would be compelled to spend more in advertising. The resulting relationship was win-win; a virtuous circle in which both parties were invested in a brand’s success.
A step backwards
When agencies decided to move away from the commission system and adopt the same time-based billing system used by law firms, they unhooked this alignment of economic incentives. Today, instead of obsessing about a brand’s success metrics, most agencies are preoccupied with recording, tracking, and billing their time.
Instead of having conversations about how to increase marketing effectiveness, brands and agencies are discussing how to decrease agency hours. Ultimately this benefits neither party, producing a vicious cycle in which a reduction in fees (without a reduction in scope) necessitates a reduction in agency talent, which leads to a reduction in marketing effectiveness. Agency executive Jon Bond calls this decades-long trend "The 25-year death spiral."
With pressure to do the same work for less money, agencies replace senior talent with junior talent, resulting in a workforce that is significantly younger and less experienced than 10 years ago. With procurement breathing down their necks to reduce hours and hourly rates, agencies now lack the financial resources to train an increasingly unseasoned staff. They pack their people into increasingly crowded open-office work environments and assign workloads that result in many agency people working at over 100% of capacity.
No doubt the global business community is in a cost-cutting mode; brand growth has been stagnant for well over a decade. But reigniting brand growth won’t happen by “juniorizing” the talent base of the agency partners that can help make this happen.
What you measure is what you’ll get
Brand transformation is fueled by innovation, not cost savings. Marketers today are asking their agencies to do more work, when they should be asking for better work. What's needed is an increase in imaginative solutions to marketing problems, not a decrease in marketing spend.
No company ever saved its way to success.
Brands desperately need the kind of inventive thinking that results from agency professionals who are paid to be effective, not efficient. It’s no coincidence that some of the most effective firms on the planet are those that get paid in ways that have nothing to do with billing for time.
The behavioral economist Dan Ariely observes “Human beings adjust behavior based on the metrics they’re held against. Anything you measure will impel a person to optimize his score on that metric. What you measure is what you’ll get.” If you run an agency — or pay one for marketing services — consider the price of perpetuating a time-based billing system. It produces a heads-down, fill-the-order, nose-to-the-grindstone, "utilization" mentality, which is the opposite of what agency professionals are hired to do in the first place: employ creativity, artistry, and originality to help solve complex marketing and business challenges.