Analysis: Digital Expansion Sees Management Consultancies Enter Agency Turf
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Analysis: Digital Expansion Sees Management Consultancies Enter Agency Turf

As the likes of Accenture, IBM and Deloitte continue to acquire digital capabilities, they present increasing competition to marketing and PR firms.

Arun Sudhaman

Analysis: Digital Expansion Sees Management Consultancies Enter Agency Turf

In a world where competitive threats appear around every corner, public relations firms can be forgiven for being doubly concerned about the rise of management consultancies as credible digital players.

That is because it brings together two trends that have always ranked high among the potential risks that keep smarter PR industry executives awake at night. On the one hand, management consultancies have long been mooted as a source of competitive tension, given their ability to offer strategic reputation counsel (if not implementation) to C-suite executives.

On the other hand are pure-play digital agencies. While these firms have not necessarily impacted the social media and content work that accounts for the bulk of PR agency digital revenue, there is no question that the likes of Digitas and Razorfish have used their clout and capabilities to corner digital budgets.

Which brings us, rather neatly, to one of the more compelling agency acquisition trails of recent years: the hectic pace at which management consultancies have been hoovering up digital players, in such as areas as interactive design, data analytics, customer experience and product innovation.

As AdAge’s 2016 Agency Report reveals, of the world’s top five digital agencies, three are owned by consulting giants, namely Accenture Interactive, IBM iX and Deloitte Digital. And many others have been active too, as R3’s regular acquisition reports confirm, with digital agencies being snapped up by PwC, KPMG, BCG, Wipro, EY and even McKinsey.

Underpinning this trend is the steady drumbeat of disruption that is reshaping much of the business world. Consulting giants are typically charged with helping clients transform their business, across areas that include technology, talent and customer relationships. Today, all of that requires sophisticated digital insight  and — in many cases — relationships with senior figures beyond the CEO and board-level.

There may also be a realisation among these companies that the mammoth consulting contracts are becoming more scarce; hence a measure of diversification — into a demonstrably high-growth area — makes sense, even if it brings them into competition with marketing and communications agencies.

"Management consultancies see a market opportunity,” says Burson-Marsteller worldwide EVP Chris Foster, who returned to the firm from consulting giant Booz Allen Hamilton last year. "These firms make a living spotting trends and looking at ways to grow markets and build capabilities more deliberately, much more deliberately than ad and PR firms. They can build it or buy it, and you can’t build it fast enough."

At Cannes earlier this year, I caught up with IBM’s global iX leader Paul Papas to talk these developments through in greater detail. Papas admitted that there are parts of IBM’s business that now compete with  existing partners, whether in terms of agencies like OgilvyOne and Ketchum, or software players like Salesforce and Adobe.

But Papas, unsurprisingly, was clear about the differences in IBM’s approach compared to these ‘frenemies’. "If you think about the agency world, it’s focused on ideas for communications and messaging,” he said. “But our whole DNA is about human experience and customer experience. Our vision is broader — helping companies transform. By starting with this view of experience, we can then figure out what an organisation needs to do to deliver on that experience."

Papas believes that a behavioural mindset gives his company an edge when it comes to execution. And, certainly, the examples he offered appeared to bear this out. For example, IBM used touch table technology and sophisticated analytics, including its proprietary Watson cognitive offering, to help the Toronto Raptors optimise its trade and player management.

For a beverage maker, meanwhile, IBM mapped each of its Tokyo vending machines and overlaid the locations with weather data and prior purchasing behaviour. By correlating the two, the company was able to predict the sales impact of weather changes, and factor that into geo-location marketing promotion, ultimately driving more sales.

The majority of this work, says Papas, starts with the CMO and also involves the chief digital officer. “The marketing function has had to become much more central to a lot of companies and have much deeper partnerships with technology, data and operations,” he notes. "Marketing can’t be a bolt-on function anymore."

From thinking to doing

That consulting companies now describe CMOs as a logical progression of their client base must be of some concern to the agency world. Our Global Communications Report research has already explored why PR agencies are desperate to access the bigger marketing budgets that have typically been the preserve of advertising and media agencies; adding another 800lb gorilla into the mix cannot make this challenge any easier.

Indeed, it appears clear that management consulting is itself being disrupted, by requests for digital strategy around such areas as the Internet of Things, social business, and marketing and communications analytics. "I think that’s driving a large part of this,” says a senior agency source. "They are in some cases much better equipped to meet these demands, not because they are smarter than marketing communications agencies, but because they have a different business model. They can have 1000 data scientists on hand."

