Advertising Technology

Agency Operating Systems are the New Battleground

jpych-nextmark260With advertisers’ increasing awareness of the inefficiencies in digital media buying today, your agency’s operating system is becoming a critical factor in winning new business, hiring the best talent, and operating profitably. In today’s highly competitive environment, it can make you or break you.

Real-time bidding technologies have proven that it’s possible to drive transaction timeframes and costs to zero. But only about 20% of advertising budgets are spent using real-time bidding methods. The other 80% is spent using traditional direct buying methods which are notoriously inefficient. According to Neal Mohan, Google’s Vice President of Display Advertising Products, in his opening keynote address at Google’s thinkDoubleClick June 2013 event, “The cost of not having a connected business is costing the [digital advertising] industry $3.6 million dollars per hour.”

Advertisers are now looking at digital media buying overhead and asking their agencies, “Why can’t direct buying be as efficient as real-time buying?”

According to NextMark’s research, a single digital advertising campaign typically requires to 482 hours of work costing more than $40,000 of labor at the media agency, which is passed along with a markup to the advertiser. These “non-working” media dollars amount to 8% of “working” media dollars based on the study’s $500k scenario. This overhead ratio does not surprise anyone. In fact, it’s at the low end of the 8-12% non-working media rule of thumb used today.

What is surprising about this research is the large portion of “grunt work” that comprises the 482 hours. Only 14% of time is spent on strategy, which is the part valued most by advertisers. The remaining 86% of time is spent on planning, implementation, execution, and reporting, which are the parts valued least by advertisers. The reason so much time is spent here is because most agencies rely on inefficient manual processes involving Microsoft Excel, email, shared drives, and sticky notes.

In Media Agencies Plan for the Future, Brian Jacobs says, “Media agencies are in the wrong game. They need to get out of a spiral that has fees reducing, third-party income increasing, and trust eroding. They need to get out of buying and into high-end consulting.”

One way to break out of this death spiral is to automate your grunt work. Your agency’s operating system plays a key role in this automation. Computers are great at finding media programs, tracking inventory, managing RFPs, sending insertion orders, trafficking placements, tracking actuals versus budgets, sending reports, reconciling bills, calculating invoices, and generally grinding out your mundane work.

An efficient operating system will help you win more business.

Advertisers want to minimize non-working media overhead spending to devote most of their advertising budget to working media. A cost advantage will enable you to deliver a higher working media ratio. Even if you win new business based on a differentiation strategy, a cost advantage is important to achieving price proximity with your competitors.

Advertisers are also looking for speed and agility in their agency partners. An efficient agency operating system enables you to respond quickly to your clients needs and to market developments.

An efficient operating system will help you to hire and retain the best people.

High performers won’t tolerate getting bogged down with grunt work. “Rock stars” don’t want to manage an army of drones. They want to lead strategy teams of creative people and to do fulfilling work. By outfitting your team with powerful tools, you’ll gain an advantage in hiring the best people. And they won’t likely jump ship to another agency that forces them back into the dark ages just for a few more bucks.

An efficient agency operating system will help you to operate more profitably.

By shifting your billings from brawny work to brainy work, you increase your revenue per employee and your overall organizational value. You will get the most value from your core asset: your people. And you can afford to reward them for their work. By systematizing the work, you are also creating another valuable organizational asset in process and knowledge.

An efficient agency operating system will give you a sustainable competitive advantage.

Building an efficient agency operating system isn’t easy. It requires an investment and the willingness to take some of your best people away from billable client work. However, it’s an investment that will pay off. With so many other agencies resisting efficiency, you’ve now an opportunity to jump years ahead of your competition and to gain a sustainable competitive advantage. It will help you break free of the death spiral and into a “virtuous circle” of better clients, better people, and better business. As Lisa Donohue, CEO at Starcom USA said at the 2013 4A’s Transformation Summit, “You could argue that operating systems are the new battleground.”

Joe Pych is a contributor to The Makegood and is the Founder and President of NextMark, a company that provides tools for media planning and buying industry.
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