Digital and design agencies face second year of talent exodus in 2012.

First published by Left Foot Forward on 3 January 2012.

A sense of gloom hangs over small business owners as they make their turkey sandwiches this week.  With the Euro crisis dragging on, the Chancellor’s latest credit easing initiatives still to be felt, and official unemployment figures at 2.64 million, the highest since 1994, many will be reaching for another glass of sherry just to drown out the recent memory of their struggles in 2011 and the forecasts they’ve read for 2012.

Economists at global banking giant Standard Chartered say the UK economy is likely to be in recession going into 2012, eventually recovering in the second half of the year. It feels like the tough times for small businesses have already lasted years, but with public sector clients experiencing cuts that will accelerate from next April, and Standard Chartered forecasting 1.5 per cent growth in 2013, the belt tightening is here to stay.

Many are simply adapting to the new economic reality. I’ve been surveying people working in digital and design agencies about the economic outlook for three years now, and it is striking the way that the longest UK recession in history has changed the culture of an industry based on pitching for business, piece meal contracts and unpaid interns.

Agency leaders are facing a second year of talent exodus. In the next twelve months 58% of respondents are intending to change employer. Churn has far reaching consequences that SMEs can ill afford in this uncertain economy. It impacts on reputation, profitability, quality of work, client and talent retention and acquisition.

Recruiter Karina Beasley of Gabriele Skelton says: “high staff turn-over means extra costs. Finding and recruiting new staff, then inducting them and getting them up to speed to take over accounts all adds to costs and eats into margins. In the current jobs market, agencies that advertise are being swamped with applications meaning that short-listing takes far longer than it used to and candidates rarely get feedback and often do not even have their applications acknowledged.

Too many are relying on freelancers and unpaid interns. Over half (58%) of respondents told us their agency is employing less permanent staff, 43% that they are using more unpaid interns and 55% that they are using more freelancers. Is it any wonder that 32% say that the quality of work has declined?

Stef Brown, MD of On Pointe Marketing, says: “clients are increasingly nervous that the ‘A’ team pitched, but an unstable ‘B’ team are delivering. And feeling like you aren’t on the ‘A’ team is demotivating, giving employees another reason to consider leaving. Not only this, but producing creative work for free during pitches means agencies are giving away their most valuable commodity: their intellectual property. I can’t think of any other professional services business where this is tolerated, or even considered an option.”

Not only do respondents say clients are expecting more work in pitches for free (71%) but that once you’ve won the account more work for less money (85%). One agency owner told us “Yes, budgets are killing us, everyone wants something for nothing and without good reason and if you don’t agree they all go elsewhere.” One designer said there is “too much competition. Little opportunity.”

The movement of people between agencies can make or break reputation through word of mouth. This is increasingly true as a growing number of respondents are using the social web to talk about their professional experiences (30.4% in 2011, up from 19% in 2009).

Clients asking for safer work (54% of respondents) will do nothing to enhance an agency’s (or the client’s own) reputation as being at the forefront of innovation. Safer solutions may not achieve the client’s business objectives. One design director pointed out: “It’s increasingly being dumbed down and made more obvious and commercial as the clients are frightened to try anything new. They tend to patronize the audience and don’t assume that the consumer can pick up on edgy subtleties.

The good news is agency leaders are still wearing their rose-tinted glasses, perceiving their company’s performance higher than their employees. This may be helpful if they are to successfully lead their agency through the economic downturn and back to prosperity, but they should be aware that their employees do not share their point of view. Staff perceive agency performance is getting worse: there is too much poor leadership, that doesn’t value ideas and opinions, and fails to reward people for going the extra mile when there are excessively high workloads relative to staffing levels.

Agencies appear to be running on empty, with staff engagement at an all-time low. Lets hope that the entrepreneurial spirit possessed by so many small business leaders can be reinvigorated at the heart of the agency, so that we may yet find a way to stop the exodus and find a path to growth.

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A crisis of leadership in digital and design agencies.

There is an ever increasing instability within agency workforces. There are fewer permanent staff, more freelancers and interns. A record number of people are intending to change job within a year (59%). This year almost half of respondents (49%) have been with their agency less than two years, so it appears that unhappy employees are following through on their intention to change job.

A substantial change in those responsible for the day-to-day client relationships and client satisfaction may have an impact on the agency’s ability to service and farm existing clients, as well as to seize new business opportunities as the market begins to pick up. The resulting churn means agencies are spending precious budgets on recruitment fees and investment in getting people up to speed on their way of working and building staff knowledge of the agency’s clients.

This makes clients nervous that the ‘A’ team pitched but an unstable or more junior ‘B’ team are delivering. And feeling like you aren’t on the ‘A’ team is demotivating, giving employees another reason to consider leaving.

