Are You Running a Factory or Cultivating a Garden?

Advertising agencies are facing competition from every dimension and direction. Upstream, they complete with marketing consultancies and brand strategy firms who seek to provide planning and strategy services to marketers. Downstream are production companies, independent freelancers, and even media companies who now aim to not just sell media but produce content.

Traditional agencies are arguably in the worst place of all – right in the middle. On the one hand, they’re expected to be high-value conceptual problem solvers and on the other hand offer low-cost production services. The cost structures of these two extremes are vastly different, yet most agencies attempt to continue to support an “under one roof” operation.

So today we see the emergence of two distinctly different types of agencies. One cultivates conceptual, strategic problem solving: a garden. The other offers cost-effective production, execution, and distribution: a factory.

Good, fast, or cheap?

This model is playing out on a global stage. In agency holding companies like WPP, “factory” work is handled expertly by agencies like Hogarth. IPG has Craft. Much of the production and execution work at Publicis is done by Prodigious. Independent agency ICP calls itself “the first-ever company to offer global brand owners the opportunity to de-couple advertising production from creative agencies.”

Factory work requires expert administration, organization, and efficiency, whereas garden work is characterized by innovation, creativity, and experimentation. So it better to run a factory or a garden?

That’s a fairly meaningless question. Both have different reasons for being and both are equally important. In fact, the “factories” referred to here are astoundingly good at what they do. You’ve no doubt heard the old adage about telling a customer “You can have this good, fast, or cheap: pick any two.” Production agencies like Tag actually give you all three.

Production services company or professional services firm?

If you staff and manage your agency as a though you’re a professional services firm but your revenues come from mostly from production services, you have a recipe for a low-margin business. The solution is not raising prices on your execution/implementation business. In a mature market like production services, you have to have the cost structure, staffing, systems, and technology to deliver these services faster and less expensively than the traditional agency. This is the business model of the factory, and it’s why the companies who are optimized for production, translation, and distribution are so good at what they do.

Most modern marketers are consciously separating ideation work from implementation work. This “decoupling” phenomenon is happening in all professional services business. In law, “garden” services are still provided by expensive firms in expensive cities, but “factory” services like discovery work and contract review are being done by lower-cost talent in lower-cost geographies. Accounting, architecture, and IT services are all being decoupled in the same way, due to the same dynamics.

The unfortunate response by many firms is to fight mightily to continue to provide their clients with both types of services, which they proudly point out they can do as a “full-service firm.” Worse, many of these firms bundle these offerings together with a blended hourly rate, which is the absolute worst solution because it makes the “factory” work much too expensive and the “garden” work not expensive enough. (Not to mention the perniciousness of hourly billing in general, but that’s a subject we’ll leave to other articles.)

Not just a cloud, but a silver lining

From the perspective of marketing communications firms, the practice of decoupling ideation from implementation is transforming the global advertising marketplace. It’s easy to see why marketers feel this benefits them, but can it benefit agencies? The answer is undeniably yes, because now even a small “garden” agency can work for global brands, given that many of these brands now have a separate relationship with a “factory” that can provide the required versioning, translations, and worldwide distribution of marketing materials.

The client view is that advertising production services can be “procured” using the same methods and procedures as other basic services, because most production work is standardized, repeatable, and widely available. They often try (much to agencies’ dismay) to apply the same processes to buying “garden” work, which by definition is not standardized. As my consultant friends Gerry Preece and Russel Wohlwerth point out in their book “Buying Less for Less,” you can write specs for marketing production but not for marketing innovation.