Comparing consultancies and agencies, the first impression is that they are very similar, almost the same. But there are some crucial differences. Based on these differences, I will present some recommendations for new media agencies to reduce risks and maximize the ROI.
Starting with the similarities:
- Both sell manpower and rely on the knowledge of their employees for quality in the work delivered.
- Both are called-for when work needs to be done that the client’s workforce is not capable of doing or is understaffed to do so – additional staff won’t be hired for short-term products.
- While consultancies mostly sell non-scalable amounts (working hours/days needed), the agency mostly sells outcomes (an end result of a project with a functionality) for a fixed price. Thus, agencies usually have a greater risk of not meeting time and budget, or the opposite may be true, generating a larger ROI than with the non-scalable work of a consultant. Agency work seems to be more risky, therefore.
- Since agency work involves more repetitions than consultancies, standard tools or technologies can be developed or learned in order to cut on time and budget. If an agency manages to exploit this possibilty better than its competitors even with the expected personalization, it may reduce its costs, and thus, their profit margin. As soon as these tools develop to fully scalable products without need of real personalization, it can not be fully counted as an agency anymore but rather as a vendor which is not the focus of this blog.
- The investment for receiving a job is considerably lower for a consultancy than for an agency. While it is sufficient for a consultancy to send consultant profiles to a (potential) client, that does not suffice for an agency to whin a pitch. A consultancy is usually confronted with a pitch that requires way more ressources than the adaption of existing consultant profiles. Often, weeks of man power are invested into concepts and presentations, not knowing whether the effort might be converted to sunk costs if the pitch is not won.
- Consultancies are seen as partners, helping out during bad times, agencies are usually seen as mere executors that adhere to the wishes of the client. In combination with fixed price projects, this may be a very risky combination for the agencies if requirement management and change request management is not handled well. A client’s wishes are most often inprecise at the start of a project and equally as often undergo changes during the project (well known scope-creep).
- Consultancies are most often requested for work on subjects with high management attention, mostly concerning the core competencies. The objectivity of consultants is required to best evaluate the sharpness of the competitive edge. Agencies are usually summoned to execute projects that need to be done, but are not recurringly vital to the company – otherwise the client would have invested in employees that could do the same work. In rare cases that is not the case, but then the client is so dependent on external suppliers (in this case agencies) I would not recommend this approach to him.
All in all, I have painted a picture that clearly shows more risks for the agency’s business. What would I recommend to reduce these risks and maximize ROI?
- Requirements management, change request management and bid management need to be exceptionally well handled. The first two because that may reduce unexpected costs during the execution of a project, the latter may reduce sunk costs by either prioritizing bids well according to the probability of winning them or by improving the quality of the pitch material, thus improving the chances of winning.
- Increasing the credibility and thus the trust with the potential client in order to increase the possibility of winning a pitch. Herein lies the power of communicating your knowledge openly and an increased brand recognition thereof.
- Constantly improving the tools you can use to minimize the costs while executing your project.
- Selling more projects of a kind to reuse knowledge, leverage well functioning tools and routine, and thus increasing economies of scale
- Selling more consultancy work as add-on to the mere execution of technological projects with a clearly defined output