There is a common misconception that big agencies are slow and do not innovate. This could not be further from the truth.
Today, large agency networks employ a wide variety of specialists and they can compete with any specialized agency.
In fact, network agencies have access to the latest tools and most advanced technologies on the market. The proliferation of brand safety and verification tools has been almost entirely thanks to network agencies. Network agencies have been a major proponent of programmatic advertising, which is one of the few ways in which publishers can compete with Facebook and Google.
Economies of Scale
Anyone who has ever stepped foot in an Economics 101 class knows that economies of scale create a clear and tangible value for consumers and companies alike.
Amazon’s fleet of 80 airplanes, 6 regional airport hubs and 175 fulfillment centers give the online retailer the capabilities to deliver goods faster than any other competitor.
Not far from Amazon there’s Walmart who can exert tremendous pressure on their vendors and demand massive discounts.
For example, when Kevin O’Leary first met with Walmart, The Learning Company was selling their software for $99. Mr. O’Leary was ready to sell it to Walmart for $89. However, once the meeting was, over Walmart had negotiated a bulk price of $14 per unit and ordered a staggering 12,000,000 units.
Theoretically, economies of scale should apply to media agencies, and in many ways they do.
For example, agency networks can negotiate better deals with companies like Google, IAS, Salesforce and hundreds of other technology or media vendors. A client working with a network agency can pay up to 50% less in DSP fees for Google DV360 than if they work through an authorized Google reseller.
Agencies that are part of a network have access to some of the most advanced technology vendors, services and products on the market. Whether you need a social media listening tool or a comprehensive ecommerce attribution platform, a network agency is very likely to know how to get it.
Employees who coordinate individual markets have nerves of steel. They ensure that clients have a unified and consistent snapshot of their advertising activities across all markets. They distribute tasks to local agencies in clear terms and make sure that everyone meets the client’s deadlines. All this is no small feat.
Networks are also great at helping agencies improve their expertise and digital thought leadership.
Often the regional or central hubs prepare POV documents about important trends, pressing issues or new technologies. Some hubs even hold weekly Zoom meetings that are meant for local agencies to share topics or ask questions that are relevant to a specific client. There are training sessions when a new tool is being deployed across all markets.
Some clients may even get a Google senior researcher assigned to work on their projects.
The disadvantages of economies of scale
As organizations grow larger and their employee headcount increases, communication and coordination become more difficult.
It becomes harder to effectively monitor productivity and evaluate the efficiency of certain workflows. Poor coordination can inadvertently lead to duplication of tasks. The most prevalent example of this is the amount of administrative work and reporting that becomes necessary to satisfy the requirements of different departments and supervisors.
Even companies such as Facebook are not immune to this and it’s not uncommon for two teams to be working on the same tasks without anyone realizing it.
Discrepancies and disruptions
The fundamental challenge of working within a network structure is that central teams have a limited understanding of the conditions in each market. This is especially true when it comes to smaller EMEA markets.
Usually mandates are passed top-down and the central agency teams who act as coordinators do not solicit input from all markets before drafting their client strategy. To some degree this is understandable as the network wants to showcase a unified global strategy.
However, once we begin to deploy the global strategy across markets, we see discrepancies between what is mandated and what is possible.
For example, in 2017 we were tasked to shift 70% of a client’s budget to programmatic. But doing so would have invalidated several existing contracts between the local client and local vendors. This disruption caused delays and hundreds of hours of additional work for the agency that did not produce any value for the client.
These discrepancies do not arise only with smaller markets. I’ve seen it happen with major markets as well.
A better approach would be for the central agency teams to have an open and honest conversation with each individual market prior to working on the global strategy. This way both parties can talk about their objectives and respective challenges that they face.
This will also give central teams not just an idea about the realities of each market but also create opportunities for new and creative ideas to spring up from these conversations.
Reporting can be a nightmare
The second fundamental challenge is the amount of reporting that agencies have to do.
To put things in perspective, local agencies often have to report to the local client, the agency regional hub and the central agency team. Every stakeholder in the process has a different set of templates and requirements. Often there are ad hoc requests that require almost the same data but in completely different formats.
Naturally, this begs the question of why can’t all this information be fed into a single source and to be accessible to various stakeholders at the local, regional and central level? The answer is that there are such cases but, in our experience, the number of reports does not diminish.
For example, a number of clients use centralized reporting systems, yet require the same amount of both schedule and ad hoc reports.
Imagine how much more productivity you can get from an agency if they are not bogged down in Excel reports.
A better way is to create a set of reporting templates that all stakeholders agree to use. It would be more productive to automate short term reports and spend more time engaging with the client and discuss insights and opportunities.
Final Thoughts
Although this article covered several disadvantages of the network agency model, we can firmly say that it has had a net positive impact on the marketing and advertising industry. In other words, the network agency model brings more value to clients than the fragmented patchwork model that existed before the 1980s and before the advent of major networks like OMD, WPP, IPG and others.
However, network agencies must become faster and leaner organizations in order to adapt to the economic turmoil that we will continue to experience in the long-term future.
Bonus video:
