Smaller agencies gain more budget from major groups

business1The days when retained agencies picked up all the work from their clients appear to be drawing to a close, if the findings of a new survey are to be believed, with the majority of business leaders expecting to hand out work to smaller agencies in the next year, instead of their agency of record (AOR).
While nearly three fifths (58%) of large multinational companies say the currently have an AOR, two-thirds (66%) of bosses expect to use a smaller agency for marketing projects, while over a third (34%) say they will work with individual consultants.
As companies face increasing pressure to derive more value for their businesses from marketing strategies, they are filling gaps with smaller firms.
These are among the findings of a new Globality survey conducted by the Economist Intelligence Unit of 307 business leaders from multinational companies with annual turnovers of over $1bn in the US, UK and Europe.
The respondents were director to CEO/president level and included 100 business leaders who primarily work with legal and compliance professional service providers, as well as 100 who primarily work with marketing firms and 107 who primarily work with management consultants.
The survey also found that among those polled who primarily hire marketing professional service providers, over three-quarters (78%) said service providers with specialised expertise will be more valuable to their company than providers with a broad range of offerings five years from now.
More than half (56%) of respondents working with marketing say cost is the biggest challenge in working with external agencies, compared with 45% working with management consulting and 48% with legal external service providers.
Most of those costs are being allocated to the larger agencies at present, with almost three quarters (74%) of respondents dealing with the marketing sector saying they spend a quarter (25%) or less of their annual external provider spending on SMEs with fewer than 500 employees.
The next biggest challenge for those working with marketing was evaluating agency capabilities (34%), followed by negotiating contracts (28%) and sourcing agencies (25%).
Lower costs also proved to be the single biggest factor that would make respondents working with marketing consider hiring an SME external professional service provider instead of a large one, selected by 49% of respondents, followed by easier sourcing and vetting (39%).
Ultimately, two-thirds (66%) believe SME service providers will have an important role in their firm five years from now.
Globality  senior vice president of advisory services Yuval Atsmon said: “The old agency of record model is being challenged. That’s not to say that these agencies are not important, many business leaders continue to use one, but smaller agencies are taking on a bigger piece of the pie.
“Given that costs are the single biggest challenge cited by business leaders when working with external providers, there is potential for savvy boutique agencies to offer better value for money and more bespoke services. However, sourcing, vetting and evaluating agency capabilities continues to be a challenge when hiring new providers. Executives need easier ways to source and vet agencies and technology such as artificial intelligence matching is one way they can do that.”

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