It is interesting to see how the advertising industry has reacted to the recent acquisition play of the management consultant firms like Accenture and PwC. Some people embrace the trend while others are sceptical as to the efficacy of the strategy.
Will Accenture be able to leverage the value of their investment in Karmarama and Monkeys on opposite sides of the world? Or will what is seen as fundamental cultural differences cause it to fail? Time will tell.
Other management consultant firms are not acquiring these skills through acquisition, but are building them in-house such as Deloitte and their digital practice, PwC and even KPMG.
Likewise, we are seeing many of the agencies, particularly IPG MediaBrands, now offering technology and digital consulting services as part of their media offering, and creative shops Ogilvy and M&C Saatchi now have business consulting offerings, too.
But as Michael Farmer recently pointed out there is a fundamental difference in the approach between advertising agencies and management consultants when it comes to fees. To paraphrase Michael’s point, management consultants focus on improving bottom line results and charge accordingly, while agencies are focused on improving marketing and brand metrics such as awareness and desirability, which is valued less by marketers and their organisations.
There are important lessons that agencies can learn from consultancies in how to value work if they want to compete more in the consultancy space.
Pricing yourself into profit
A recent conversation with a board adviser for a company going through an M&A was enlightening in regards to the role of the management consultant firm.
The consultants were providing board and management advice on the process, including legal, financial and accounting advice in a major merger. But at a critical point in the process, a question arose about the brands of each of the merging companies and the best strategy to either rationalise or manage a larger portfolio of complimentary, but potentially duplicated brands and services post-merger.
The management consultants immediately offered to provide this advice and proposed a full review of the brand portfolio with recommendations on the best strategy for the merged brand portfolio. The work would need to be delivered within 2-3 weeks and the consultants did not blink when they tabled a $670,000 fee for the work.
The board adviser, well versed in brand and marketing, asked which team would be delivering the project and was told it would be led by a director of marketing and brand, a new capability for the firm. A quick check of LinkedIn showed the project lead was previously an account director at one of the big multinational agency networks with 15 years' experience before joining the management consulting firm.
While the board was ready to approve the proposal on the spot, after all the cost was a fraction of the total fees charged to date for the merger work, the board adviser thought it worth providing an alternative for consideration. They approached one of the major agencies in the market that was well regarded for brand and communications strategy and not rostered to either of the companies merging.
They briefed the agency on the task and asked the agency to provide a proposal. The agency CEO immediately, without thinking, offered to the do work for free if they would then be appointed to handle the advertising account of the new merged entity.
The board adviser explained that the companies had agencies and that if this changed post merger then the appropriate tender process would be undertaken and that the agency could be considered then.
So they asked the CEO again for a proposal. The CEO and his CFO started throwing names and hours around for the three weeks of work and came up with a figure for the project, sheepishly asking for $75,000.
The board adviser was shocked at how low the price was, but before they could offer feedback the agency CEO misread their reaction and discounted it even further to $60,000. Realising the mistaken interpretation they decided to let the agency off the hook and began to explain the situation.
Let’s just say the agency did not get the project, but one of the specialist brand strategy agencies did for less than half the price of the management consultants.
Don't give away your value
Similarly, a few years back a management consulting firm was working with a retailer to explore possible specialist retail concepts, including world trends, market size and potential, projected sales and investment levels and the like.
They had identified four different specialist retail categories but did not have the capabilities to develop the brands and concepts for these. They approached one of the major multinational agency brands in the local market, explained the work they were doing and enquired if the agency would be interested in partnering with them to approach the client with a proposal to develop the brand and communications for strategy and concept for each of the identified categories.
The agency CEO decided that they would do the work for free on the basis that if any of the concepts were approved and the concept progressed then the agency would be awarded the advertising account. The management consultant and their client readily agreed. Possibly they agreed too readily.
The agency proceeded to work with the management consultants to take the analysis and data they had collected and to develop brands and communication strategies for each of the four identified specialist retail categories. The work included not just developing the brand strategy, but also the brand identity work and a full launch communication strategy and execution. It was four massive pieces of work all completed over a 12-week period.
The agency presented to the client, which included senior management and board representatives and was enthusiastically received. The management consultants were very complimentary and passed on their client’s appreciation for all the work the agency had done. Then the agency waited.
If an agency thinks waiting for the results of a pitch is onerous, then this was much worse. Six months of monthly calls to the management consultant before finally being told that none of the four specialist concepts would be progressing.
As a consolation to the agency, the partner of the management consulting firm who was overseeing the project took the agency CEO, Executive Creative Director and Head of Strategy to lunch at one of the top restaurants in the city.
Here over wagu steaks and Chateau Margaux the partner explained how they could not believe that the agency would effectively give away what they had valued as more than $1.6 million in consulting fees and intellectual property value for nothing. The chances of any of the concepts getting up was slim at best and even then new retail concepts or businesses have a significantly high failure rate. Think Masters.
Darren Woolley is the founder of global marketing management consultants, TrinityP3. This post first appeared on the TrinityP3 blog.