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While reading Advertising Age's 2015 agency report, you might have been surprised to see that IBM Interactive Experience and Deloitte Digital -- both consulting agencies -- ranked as the top two digital networks.

Over the past few years, consulting companies have been gaining ground in what's traditionally been agency territory. It's no accident. IBM has invested $100 million into Interactive Experience, pulling together its digital marketing agency and its other marketing-related businesses to help companies target customers more effectively.

The four-year-old Deloitte Digital brought in $1.5 billion in revenue and has 6,000 employees globally. Inspired by those successes, we're going to see second- and third-tier companies branch into consulting. And they have some important advantages over agencies.

What Consulting Companies Do Better, and What It Means

First and foremost, consulting companies are great at finding specialists to build up their knowledge and expertise. It gives them the leverage to stand up and say, "This is how we bill. Take it or leave it."

Therefore, as the agency world shifts toward hyper-tight pricing structures, consultancies have less accountability. Meanwhile, agencies are constantly whittling down what they charge for fear of losing clients.

Additionally, though agencies are good for marketing and image problem-solving, consulting companies inherently have the bigger picture in view. They have the ears of CMOs, and as agencies are recommending budgets or other approaches, the consulting company is brought in to validate, verify, and review what the agency recommended. That is to say that consultancies are functioning at the strategic level, while agencies have become the "doers."

Consequently, consultancies are winning business, and agencies can no longer ignore the impact.

Gaps in the Consulting Approach

However, consultancies haven't made the same strides as agencies in creative thinking or depth, instead focusing on media planning, buying, and strategy.

It's one of the reasons my friends in consulting companies, after 15 years, are still having to explain what they offer and how they benefit clients. Those gaps are opportunities for agencies to do what they do best.

But as we know, agencies by nature don't work well with others. They're protective of relationships, and when there's someone new at the table, they tend to panic. They don't want to lose client mindshare or dilute the relationship. But by harnessing the opportunities presented by the encroachment of consultancies, agencies have the opportunity to grow and thrive.

Taking Advantage of Those Gaps

Here are five key steps for agencies to seize that opportunity:

1) Hire -- and learn from -- consultancies. 

People say, "When you can't beat them, join them," but that maxim omits an important third option: Hire people from "them." There's no better way to understand new competitors and learn why they bill what they do.

2) Grow strategically.

Accept that consulting companies work with clients differently. Agencies should ask themselves, "Why are clients inviting consultancies to the table? What are they missing from our relationship, and can we replicate that ourselves?"

3) Ask for fair compensation. 

Consultancies are charging more, which represents an opportunity for agencies to charge more. Further, it gives agencies the leverage to say "no" if a client is unwilling to pay an agency what it thinks it's worth. Agencies need to understand their boundaries. Getting low margins on client work isn't sustainable.

4) Be transparent.

Consulting companies and agencies both need more transparency on what they agree to so they can see what their retainers should be. At House of Kaizen, our new business process is to do as much to weed out bad clients as we do to identify good ones.

5) Be more data-driven.

Agencies are more responsible for marketing and customer management data, but as data becomes more of a driver, agencies need to be more savvy data analysts and integrators.

Clients need to hold consultancies to the same standards as agencies. But agencies shouldn't try to become consulting companies. Instead, they should continue to do what they do best: Specialize and encourage a culture that breeds smart marketing people.

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Originally published Mar 11, 2016 8:13:00 AM, updated February 01 2017

Topics:

Agency Marketing