The future of the agency revisited
Consulting on the Cusp of Innovation, a paper published by Harvard Business Review (HBR), is packed with insight for the future of public relations agencies. The authors Clayton M. Christensen, Dina Wang and Derek van Bever examine the apparent lack of innovation in consulting businesses and the lessons for any business that sells professional services.
Consulting or commodity?
Consulting businesses go through waves of commoditisation. It's a natural part of the life cycle of any market. Over time activities that were once part of a core consulting offer become products as they mature or are disrupted by technology.
News release distribution, media databases, forward feature planning and media monitoring used to be core activities within public relations agencies but are now likely to be outsourced to specialists.
Danny Whatmough, a colleague at Ketchum in the UK, is chair of the PRCA’s digital group and has been leading a project on the future of public relations agencies as part of the PRCA’s The Future of the PR Industry project.
“Our industry has gone through a period of massive disruption. Research the PRCA conducted recently amongst UK practitioners found that while media relations was cited as a key service by the majority of agencies (90%), it was matched by a focus on content creation (81%), social media engagement (89%) and digital activity (79%). This presents a clear image of just how far we’ve come,” he said.
Clients also play their part in commoditising services of course. As knowledge is democratised consulting services fall under the scrutiny of procurement departments. Clients seek to drive down the cost of work that is perceived to have low value.
There is a second much stronger force impacting consulting firms according to HBR. New businesses are emerging with disruptive models to capitalise on the appetite of clients for transparency and value.
This isn't the death knell for traditional consulting businesses, far from it for innovative firms, but it does mean that all businesses need to think about how they ensure that they're fit for purpose for the future.
Consulting models haven't changed in more than 100 years. Clients hire experts from a consultancy on an hourly or project basis to solve problems and then help deliver solutions.
In my view disruption among public relations agencies has been hampered by a lack of transparency, specialist knowledge and - exceptional examples aside - a lack of demonstrable business value. It's the reason agencies are frequently hired on the basis of intangible variables, such as reputation or chemistry.
“It’s time to rip up the rule book and have a blank sheet of paper approach to how agencies should be shaped to ensure they thrive in the years to come. We should be taking direction from the technology start-up scene and, in particular, the lean approach advocated by Eric Ries, creating a ‘sandbox for innovation’ that ensures we have the necessary skills and resources to respond to client demands,” said Whatmough.
HBR cites McKinsey & Company as an example of a professional services firm that began embedding consultants and proprietary analytics in client organisations in 2007. This business model innovation ensures that it stays front of mind and generates a pipeline of future engagements.
HBR suggests that the legal industry is a good example of the disruption that the consulting sector faces. Here a combination of independent analysis and innovative business models is driving change. Start-ups such as Axiom and Lawyers on Demand are using technology to underpin innovative new propositions and streamline processes.
The response of the large firms has been to incubate new models. Freshfields is one such example according to HBR. Last year it started to employ alumni on a temporary basis to manage fluctuations in client demand.
Old dog, new tricks
It's tough for an established business to innovate but not impossible. It requires brave leadership and focus. The HBR paper cites six critical elements under the heading of a checklist for self-disruption.
1. An autonomous business unit – free from parent organisation to move quickly
2. Leaders who come for the relevant "schools of experience" – the right people in the right place. This is likely to require external hires
3. A separate resource allocation process – ring fence investment from the parent organisation to provide focus.
4. Independent sales channels – new business requires a new sales channel for focus.
5. A new profit model – disconnect from the traditional business model.
6. Unwavering commitment from the CEO – focus, backing and direction from leadership.
Future proofing public relations agencies
The public relations market is polarised between small specialist shops with a focused proposition and large firms that provide scale, in terms of geography or an integrated service offer. The middle ground is being squeezed.
Consolidation is inevitable in the mid-market and wherever businesses fail to innovate. The winners, large and small, will always be those agencies that develop with client demands. That sounds bleeding obvious reading this back, but its fact. Too often agencies expect clients to beat a path to their door, rather than vice versa.
Innovation in any market typically starts with smaller clients, not large ones, according to HBR. They are more willing to innovate and take risks. In time the transfer of knowledge and expertise benefits larger clients. Firms that move quickly are able to benefit from the competitive advantage that their skills provide.
“In agencies, there is always a balance to be had between current client demands and future agency vision. The 70/20/10 approach is smart way to ensure innovation is baked in, blending pragmatism with the need to constantly move forwards,” said Whatmough.
Lines are blurring in the marketing and public relations professions. In 2013 a new business pitch for a public relations brief is just as likely to involve an ad agency and a digital agency as it is to rival PR agencies. Smart firms are integrating services and buying-in new skills.
Within a public relations agency that’s research, analytics, creative, and expertise in all forms of media including paid, earned, shared and owned.
Data and analytics are the most significant force for change within public relations agencies. It’s removing the guess work from our business. We can show how our insights are informed by data and predict the response to a campaign. It’s a case of show, rather than tell.
Yet still the public relations industry is resistant to change. Many agencies remain wedded to media relations. HBR believes that this form of denial is commonplace in consulting organisations. It’s part of the process that fuels innovation and creates opportunities for the brave.