Paul Jacobson

Digital agencies are dying and they don't realise it

Diabetic agencies are everywhere
Diabetic agencies are everywhere

I’ve had this recurring thought that the current digital agency model is ripe for disruption and they won’t see it coming when it does. Part of the reason is agency owners’ and managers’ myopia and an insular feedback loop that continually reinforces their perception of their services model as complete.

Much of my thinking is based on my strategy model. Strategy is an interesting discipline, I find it fascinating. I have no training and I am still learning as much as I can but, for now, my strategy model is an assessment of where a client is now and where it wants to get to (and what that next step looks like?). My model assumes that a client intends reaching a point where it is effectively managing the risks it faces given the nature of its business and its objectives. It a client intends being a sustainable business, sustainability implies managing legal, compliance and other risks effectively.

“Here” may be a precarious place for a client. “There” is a better platform for growth and innovation built on lessons learned and smarter risk management.

The current model is incomplete

The current model is typically a variation of a digital communications and development business that focuses on building engagement with consumers using social media channels. Strategic planning tends to be focused on identifying consumers to reach out to and then selecting platforms and content which the strategists feel are most enticing. Developers and designers build out the engagement interfaces and the community managers dive in and stimulate community engagement. So far so good.

Why is this incomplete? Essentially, the model is incomplete because it completely ignores the mammoth in the room: growing and increasingly complex risk that goes far beyond a hashtag storm over a weekend before blowing over. Deloitte recently published a report highlighting how seriously corporates take reputational risk. This is not a new threat.

Financial services firms already counted reputation as their greatest risk area in 2010, and continue to do so today. In the energy sector, however, reputation risk wasn’t even in the top five three years ago, while it now ranks first thanks to headlines about hydro-fracking and oil spills. Likewise, reputation risk has risen as a leading concern among life sciences and health care companies due to health care reform initiatives in the US and the focus on soaring drug and treatment costs.

When a digital agency tackles reputational risk it is often a crisis communications response and is focused on taking the backlash offline or otherwise trying to defuse it as it plays out. Agencies may even pre-empty consumer backlash by anticipating how consumers may respond to issues but agencies can only manage risks they understand.

For all their expertise (or perceived expertise), that hairy mammoth has a distinct legal and compliance odour and it may as well be garlic to a vampire as far as digital agencies are concerned. The vast majority of agencies have hopelessly inadequate legal frameworks in place to protect themselves from common legal risks and when it comes to basic protections for their clients, it is like watching a car accident happening on the highway. You can see it happening and you can see the carnage about to occur and all you can do is wait for it to be over. This sounds like an exaggeration (especially if you are in an agency bubble) but the reality is that we just don’t know how bad it could be when (not if) it all goes bang.

To make matters worse, most agencies today lack the conceptual models to even recognise most of these potentially extinction level events because they habitually dismiss most things “Legal” and “Compliance” as rendered redundant through their mastery of the social Web (although I think it is partly because they just haven’t made an effort to understand the issues).

Bottom line: the current agency model is incomplete and through a lack of awareness of how incomplete it is, digital agencies are exposing themselves and their clients to largely avoidable risks on a daily basis.

What is next?

Risk-aware agencies are beginning to emerge and they are going to disrupt existing digital agencies fairly profoundly. The risk-aware agency integrates a deeper understanding of a broader range of risks into its very foundations and that isn’t something current digital agencies can emulate without dramatically retooling themselves. An example of this next generation agency model is Deloitte Digital which I’ve been watching for a while now. It hasn’t proven itself as the disruptor it could become but it has the potential to sweep many of the incumbents aside as more and more businesses become aware of the very real risks facing them as they shift more and more of their engagement online.

Why Deloitte Digital? Because although it is a free standing business unit, it falls within the broader Deloitte group which includes a wide range of cross-functional teams who routinely identify and tackle operational, financial, organisational and legal/compliance risks. Given that their clients are some of the largest corporates in the country, Deloitte is nicely positioned to provide a sort of one stop shop for its clients’ requirements. What it (and other consulting firms) has lacked until recently is a sufficiently skilled business unit to tackle digital risks and Deloitte Digital is just such a business unit, at least in theory.

Of course it isn’t just about legal and compliance risk (those are the glaring omissions for most digital agencies). Businesses need a much more holistic approach to their risk and compliance profiles. Lacking a privacy policy framework to support a highly personalised and data-rich service for customers is one thing but if, for example, an organisation lacks the business processes and systems to support more effective (and compliant) data management practices, a privacy policy is just a piece of paper.

