Why Growth Is Killing Digital Agencies

Three Steps Agencies Can Take to Survive the Operations Crisis

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The brave new world of digital is prompting agencies to be more things to clients. They have to, because marketing is so much more than advertising communications now. It's data mining for unprecedented customer understanding; creating a series of products and experiences; and tying results together by applying a microscope to the whole endeavor.

These escalating digital demands for innovation, creativity and speed are at odds with an agency growth model that's predicated on traditional management techniques. The result -- there's an operations crisis brewing in the digital agency world.

It's evident in a divide on what matters most -- clients prioritizing product and service innovation more than agencies think they do, according to the 2014 report from SoDA, a global network of agency top executives.

And it's evident in the growing number of clients leaving agencies, taking critical functions inhouse, and eschewing long-term relationships for short-term projects. Clients cite performance gaps or outgrowing an agency's capabilities, but it's deeper than that. The classic growth model blocks many agencies' ability to innovate at the depth and breadth that clients now demand.

The problem is management. The more an agency grows and the more it tries to be and do, the more managers it appoints. And the more they cost. That's what happens in the traditional (top-down) managerial model. Whereas startup agencies may have one person, if any, managing a 12-person operation, by the time the agency reaches 100 people there's usually one manager for every three employees. This creates three things that are stunting, if not crippling, many agencies: increased layers between the client and the teams, a resultant growth in the number of meetings, and increased frequency of interruptions.

Digital agencies are not like classic businesses. They are much more like sports teams and university faculties. The talent is concentrated at the middle to lower parts of the organization, with the people who actually deliver the goods. Those people are extremely talented knowledge workers. Behavioral scientist Mihaly Csikszentmihalyi labeled them "autotelic" personalities. They're motivated not by money or status, but by intrinsically rewarding activities, which explains why they'll put up with the craziness involved in launching a great campaign. But they need to achieve what Csikszentmihalyi calls the "flow state" to create the great work their agencies get hired for.

And management, by nature, interrupts the flow. Moreover, managerial types cause division by nature. They revel in rapid context-switching and multitasking, even though that's less productive than focus. Their speed allows them to mark their territory as alphas, but it leaves everyone else behind. When exposed to the same switching and multitasking, knowledge workers performing complex work lose both speed and quality, while frequently interrupted by "out-of-context" information.

The result: Through no fault of their own, agency people can easily spend 50% or more of their day fending off interruptions. You hear it when people say, "The only time I can get any real work done is after everyone leaves and the meetings stop."

Because talent's connection is personal -- to each other and to the client -- employees get disenfranchised when they have to go through layers of management. They're being forced to do their work through middlemen who have neither the skills nor the understanding that they do.

Agencies lose accounts when they stop doing the thing that got them hired -- developing great ideas and executions. In most cases, management has gotten in the way of winning.

To solve the operations crisis, agencies need to learn a new way to work and manage. Here are three steps they can take:

1. Create smaller teams that know everything that's going on around the work and business of the account.

2. Eliminate client confusion by slowing down, so everyone always knows what's happening on an account and why.

3. Empower teams to set their own directions and priorities, because they're smarter on the accounts than their managers are, and they're intrinsically motivated to do great work.

Management needs to abandon the traditional roles of gatekeeper, director and allocator in favor of letting teams own the work and run themselves. To managers, this may seem like chaos, but it actually provides clarity and power. It brings everyone together in a way that typically only happens during the pitch process.

Agencies know how to innovate and win. That's how they get business. The key to growing without self-sabotaging is to clear the way to be that team every day.

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