How innovation is maturing, creating new kinds of firms that disrupt the professional services market

This a version of a talk I gave at Google Firestarters — a forum for agency strategists — one of four provocations on ‘how the innovation landscape is changing, and how agencies and consultancies are adapting’.

I’ll argue that innovation practice is maturing, moving from the edge to the core of businesses. But that legacy agencies and consultancies aren’t adapting to this; in fact this evolution is exposing that they have the wrong structure, business model and culture for the modern era. Which is creating an opportunity for new kinds of firms created around new clients needs in this new era.

I’m going to use one business, ING, to illustrate how innovation is progressing.

Innovation started off experimenting with new technology to do old things. For example using AI and VR to make novelty marketing communications.

This is an actually lovely example by ING — a new painting created from historical Rembrandt data. But at its worse this kind of innovation can be manifest as a self-styled maverick flying a drone around reception while wearing red trousers.

This kind of innovation happens off at the edge, in a lab, or is outsourced to an agency, and so has very little impact on the rest of the organisation.

And so innovation has progressed to be about creating useful, strategic new things. New products and services that forge new kinds of relationships with new kinds of customers.

INGs app Yolt is, according to our product team’s audit of the market, the best money manager out there, beating lots of VC-backed startup competition.

But something this useful just can’t happen in a lab, or be outsourced to an agency or consultancy. The new thing needs to hook into the old thing too much. You can’t just ignore legal compliance, for example. So it requires a small cross disciplinary team to be formed, that is empowered to bridge silos and shortcut bureaucracy.

For a business to become innovative enough to keep pace with fast changing customer needs though requires the whole organisation to transform — to change how it organises work and what its values and culture are. This is why ING have adapted Spotify’s Squads, Chapters Tribes and Guilds to do Agile at scale across their whole 3,500 person head office.

So they’re now operating up where the most mature and serious innovation practitioners are. Not focusing on doing things, as much as focusing on changing how things are done.

But how is this maturation of innovation disrupting the professional services market?

To answer that we have to start here: Agencies and consultancies are part of the same ‘advisory’ professional services market. It hasn’t always seemed like that, but recent moves have made it very clear (with, for example, Accenture acquiring 10 agencies in 2017).

This merging and acquiring is happening because the professional services market was disrupted by the internet 20 years ago. Although the big agencies and consultancies only really started to react 5 years ago, and the pain only started being felt strongly over the last year (with, for example, a 42% reduction in WPP’s share price).

As always this disruption is largely self-inflicted, because the incumbents — both agencies and management consultants — had been focussed on maximising their own profits rather than being focussed on their clients’ needs, creating space for new customer-focussed challengers.

To see how this happened, we need to go back to how things used to be in the 1960.

Professional services used to be outcomes led

Agencies used to help clients with growth and retention, and consultancies used to help clients with efficiency and profitability. Both ‘horizontal’, working across the whole business. Both focussed on delivering outcomes.

Agencies used to work on the CEO’s agenda, were valued strategic advisors, and would recommend (and be paid for) the best solutions to drive growth and retention.

The best agencies created ideas that could drive and shape the whole business, not just it’s advertising. Ideas like We Try Harder for Avis (by DDB in 1962) or The World’s Favourite Airline for British Airways (by Saatchi & Saatchi in 1982).

Consultancies also used to work on the CEO’s agenda, were valued strategic advisors, and would recommend (and be paid for) the best solutions to drive efficiency and profit. They created management ideas that drove and shaped the whole business.

But then TV became dominant. For decades TV advertising was so effective at driving growth it became the answer to everything. So agencies stopped offering custom growth ideas and started being TV ad producers. They stopped being a strategic advisor to the CEO and started being an supplier to the Marketing Director.

And then technology became dominant. For decades business believed that the answer to more profitability was simply more technology, and that became the answer to everything. So consultancies stopped being a strategic advisor to the CEO and became a front for selling big technology builds to the IT and Operations Directors.

Because both agencies and consultancies were now doing the same thing over and over they could build a ‘factory’ and drive profits.

The effect of this is that the professional services market re-oriented around verticals. Around delivery channels or around industries. Around outputs, not outcomes.

Professional services became output led

The business model changed from reward for the outcomes of growth or profitability, and became about charging for the time and materials used to create outputs.

But as holding companies or consultancy partners demanded more profit, the temptation to ‘play’ the business model became too great to resist. If you’re being paid for time and materials, then there is an incentive to use as many people as possible, and to take as long as possible to do it. This misaligns agency incentives with client objectives.

And then TV advertising stopped working so well because the internet gave us more engaging new channels, exponentially more content, and better ways to seek out the right products for us.

The startup world saw this, and started building new companies dedicated to creating new, better products for people.

First they made better computery things, like Skype. Then they used computery things to make real world things work better, like Uber. Now they’re using computery ways of working to make new real world things, like the Impossible Burger (that feels and bleeds like meat but is made out of plants).

But, instead of embracing this challenge to create better products, big company CMOs and their agencies instead focused on trying to save advertising, because it’s what they knew how to do.

Here are the 4 ways they tried to save advertising…

By making Procurement the key client, with huge global cross-agency deals like Team Red and Global Team Blue.

By using ‘digital’ as an excuse to massively complicate media buying to create demand for their ‘simplification’ service.

By using innovation ‘baubles’ to distract from the fact that the core is broken.

By making primetime into daytime. (The ads I saw in a break during Ninja Warrior UK at 6:30pm on Saturday on ITV1 were all cheaply-made, discount-led DRTV spots.)

