Strategy but for Agencies: Questioning Assumptions
How can we question what we can't see?
Apologies for the relative delay in posts – I’ve been unwell, but I’m on the mend!
There are basically three ways for a business to outcompete others:
Do the same things better (operational excellence/best practice)
Do better things within the same framing (colour-by-numbers strategy)
Reframe the situation entirely (creative strategy)
Most agencies have a very similar strategy to other members of their strategic group and are competing mainly on operational excellence. Arguably, this is no strategy at all, if we define strategy as how a business competes differently. For these agencies, profitability is driven by the circumstances of their strategic group and their application of best practice within it.
That doesn’t mean there aren’t any agencies with strategies – genuinely competing differently. A good example of an agency competing strategically is The General Store in Australia. They make their strategy very clear on their website:
For too long, retail brands have been forced to make a choice: retail agencies who don’t get creativity, or creative agencies who don’t get retail.
That’s where we come in.
Their strategy is to specialise in retail clients and offer all services to retail clients. (Except for media buying, I assume.)
Compared to many possible industry specialisations, there is relatively less direct conflict between retail brands. Every soft drink brand is in competition with every other soft drink brand, but sporting stores don’t compete with furniture stores, bookstores, computer stores, restaurants, etc.
On top of that, the G Store is able to build capabilities which create value (or lower cost to serve) for this niche and would not be worth developing for a less specialised agency. For example, they have entire offerings in architectural store design and in-store events. For an agency which broadly targets all consumer brands, it would make no sense to develop these as capabilities.
These two facts have allowed the G Store to build years of credibility, relationships and case studies in serving the particular needs of retail clients. If a retail brand goes up for pitch, more generalist agencies will probably throw their hats in the ring, but they’re disadvantaged against G Store.
What kind of strategy is this? Doing better things within the same framing? Or reframing the situation entirely?
This strategy could have come out of colour-by-numbers thinking within the established framework. Here are the hypothetical steps we could take:
Look at the whole market of clients and consider different ways they could be segmented.
Recognising that intra-industry conflict makes some specialisations not feasible, we seek out segments of clients with low conflict.
Take our tentative list of potential client segments and evaluate them according to various criteria:
Do they have particular enough needs that they would be under-served by generalist agencies?
Are they currently having their particular needs met by existing specialists?
Could we conceivably build capabilities to meet their particular needs? (Or even better, do we already have some resources and capabilities suited to being developed further for their particular needs?)
Select the retail segment as being the most favourable among the options in the market.
The only potentially creative element in that process is the experimentation with different ways of segmenting the market. And really, segmenting in a way that identifies retail as an industry alongside, say, finance, FMCG, whiteware, auto, is not particularly radical. To be exploring framings outside of the obvious, we might be carving up market segments like “clients who particularly love schmoozing” or “clients notoriously difficult to work with” or “startups who could only possible pay fees in equity”.
For the G Store, after logically arriving at the retail segment, everything else is just the further application of logic (colour-by-numbers), and the result is a classic niche differentiation strategy. Through specialisation, the G Store can promise greater value to retail clients and that (presumably) results in above-average profitability through either charging clients a premium for that expertise or lowering costs to win and serve clients at a similar price to competitors.
It’s a very good strategy in an industry dominated by agencies with no strategy at all, so it stands out. And in most situations, good solid logical application of thought to a situation is not just good, it’s great – because it’s very rare.
But if that’s not what I’d call a creative reframing of the situation, what on earth is?
The biggest obstacle to stepping outside of our obvious frames of reference is that they are invisible to us. The heuristics and mental models we’ve developed in order to navigate the world are very useful and so they become self-reinforcing. Because they’re also the same heuristics and mental models shared by most others, we also get positive feedback socially from their use. So, both individually and collectively, they come to play the role of “reality” for us.
They’re not things we can see, because they are the way we see things.
So then, how can we move these mental models from behind our eyes to in front of them, to be examined and rearranged or replaced?
One sort of pseudo-method of doing this is actually to double down even harder on logic, ruthlessly applying logic to our analysis of a situation. When we’re identifying the relevant factors, we can really challenge ourselves and ask, “Is this list actually exhaustive? What else could possibly have an effect here?” I mentioned an example of this in an earlier article when I identified usage data as an untapped value-creating resource for a business that simply could not succeed by competing the same way as its dominant competitor.
I call this a “pseudo-method” because it’s not really changing the way the situation is framed – rather it’s more completely filling out that framing. In that example, I had discovered an untapped resource, but was still operating within a basic framework of “what resources do we have which can offer value to customers?” Similarly, the kind of customer need it could satisfy was previously not considered, but I was still operating within a basic framework of “what needs do these customers have?”
We can’t really logic our way out of a mental model, because logic is applied to what we see and, as I said, what we see is conditioned by our mental model.
So what tools do we have for addressing this challenge when one of our strongest and most familiar tools as strategists (logical reasoning) is specifically not fit for purpose?
Okay, sure, LSD is one option, but not very predictable and it’s not going to help your business strategy if you sit down to consider new frames of reference and wait, what did you just sit on, that’s interesting, the cushion is on the seat of the seat, but it can be moved to the base of the chair back, and it’s soft, right? It’s soft, but if you press hard enough it becomes hard, all those tiny spaces inside it becoming even tinier, until you can’t press it any more, but even what you’re pressing is mostly empty space between atomic nuclei and electrons – it’s all just empty space masquerading as solid matter…
And you sleep particularly well that night but haven’t achieved anything.
