Deltek surveyed more than 300 agency professionals at the start of 2021, and found 61% are producing more work and offering more services than they did a year ago, but only a quarter (25%) had seen profit margins rise.
Little wonder, then, that profitability was a key business focus for 58% of those surveyed, while 53% said that a more profitable business strategy was one area in which their agency could improve.
Profitability wasn’t quite the top business priority, however – the biggest focus (for 77%) was new business. Clearly many agencies are pinning their hopes on winning new clients as we start to emerge from the pandemic.
New Business – Or New Technology?
Compared to profits and clients, agency technology was rated relatively low among areas for improvement. Only a quarter (26%) of those surveyed thought they needed to improve their internal support tech, for example.
Yet many agencies surveyed were fully aware of the benefits that digital transformation could bring: 59% thought it would improve agility and innovation; 50% saw it as a tool for data-driven insights; and others looked to it for customer experience, collaboration, consolidating processes and updating skillsets.
Not everyone was fully embracing digital transformation, however. Fewer than one in five (19%) agencies had fully mature digital management systems, although encouragingly, 37% said they had digital transformation plans under way.
However, 42% were either only in the early stages of developing a digital strategy, or had no initiatives in place. Why does this matter, you may ask? Rolling out new digital systems may feel like less of a priority in the pandemic than, say, employee wellbeing initiatives or incentive schemes.
But when Deltek did a deep dive into the data, it found that agencies with mature or well-advanced plans for digital transformation were actually doing better on a number of fronts than those without. You’ll find more details related to this in Deltek's full report – Reflect, Recharge, Move On: Creative Agencies in 2021, but see below some key takeaways.
How Digitally Evolved Agencies Are Outpacing Their Rivals
There are several areas in which digitally mature agencies were outperforming the rest. But let’s look at those two areas agencies told that were their key business focuses for 2021: new business and profit.
A majority (59%) of the most digitally mature agencies had grown their client base year-over-year, compared to an average of 44% – and only 35% of those with immature or non-existent digital strategies.
Only one in ten (10%) of mature agencies had shed clients over the year – half as many as the digitally unevolved did (21%).
Meanwhile a third (34%) of digitally mature agencies had managed to increase profit margins year-over-year, compared to just 16% of those with zero digital strategy.
What’s Stopping Agencies From Evolving Digitally?
Deltek's research pinpointed several practical and institutional barriers to digital transformation, including lack of capital, prioritization of investments and specialist skills gaps. With so many other competing challenges for agency leaders’ attention and funds right now, putting the systems and people in place to facilitate digital change hasn’t quite made it to the top of agency leaders’ to-do lists.
Of course, this is a problem that extends far beyond any one sector or industry. Analysts like PwC and McKinsey regularly warn of a widening digital skills gap that has only been accelerated by the upheaval of Covid-19.
So while many agencies may see old-fashioned client acquisition as their top business priority right now, they could also benefit from being inward looking in their approach. Perhaps evolving their own systems could help deliver some of the profitability and efficiency they are seeking.
Finally, acquiring the right talent to bring about that evolution should be a higher priority than ever – but there’s likely to be plenty of competition for that talent. Those agencies that don’t already have an in-house specialist to lead their digital transformation journey may want to consider a SaaS solution with industry expert consulting services or a pre-defined best practice configuration to accelerate their time to value and get up and running faster.