Meanwhile the rest of the enterprise realised the need to improve their products and services to keep pace with rapidly changing customer needs (and to take the fight to new startup competitors).

Consequently the rest of the enterprise has taken responsibility for the bits of marketing the ‘Marketing’ department were too distracted to do: insight, strategy, product, distribution, customer experience.

The management consultancies have recognised this, acquiring agencies to build their ability to design new products, services and experiences. While they’re at it, some of them have also decided to have a pop at the Marketing Department budget, also acquiring creative and media agencies.

So we’re seeing the consultants consolidate verticals, and provide increased connectivity between them (the connectivity that the agency holding groups never really bothered to provide until it was too late).

Legacy professional services firms connecting up outputs

The problem thought is that the Big Consultancies can’t fight their cultural imprinting for BIGNESS! and CONTROL!

“We are… about running, enabling, and managing customer experiences for clients.” - Brian Whipple, Senior Managing Director, Accenture Interactive

They want to design, build, run and OWN! entire customer experiences for clients. Outsourcing, in other words.

But this doesn’t provide anywhere near enough connectivity for real innovation.

Keeping pace with fast changing customer needs requires small, multi-disciplinary teams, empowered to do things ‘live’ and immediately act on feedback. That can’t happen if those teams are sat in a separate business with a commercial model that’s all about timesheets and ‘leverage’.

And real innovation means using the right technology for the job — which these days is often ‘off the shelf’ software-as-a-service. That can’t happen if your ‘partner’ wants to sell you an bespoke tech platform build.

So clients are increasingly looking for a new kind of partner that is digital-native, agile-native, SMALL.

A genuine partner and seamless collaborator, that can augment their multidisciplinary teams, being distributed where needed, on demand. That has a shared interest in being as lean as possible. A new kind of firm that goes ‘back to the future’ in being horizontal and outcome focussed.

New professional services firms go back to being outcomes led

We’re seeing three new categories of outcomes-led professional services firms emerging.

The first is talent platforms, that enable clients to pull together the exact team they want for themselves, on demand.

• Wonder provide great consulting-style research, with no frills
• Catalant help build a ‘flexible bench’ of ex-consulting talent
• Speakeasy do the same with ex-agency talent

The second is outcome-focussed agencies. Like agencies, but focused on outcomes, not outputs, and so aligned with clients’ interests.

• Conversion.com will improve your conversion
• Bullish will accelerate your growth
• Gin Lane will launch a Digital Native Vertical Brand

The third is transformation partners. A new category made of some of the best bits of agencies, consultancies and startups:

• Made By Many drive change by making new products
• Adaptive Lab build beta business
• And KBS Albion work with teams to build a new future for their business

Yes, we’ve been on quite a journey ourselves.

Albion’s evolution into a transformation partner

Albion started life positioned as a ‘digitally-minded advertising agency’. And we did do some digitally-minded advertising. But we also helped Innocent invent their Kids product, helped Skype develop the subscriptions that gave them a business model, helped Betfair work out how to take p2p betting to the mainstream, and helped O2 develop a whole new business, giffgaff.

This kind of business innovation work was always there at the core of Albion. And when we were acquired by MDC Partners in 2014, we were given the opportunity to focus only on this most interesting and future-facing bit of what we did.

What sits beneath all of that is a huge focus on ways of working. We only work in multidisciplinary, blended teams, made of people from across Albion and our clients (and our clients’ other agencies and consultancies, if that’s the right thing to do).

We use the fewest people, working as quickly as possible, to get to an excellent outcome. We work co-located, in dedicated project areas. By working alongside our clients’ teams, sleeves rolled up, we’re building their capability as much as we’re building things.

How new innovation firms disrupt Big Consulting

All of these new categories of professional service firm share some common traits: Startup ways of working; Focus on outcomes (more than outputs); Building client’s capabilities; Aligned interests.

These are essential to create the level of connectivity, agility and collaboration required to do innovation at the highest level — to build business’s capabilities to do new ways of doing new things.

And they are all also barriers to Big Consulting and Big Holding Companies entering this new market, as they are in conflict with their business models and cultures.

(Although, hot of the press, Adaptive Lab have been acquired by CapGemini’s Idean, showing consultancies ate serious about being wherever the professional services market is going.)

So what does this mean for agency planners and strategists?

The apocalyptic view is that the ad agency market — especially the mid-market — is about to collapse, so get out quick!

The more realistic view is that old-school ad agencies will be around for a long time yet. IBM’s mainframe installed base went up 8x in the 2000s — two decades after they were declared ‘dead’?!

More usefully, I think agency strategists should be thinking about which of two clear directions they want to take their career now:

Develop expertise in a vertical craft specialism. We’re working a lot with ‘on demand’ strategists who have deep craft expertise in, for example, VC-style market analysis. They can temporarily fit into one of our multidisciplinary teams and contribute their expertise.

Develop experience in a horizontal outcome. Full time Albionites are expert at doing new things for the first time, and expert at sharing that experience openly. They have the confidence to try bold leaps, but also the kindness to help others do it, and they understand the brutal realities of growing a new business.

To gain that kind of experience you need to take a nonlinear approach to your career. For example lots of the people we’re hiring at the moment have failed to fit in at a variety of different kinds of agencies or consultancies, and have then got 2 years of hard-won experience at a failing startup.

In summary…

Here how I think the innovation landscape is changing.

Innovation is evolving from the ‘labs’ vertical, playing about with fun new technology at Cannes, to a new type of professional services firm, the transformation partner, focussed on the outcome of growth.

If you run a business that wants to build your capability to make innovation real, or you are a strategist or designer with the kind of hard won experience we need, then please get in touch.