So we need something more reliable than psychedelics and also more reliable than waiting for divine inspiration. This is our challenge.
We can turn to Edward de Bono for some hints. He coined the term “lateral thinking” and that is basically what we are talking about here. One of his big things was the idea that children are massively more creative problem-solvers than adults because they simply haven’t learned the rules yet. That alone isn’t a particularly useful observation, because what are we supposed to do with it? We’re already adults, we’ve already learned the rules, that’s the problem.
As I said above, one of the reasons our mental models and heuristics become confirmed to the point of being indistinguishable from reality is because they work, over and over and over. One thing that can yank a mental model out from its hidey-hole behind our eyes is for it to jarringly not work. After some initial confusion, we’re forced to reevaluate our assumptions. That happens when the world changes in ways that leave a mental model behind. But typically when that happens to one person, it’s happening to everyone. As Spider Robinson observed, “The world turns upside-down in ten years, but you turn upside-down with it.”
However, we can sort of artificially create that situation of the familiar invisible mental models just not working. De Bono refers to these techniques as “provocations”. There are different kinds of provocations, but I’ll describe the ones I’m thinking of here.
Basically, we assert very strongly something that seems obviously impossible. And then we challenge ourselves to make sense of the impossible assertion we have made.
If something seems impossible, it’s either because it actually is impossible in reality or because it’s only impossible within the mental model we’ve mistaken for reality. By jumping to an impossible conclusion, our logical mind naturally scrambles to fill in the gaps between the conclusion and the contradiction.
The ideas we come up with to make sense of the nonsensical statement can be as wild or playful or elaborate as we like, as long as they make some kind of sense. That is, we can’t just say “by magic”. We have to come up with answers that have some kind of internal logical coherence.
But if we can come up with explanations, however wild or playful or elaborate, then we must somehow have called into question some hidden assumption or unnecessary mental model that made the conclusion seem impossible. If our explanation has internal logical coherence, we’ve adopted some alternative mental model in which it is no longer impossible.
I’ll try this here with agencyland as an experiment, without promising anything. I’ll just kind of show my thinking, stream of consciousness.
First, something that seems clearly impossible according to the picture of things I’ve been painting over the last few weeks. I’ve said that large clients are only really available to large agencies. So let’s see what happens when I assert the opposite of that, or something that would be impossible if that were true.
A small agency can win and serve large clients.
My mind immediately goes to the reasons why this is wrong. So I have to set those instincts aside and again tell myself: this is true, there’s just something I’m missing or don’t understand. So I try to solve the riddle.
How does the small agency handle the mismatch between capacity and demand? The work still needs to be done. Or am I making an assumption about that? Does the small agency win and serve the large client by making a case for radically cutting its marketing budget? Seems unlikely, but I’m trying not to dismiss anything here. I’ll put a pin in that thought.
Let’s say the work still needs to be done. So the small agency could basically manage an array of freelancers doing the work. Again, that seems unlikely because of all the disadvantages of freelancers – much higher costs than salaries, less benefit from growing familiarity with the client, etc. And there’s still the question of what value is being added by the agency itself – maybe just core account service and strategy. But freelancers seem unlikely.
So how can it be mostly a consistent salaried team, but not working for the agency (because if they were, the agency wouldn’t be small)? Okay, what if the large client pays the salaries for their team directly. Yes, there’s already a word for that – in-housing. So what does value does the agency add? Well, that raises two immediate questions for me:
What are the weaknesses of in-housing that direct clients towards external agency partners in the first place? (What needs could the agency meet?)
What are the possible value-creators or cost-cutters generated by having multiple in-house teams connected to a single agency? (What capabilities could this resource create?)
I don’t know enough about in-housing to answer the first question, so I’d want to do some research, go out and talk to some people about their challenges and successes, etc. And we would also want to be clear on the difference between what this hypothetical agency is offering and what is offered by an industry organisation like the In House Agency Council.
But for the second question, we would likely be looking for…
Are there economies of scale that could be enjoyed by multiple in-house teams all being connected to this single agency? They could share research tools, training resources, etc. (Many typical overheads like payroll and HR would be handled by the client.)
Are there any efficiencies possible from sharing resources between the connected in-house agencies? Variability of demand is a problem for in-house agencies, probably more so than for external agencies with multiple clients’ demand to average things out. If one in-house agency suddenly has too much design work for its design resource, they could tap into other agencies’ designers – with lower costs and greater reliability/confidence than a freelancer.
Could there be a value add for talent? Redundancy at one in-house agency could be absorbed by demand at another, if the timing was right, and the talent is already a known proven resource.
I’ll stop the thought experiment there. It’s an interesting thought. The agency itself is small, has no operational resource itself, but it coordinates and organises and amplifies the quality of the growing number of in-house agencies that perform the agency operations. And as the number of clients and in-house agencies grow, the efficiencies and potential network effects from size grow too – each new client makes all the other in-house agencies slightly cheaper and slightly better.
I started by making an impossible statement and then challenged myself to make sense of it. What hidden assumptions did my answer reveal? Perhaps the assumption that the only two options for an agency’s operations are either paying salaries or paying freelancers. The idea of outsourcing operations to clients hadn’t occurred to me because I saw that as in-housing – a competitor to agencies, rather than a potential complementer or strategy for an agency.
Hopefully that was at least a little interesting and entertaining.
This kind of provocation is just one technique for fucking with the invisible obvious. As you can see, it requires a kind of playful application of logical thinking. But if the goal is to find ways to compete that are completely different from how everyone is already competing, that’s the kind of creativity that needs to be applied at the strategic level.