The movement of people between agencies can make or break reputation through word of mouth. This is increasingly true as a growing number of respondents are using social media to talk about their professional experiences (34.6%, up from 18.8% in 2009).

Respondents perceive a crisis of leadership. For the first time the perceived delivery gap is widest for ‘has a management team that demonstrates strong leadership skills’ (-53.1%). Part of the issue is that owners have a rosier view of agency performance than their staff. Staff complain of inappropriate staffing levels, a lack of strong sense of teamwork throughout the organisation, their ideas and opinions not being valued, and they are not being rewarded for going the extra mile.

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Rose tinted challenges in the digital and design industry.

First published by Design Week on 3 January 2012.

UK digital and design agencies are facing a second year of talent exodus. Last year 56% of respondents to our Design Industry Voices survey were intending to leave their agency. These were not idle threats; in our 2011 survey 35% had been in their job less than a year. In the next twelve months 58% are intending to change employer. It is time for the industry to take this seriously.

The impact of churn

Churn has far reaching consequences that SMEs can ill afford in this uncertain economy. It impacts on reputation, profitability, quality of work, client and talent retention and acquisition.

Recruitment demands senior management time, fees, and further investment to train new employees on the agency’s approach and knowledge of its clients’ businesses. Over half (58%) of respondents told us their agency is employing less permanent staff, 43% that they are using more unpaid interns and 55% that they are using more freelancers. Is it any wonder that 32% say that the quality of work has declined?

Clients get nervous when the ‘A’ team pitches but an unstable ‘B’ team delivers. And feeling that you aren’t on the ‘A’ team is demotivating, giving employees another reason to consider leaving.

This uncertainty can encourage clients to put their account out to pitch again. Add to this that respondents say clients are expecting more work in pitches for free (71%) and once you’ve won the account more work for less money (85%). One agency owner told us “Yes, budgets are killing us, everyone wants something for nothing and without good reason and if you don’t agree they all go elsewhere.” There is “too much competition. Little opportunity” said one designer.

The movement of people between agencies can make or break reputation through word of mouth. This is increasingly true as a growing number of respondents are using the social web to talk about their professional experiences (30.4% in 2011, up from 19% in 2009).

Clients asking for safer work (54% of respondents) will do nothing to enhance an agency’s (or the client’s own) reputation as being at the forefront of innovation.
An account manager explained “There are a lot of clients demanding that something is just done the way they want despite expert opinion to the contrary… It seems lost that the clients are in fact employing experts for the skills they have and subjective feelings on the value of the work can dominate the management of project and dilute the end result.”

Safer solutions may not achieve the client’s business objectives. One design director pointed out: “It’s increasingly being dumbed down and made more obvious and commercial as the clients are frightened to try anything new. They tend to patronize the audience and don’t assume that the consumer can pick up on edgy subtleties.

A rose-tinted challenge

Agency leaders are wearing rose-tinted glasses. Owners are consistently more likely to rate their agency’s performance higher than their employees. This may be helpful if they are to successfully lead their agency through the economic downturn and back to prosperity, but they should be aware that their employees do not share their perceptions of agency performance.

Respondents rate ‘has management team that demonstrates strong leadership skills’ as the agency attribute with the second highest delivery gap: -53% in 2011, and -48% in 2010. (The delivery gap is the difference between the perceived importance of an agency attribute and the perception of how well the respondent’s agency actually performs against that attribute.)

Perceived agency performance is getting worse: there is too much poor leadership, that doesn’t value ideas and opinions, and fails to reward people for going the extra mile when there are excessively high workloads relative to staffing levels. Fewer staff than ever expect their agency to be a brand that is compatible with their own values.

Agencies appear to be running on empty, with staff engagement at an all time low.
What are digital and design agency leaders going to do about this?

A return to middle management

Elizabeth is an agency entrepreneur. An account director, she steers her agency and client team, always delivering innovative, creative, business results focused work. She is a middle manager: no responsibility for running the agency, total responsibility for her client’s satisfaction. Elizabeth is tenacious, she invests budgets as if the money were her own, worries about billability and profitability of the agency, is confident advising business leaders, and is a natural ‘farmer’ and business developer. A wordsmith, she always pushes studio to innovate creatively and knows when to nurture and when to begin again. Elizabeth knows the value of ideas and she doesn’t like giving them away for free.

If we can put that entrepreneurial spirit possessed by so many agency leaders and managers at the heart of the business we may yet find a way to stop the exodus.

It is time for a return to middle management. Middle managers have daily contact with clients, lead the agency team, manage the budgets and produce work that can make an agency’s reputation. They are the future leaders.

With middle management as the agency’s driving force, it’s easer to focus on profitability and engagement.

