Before the world was flattened by the personal computer and the Internet, most of the services provided by law firms, accounting firms, architectural firms, and even advertising agencies was considered to be highly specialized and valuable.
In the marketing space – the one I know best – marketers were compelled to work through advertising agencies for almost all of their marketing needs because companies lacked the ability, expertise, or internal resources to produce and place their own advertising. Indeed, agencies were valued as much for their specialized equipment (typesetting, photostat cameras, etc.) as their specialized talent. Agencies offered the creation and production of advertising as a bundled service, because both dimensions of their output – ideation and execution – were equally needed and equally valued.
Magic and logic
Some industry observers have labeled these two sides of the agency business as “magic” and “logic.” Think of “magic” as problem-solving work such as concept development, strategic planning, and recommending new marketing initiatives. “Logic” work, on the other hand, is the production, execution, and implementation side of what agencies do. Both of these service areas are important and must be done well. But today, “magic” work and “logic” work are valued in vastly different ways.
Armed with Apple computers and Adobe software, many client companies feel capable of doing the “logic” work themselves, and some do. At the very least, today’s companies feel that production work is so commoditized it makes little sense to pay high-priced agency executives working in expensive offices in expensive cities to do this type of work. So while “magic” work is still done by advertising agencies in places like New York, London, and Toronto, the “logic” work is increasingly being given to a new breed of marketing implementation agencies, often located in places like Costa Rica, Shanghai, and Buenos Aires.
Supply and demand
Today’s marketers even have a word for it: “decoupling.” Companies are consciously separating the high-value services that are scarce from the low-value services that are plentiful. Many agency executives will tell you that their client for “magic” work is the Chief Marketing Officer, while their client for “logic” work is the Chief Procurement Officer.
The client view is that advertising production services can be “procured” using the same methods and procedures as office supplies, because most production work is standardized, repeatable, and widely available. They often try (much to agencies’ dismay) to apply the same processes to buying “magic,” which by definition is not standardized, repeatable, and widely available. As my consultant friends Gerry Preece and Russel Wohlwerth point out in their book “Buying Less for Less,” you can write specs for marketing production but not for marketing innovation.
But the larger point here is that the decoupling phenomenon is happening in all professional services business. In law, “magic” services are still provided by expensive firms in expensive cities, but “logic” services like discovery work and contract review are being done by lower-cost talent in lower-cost geographies. Accounting, architecture, and IT services are all being decoupled in the same way, due to the same dynamics.
A right and wrong way to respond
The unfortunate response by many firms is to fight mightily to continue to provide their clients with both the high- and low-value services, which they proudly point out they can do as a “full-service firm,” all under one roof. Worse, many of these firms bundle these services together with a blended hourly rate, which is the absolute worst solution because it makes the “logic” work much too expensive and the “magic” work not expensive enough. (Not to mention the perniciousness of hourly billing to begin with, but that’s a subject we’ll leave to other articles.)
Instead of innovating their business model in ways that navigate through the very different waters of “magic” and “logic,” most professional services firms are choosing to sail ahead on the same course. But we should take inspiration from the progressive firms that are choosing to proactively disrupt themselves, often by turning their firm into two different brands. The venerable advertising agency Ogilvy & Mather (“magic”) now has a second agency brand called Redworks (“logic”). The agency Publicis recently formed a second brand called Prodigious. Some smaller independent firms are following suit, realizing that it’s much better to decouple than to be decoupled. Because if we don’t do it, the buyers of our services will do it for us.
Tim Williams, a Senior Fellow at Verasage, leads Ignition Consulting Group, a U.S.-based consultancy devoted to helping advertising agencies and other professional services firms create and capture more value. He is the author of Positioning for Professionals: How Professional Service Firms Can Differentiate Their Way to Success.