"It’s a real threat,” says PR Council chief Renee Wilson, who previously spent several years at Publicis Groupe’s MSLGroup network. "IBM is one of the biggest competitors to ad and PR agencies these days."

That competition is not just limited to client work, of course, but also talent. If the tussle with the likes of Google and Facebook for digital marketing talent was not daunting enough, agencies now face the prospect of having to prove their employer credentials are good enough to take on yet another new group of rivals.

And yet, many PR firms, at least, appear relatively sanguine about the threat of management consultancies.  This may well be because that oft-mooted (hypothetical) spectre of McKinsey eating Burson-Marsteller’s lunch never quite materialised. There were a handful of acquisitions (FTI Consulting, Sitrick, the rise of Teneo) but, for the most part, the big corporate PR firms have remained the go-to players for crisis and reputation management work and for broader reputation counsel.

Yet if that was deemed a victory, you could argue it was a pyrrhic one. One of the factors that has insulated PR firms from the threat of management consultancies has been the former’s slavish focus on execution, often in the form of media relations and public affairs. Few management consultancies believe that this kind of implementation work is worth their time — strategic counsel has historically proved far more profitable, and they have left the commoditised end of this market to PR firms. The inability to measure reputation in a sustainable manner has hardly helped either.

There is something a little galling about the observation that much of what constitutes PR work is simply too marginal, too woolly, for most management consultancies to get excited about. Will the same reasons also protect PR firms when it comes to their digital work too? "On some level, yes maybe we are too commoditised,” says Ogilvy PR UK CEO Marshall Manson. "There are projects that are small that we like — at levels of money that one of the big four would turn their nose up at. We do great work for more than just money."

Accordingly, Manson sees the consultancies as more of a threat to the big digital players like DigitasLBi and Sapient. But as strategy bleeds into execution — particularly when it comes to digital content, CRM and digital analytics — management consultancies are likely to find it increasingly difficult to preserve a hegemony around thinking, and not doing.

"I do think consulting firms are a threat, but for a different reason,” adds the senior agency source. “They are no longer encroaching in our core business, but they are innovating and leading and investing in real data analytics and data science in a way I don’t see most PR firms equipped to do at all. Most PR firms are doing digital media. Consulting firms are able to provide next-generation analytics, such as data integration and data science."

And, if nothing else, their recent digital acquisition track record indicates a genuine move towards the implementation end of the spectrum. The IBM iX examples, which combine digital analytics with marketing insight, provide a clear reflection of this trend.

Consider also this: Accenture bought design consultancy Fjord and, for the most part, has left it alone. While McKinsey might not be rushing to design client infographics anytime soon (even if it does have 800 people working for its Digital Labs unit), the longstanding critique of consulting firms — that they deliver an explosive strategy and leave someone else to pick up the pieces — looks increasingly like the relic of a more analogue past.

"It’s one thing to deliver strategy, but there’s also strategic implementation,” says another senior agency source. "There are good margins around execution here, and more of the top-tier management consulting firms are doing implementation now. It’s the natural evolution. In the marketing comms space, they may not have had the right staffing mix to actually deliver it, but with these acquisitions they do."

Which should, inevitably perhaps, bring areas such as earned media and earned influence onto their radar too, as critical tools in the digital customer equation. Wilson thinks that the specific expertise of PR firms in this regard will serve them well even as the competitive threat expands. But she is under no illusions about the size of the challenge.

"Either it’s going to be a chance for PR firms to really step ahead, or it won’t,” she notes. “But to not count management consultancies as a potential competitor is a potential mistake."

Despite the acquisition-fuelled growth of their capabilities, meanwhile, Papas is aware that IBM, for one, cannot do everything just yet. Accordingly, he is keen to build an ecosystem of partners, noting that the company has worked with Kiwi and Salesforce on recent projects. “That’s a big part of our strategy,” he notes. "Not every solution to the problem is acquisition. There are other things like partnerships — which can be mutually fruitful."

Perhaps the biggest challenge for consulting firms, meanwhile, will be same one that PR agencies have struggled with — integrating younger digital talent into an employee culture that can still lean heavily towards the elite corporate MBA stereotype.

"There’s a recognition that the world is rapidly changing,” says Papas. "We are at a point of time where tech has caught up with the rhetoric of business."

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