Whether Deloitte Digital will succeed in disrupting established digital agencies will depend on its team’s skills and the extent to which it meaningfully integrates with the broader Deloitte group and can draw on relevant expertise. A risk-aware agency like Deloitte Digital has a far clearer view of its clients’ risks because a big part of its DNA has evolved through a broader risk advisory and consulting business. It isn’t confused by legal and compliance requirements and it isn’t a stranger to digital strategy. If Deloitte Digital fails to change the market it will be due to inadequate leadership, vision and integration with the broader Deloitte group not because the necessary components are absent.

Deloitte Digital is just one option. More may be on their way although, at this point, I haven’t seen any other risk-aware and effectively integrated agencies on the horizon so, for now, current digital agencies hold sway over the market and continue to sell their services without much thought to the more fundamental risks their clients face. They continue like this because they have been lucky so far.

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Comments

  1. Philani Mdingi avatar
    Philani Mdingi

    Me thinks this article is sure to cause a stir in some circles.

    Reply
    1. Paul avatar
      Paul

      I hope so. It is a debate that is long overdue.

      Reply
  2. The digital agency model is dying, but no one in the space can see it | memeburn

    […] article by Paul Jacobson originally appeared on Pauljacobson.org and is republished with […]

    Reply
  3. Andy Gilder avatar
    Andy Gilder

    Hey Paul, cool article – some great points that we in the digital agency space need to take on board – you’re spot on with a lot of this.

    However, I’d like to suggest that you may be guilty of some insular thinking of your own. Without question, most digital agencies are ill equipped to deal with the genuine fallout between brand and consumer when things go truly south, but I think that calling this the beginning of the end for digital agencies ignores one of the main reasons businesses like Deloitte Digital, for now, are still not the first choice of agency for many brands – creativity.

    In my experience in working with some pretty sharp brands, they turn to agencies (whether digital or otherwise) to bring a mix of creative and innovative thinking to the table to help them connect with customers, not really looking for someone to help with negative sentiment fallout when things go wrong. In the digital space, this will often manifest itself as a strategy based on correct channel + half decent execution = a level of success, but the step you seem to be skipping is the bit where the creative thinkers in the agency were able to take a brand promise/set of values/boring marketer’s flipchart and turn it into something that cuts through clutter/identifies with the consumer/ does all the cool stuff that we ad folk love to reward ourselves with awards for. This is the kind of work an agency, whether digital of not, should be primarily focussed on – its what agency people have that sets them apart. The reputation management is often a result of trying to bundle the resources and investment from the business and, as you say, often needs a better solution than a junior agency intern armed with an escalation policy.

    I think your points around reputation management and agencies being ill equipped to truly understand them is valid, but I feel you’re limiting your assessment of what agencies do to the level of reputation management or social media work, whereas a great agency is far more concerned with business objectives like driving sales/ building brand and creating kick-ass consumer touch points to build love for the brand.

    Perhaps I was thrown when I read the heading and didn’t want to admit that I need to start applying for a new job, but I think that to say digital agencies are going to die because we don’t understand the legal ramifications of truly managing brand reputation is as limited as saying that Deloitte Digital has no future because it “doesn’t do creative” There is room for both kinds of agencies in the cluttered digital space. At least, I sincerely hope so, given its how I put food on the table.

    p.s. for what its worth, I also think firms like Deloitte Digital are going to be the biggest threat to digital agencies in the next 5 years.

    Reply
    1. Paul avatar
      Paul

      Hi Andy

      Thanks for your feedback. I agree that creativity is a big reason why brands go to agencies and if agencies just promoted their creative departments then their clients know to expect creative input and to source risk-based solutions elsewhere.

      The agencies I had in mind when I wrote my post are the agencies that sell strategy as a component of their services but that strategy work totally ignores a huge risk profile because they either don’t see the value of incorporating it as part of their analysis or because they don’t understand it and, essentially, ignore it.

      These are not reasons not to include this component. I think I understand the reasons why agencies tend to ignore legal functions (or treat them like that mouldy container in the back of the fridge) and lawyers are partly to blame because, as a profession, we are not exactly user friendly. That said, there are better ways to bring the two together and (here is my little pitch) I have been working on models for doing this for a couple years now culminating in my current approach to this problem.

      My solutions are not necessarily the only ones. My point is more that the social/digital space is dynamic and presents different challenges. They still face many of the same risks other businesses do and, in some cases, even more given a strong consumer focus. What this means is that they also need to address a range of legal and compliance risks, in addition to reputation and other factors which strategists do consider.

      Reply

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