Teach managers how to increase billability and usage rates, reduce investment from overspend on pitches and projects. Improve their negotiation skills. Stop over-delivering in ways that the client doesn’t notice and instead make one-off investments in additional work that is groundbreaking, setting a new tone.

Give managers responsibility for the resourcing budget on their project so that they can staff up appropriately and allocate manageable workloads. Stop promising to clients more than your people can deliver during a normal working day for the budget. Take a percentage of the project profitability and allocate it to managers to use as a team bonus for outstanding work and for seeing the project through, helping increase quality and reduce churn.

When I see Elizabeth, or any of the other great senior manager or director level account managers, designers and strategists at work, it makes me wonder why we have executive teams. How are they helping if they are failing to lead, don’t listen to ideas and opinions, fail to reward people for going the extra mile, or ensure that workloads are acceptable? Here’s one way to save money – a slimmed down executive team and an empowered middle management.

Whatever you think of my ideas, this is an industry wide problem and it is time for fresh thinking and action.

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Design Industry Voices Survey 2009 reveals 38% are planning exit when market picks up.

Industry employees voice dissatisfaction in their agency’s performance in the areas that matter most to them.

In late October 2009 we asked people who work within UK design and digital agencies to anonymously share their views on how it feels to work within their agency right now. The first Design Industry Voices Survey 2009 by Fairley & Associates, Gabriele Skelton and On Pointe Marketing was published in December 2009. Here are the headlines.

Day-to-day client satisfaction at risk

38% of employees responsible for day-to-day client satisfaction are planning their exit when the recession ends, with almost three quarters intending to stay in the industry.

36% of directors, 53% of managers and 47% of coordinators and assistants intend to change employer, compared to only 19% of the executive team. We found that strategists are least likely to change employer (21%) whereas designers (43%), account managers (44%) and those working in other roles in the agency (36%) are most likely to leave.

A substantial change in those responsible for the day-to-day client satisfaction and delivery may have an impact on the agency’s ability to service and farm existing clients. There is also a risk of losing knowledge and experience. Agencies are likely to face the need for financial and time investment in the recruitment and training of new talent, which they can ill afford.

Stef Brown, Managing Director of On Pointe Marketing, says: “Agencies are all about people. Building relationships and satisfying existing clients is one of the best ways to weather any downturn. If agencies start losing the key staff that deliver the work, they risk damaging those relationships to the point where clients may decide to look elsewhere. They also risk being so stretched that they’re unable to seize new opportunities as the market begins to pick up.” 

Perceived agency delivery gap is major factor in deciding whether to stay or go

We asked respondents to tell us how important a series of agency attributes were to them personally and how well their agency is currently performing against those attributes.

Across the industry, people agree on what makes a good agency.

We then measured the difference between importance and performance, which we call the delivery gap. We found that employees who intend to change job perceive bigger agency delivery gaps than those who wish to stay. The median gap is just 13% for those intending to stay and 36% for those intending to leave.

The five attributes in which there is the greatest difference of opinion between those intending to leave and those intending to stay are: ‘rewards people for going the extra mile’ (39% difference); ‘has a management team that demonstrates strong leadership skills’ (35%); ‘helps employees to manage stress’ (33%); ‘supports professional development and growth’ (32%); and ‘is quick to change in reaction to new situations’ (29%).

Rachel Fairley, Managing Director of Fairley & Associates, believes: “Employees agree on what makes a good agency and on how their agencies are letting them down. For two-fifths, enough is enough. It isn’t about money; everyone knows money is tight. It is about respect and appreciation. Agencies must empower their managers to lead, coach and nurture their teams so employees are involved in ensuring their agency’s and their personal success.”

Crucial deficits in agency performance in the psychosocial work environment

For those intending to leave, the greatest delivery gaps are in the psychosocial work environment such as job demands, job control and workplace support/training.

The perceived delivery gap for those intending to leave is significant: ‘rewards people for going the extra mile’ (64%); ‘supports professional development and growth’ (60%); ‘provides training’ (55%); ‘helps employees to manage stress’ (55%); ‘appropriate workload for staffing levels’ (53%).

Jobs with high demands and high control are generally considered the most rewarding whereas jobs with high demands, low control and poor workplace support are worst for mental and physical health. To retain talent, agencies need to nurture their employees. This may also improve their perception of the leadership skills of their management team.

Karina Beasley, Managing Director of Gabriele Skelton, says: “As a recruiter, of course we are reliant on people moving from one agency to another. However, we also want our agency clients to thrive, and from the results of our research, many are risking their future success by not paying attention to nurturing, and therefore, retaining their employees. Bearing in mind the level of redundancies in the first half of 2009, many agencies are now down to teams comprised entirely of their key people – the very people they can least afford to lose when the upturn comes. It is vital that they look at how to reward and recognise their people – something which doesn’t have to cost a fortune.”

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