How AI is Disrupting Your Agency Relationships

TLDR:

• AI adoption is transforming client-agency relationships at a foundational level.
• CMO's and agencies should focus on joint AI roadmaps, capacity development, transparent cost-savings, and new commercial models.
• "AI-fueled but human-led" strategy and creative is an emerging sweet spot for the CMO-agency value proposition.

There’s been a lot of conversation about how AI is disrupting marketing teams, and also about what the future holds for more traditional marketing agencies (from advertising to digital, content, social - all flavors). But what does AI do the relationship between the two? How has the dynamic changed?

I spent about 8 years working agency-side, the last few a Chief Strategy Officer overseeing key client-facing functions ranging from strategy and analytics to UX and interactive development, while also owning a book of business directly. In that time I lived first-hand the ebb and flow between client and agency driven by new tech, new channels, and constantly shifting expectations around what value the agency should be bringing to the table. However I don’t believe we’ve ever seen as much pure chaotic disruption as we’re experiencing now, thanks to the AI “revolution” underway across marketing and creative functions.

What we’re seeing

• Aggressive AI adoption across the agency model: Just like on the client-side, every agency with any sense of self-preservation is aggressively experimenting with and deploying AI across their value chain, from strategy to creative production. If they’re not, they are either purists (and hats off to them for that) or will soon be scrambling to play catch up. It’s not a happy place to show up to an RFP pitch and be instantly cast as the non-innovative laggard, unless you have gold-plated creative portfolio.
• AI adoption heavily centered on creative production: This should have the caveat “for better or worse” as, in my view, the human element in agency creative should remain paramount, lest we get flooded with slop like the recent AI-generated Coca-Cola commercial. But it’s the natural starting point for both agencies and in-house marketers, creative, and especially content production is ripe for AI cost efficiencies.
• Good agencies are using AI to support strategists, not replace them: Just like AI tools can be powerful research and ideation supports for in-house growth and product marketers, so can they be for agency-side strategists of all flavors. The danger lies in seeing AI as strategist replacements in the fervor for cost-reductions - see below for more on that.
• Internal AI-driven cost savings becoming a double-edged sword: As both clients and agencies start to realize significant cost reductions due to AI deployments, this is starting to upend the traditional agency billable hour business model. Perhaps rightly so, as clients want to share in some of those cost efficiencies. It risks upending the entire model.
• Agencies scrambling to redefine value prop: The net result is an evolution in the understanding on both sides of what the agency value proposition is within the client marketing model. Agencies are pivoting towards AI-fueled but human-led strategy as a differentiator, where they can still put forward their expertise and strategic partnership to clients as unique value-adds that are difficult in replicate in-house. Same goes with high-end creative strategy and bold creative vision.

CALLOUT: A couple years ago, in the “early” days of Gen AI adoption, I hired an agency to develop a content series for one of our websites. The output was good, the agency relationship was great, and the early results promising. But mid-rollout, I asked one of my directors how easy it would have been to simply use GenAI + light human editing in-house to do the entire project, for a tiny fraction of the budget.

What CMO’s should be considering:

• Separate strategy from execution and production: When evaluating agencies and your relationship with them, explicitly separate strategy from execution. Thanks to AI, execution is rapidly becoming commoditized, but having a true partner with bold strategic and creative vision is hard to replicate.
• Lean in on “AI-fueled but human-led” agency engagements: In my CMO experience, by far the best agency relationships I had were centered on key agency experts becoming trusted de facto members of my leadership team. I love if they use AI to help fuel their thinking and creative, or give them the gift of more capacity, but I mostly valued their very human insights.
• Rethink your commercial model: An old trend that should be accelerating in the age of AI, shifting away from billable hours in favor of outcome and performance-based compensation and incentive contracts.
• Share in the AI cost savings: If you are paying by the billable hour, work with your agency partner to bake a shared benefit from AI production cost savings into your contracts. Avoid the potential acrimony of “if they are so great at using AI to be efficient, how come I’m not seeing any of the savings?”
• Demand AI transparency: To that end, demand transparency from your agency partners about how and where they are using AI in their deliverables for your team, including which tools and platforms. Ensure there are no unhappy or suspicious surprises down the road, where you or your team questions the value or expense of the work.
• Co-invest in joint AI capacity building: This AI marketing disruption is a journey, one we’re still likely in the very early stages of. As your team builds out AI infrastructure, processes, and expertise, work hand-in-hand with your trusted agency partners to do so jointly with them as they build out their own. Find shared wins that make both teams more effective and efficient.
• Build internal AI literacy: Building off the above, this one is a bit of a no-brainer and no doubt already in motion for most CMO’s out there. But worth noting, never outsource AI literacy to your agency partners. Develop that knowledge and skillsets internally so you can fully realize the value of it with your agency partners.

When I wrote earlier about the primary thesis of this site (Beyond Resilience: Why Marketing Leaders Need Disruption Fluency Now), that going forward effective marketing leaders and organizations must evolve to become disruption-fluent, the massive disruption of the moment that is AI was obviously top of mind. The fundamentals I mentioned there - building a flexible organization that harnesses the tenants of adaptive, enabling, administrative, and transformational leadership - are both timeliness for navigating any kind of disruption and hold absolutely true for transforming your agency relationships in the time of AI.

Read more

How AI is Changing the Agency-Client Relationship - Future Week

How AI Will Shape the Future of Client-Agency Relationshops - The Faith Agency

What AI Means for the Future of Agency Brand Partnerships - MarTech

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