Answering the question of "How will ad agencies build digital competencies?"
Caption: Mr. Miyagi receives a stern warning that ad agencies must undergo a brutal self-analysis before deciding whether to make, buy, or ally...lest he wants to be beat badly by the Cobra Kai Dojo Marketing Co.
This is a continuation of Monday's post. Read it first here.
The answer to the question of "How will ad agencies build digital competencies?" will have to be answered by each agency on a case-by-case basis. Here's how:
Draw Your Value Chain
First, each agency must outline the distinct parts of its value chain. Where do you derive a competitive advantage from? Understanding your competitive position is essential to the "make, buy, or ally" question because "make, buy, or ally" inherently opens up the value chain no matter which of the three options you choose.
Five key questions should be asked for each part of the value chain:
- Does a market exist and is it accessible and attractive?
- Does the new competency fit the corporation's overall strategy?
- Does the new competency generate an adequate return on investment?
- Does the firm have the abilities and resources to address the specific market or can it acquire them within a reasonable timeframe?
- Does the new competency threaten the existing business?
By assessing the entire value chain, your agency can evaluate whether it offers its capabilities to existing clients, thereby exploiting internal economies of scale, while offering small production lots to outside customers. This will give context in terms of speed to market and sequencing of deployment. Utilizing scenario planning, we can demonstrate which action to take.
- Scenario 1: It's a strategic imperative in a context of high external uncertainty to make, buy, or ally with digital competencies. Time is of the essence and with competitive forces accelerating, internal resources are stretched beyond belief. The action here would be buy or ally.
- Scenario 2: Doing it right is more of a priority than doing it right now. Internal resources are good, utilization rates of current billable staff is 64%. The action here would be make.
Assess Impact on Organizational Design
With any new position in an organization, new job descriptions and areas of oversight must support the new processes and structures. It will be extremely important to create a dynamic set of rules governing the relationships between the competencies. This may include the creation of separate administrative structures along the value chain to open up the boundaries of interaction. Along those same lines, "organizational discontinuities" may have to be introduced to encourage innovation.
By identifying the specific advantages in the value chain by adding digital competencies we can emphasize dynamic benefits from either making, buying or allying. These choices allow firms to quantifiably improve internal operating activities, strategic and productive capabilities, innovation capital, and resource allocation processes.
Self-analysis is brutal. The analysis should be blunt and precise, displaying the outliers of the agency's boundaries, transfer prices, and incentives - these items shape the future.
So how will traditional ad agencies survive? By making, buying, or allying with digital competencies, that's how. The option is up to you to decide.
Thanks for coming by,