De-Conglomeration Comes to Communications Agencies

Photo by Usman Yousaf on Unsplash.

Growth is often the goal for businesses, but bigger is not always better. Increasingly, companies and their customers are realizing the benefits of being smaller, more nimble, and specialized.

In recent years – and especially since the pandemic created an e-commerce boom – innovative startups have gone head-to-head with incumbents in nearly every industry, in some cases disrupting the category entirely. As the “little guys” lean into their strengths, the larger ones shed layers. Alan Murray, president & CEO of Fortune, describes de-conglomeration as “a trend of our times,” citing GE’s decision to break up into three companies focused on healthcare, power, and aviation as a proof point. 

The same technology and financial factors driving decisions like GE’s are at play in the legacy communication and public affairs industry, too. Combined with clients’ evolving expectations, we’re entering an era of rapid disruption in a field that has been stubbornly resistant to change. 

In the tech space, the eight largest PR firms experienced a five percent drop in market share between 2019 and 2021. Meanwhile, new specialized comms shops continue to emerge. The number of these challenger firms in the U.S. has increased by an average of 5.3 percent per year from 2017 to 2022. 

The data suggest a growing realization that smaller firms are often better able to deliver on the evolving needs and expectations of the modern marketplace.

Bespoke communications solutions

Moving forward in the fields of communications and corporate strategy, we will see a greater emphasis on precision-matching business needs with a “special ops” team of experts. Often, this will lead companies to opt for multiple specialized partners rather than one large partner.

Generative AI is accelerating this trend by making it faster and easier to produce products of work – commodities – such as marketing creative. Large creative services, communications, and PR firms are accustomed to accruing significant billable hours for this type of work. However, businesses are becoming less willing to spend big sums on deliverables that could be quickly created with tools like Canva, ChatGPT, and DALL-E. These tools aren’t replacements for creative service partners. But they are raising questions about the value of some of these firms.

This creates the likelihood of increased value placed on strategic partnerships with skilled advisors who can drive tangible results, with decision-making that can’t be outsourced to a machine.

The ten-thousand-hour advantage

Executives want to work with people who have decades of experience in the trenches – people they can learn from. Companies are tired of getting their work pushed down to the most junior team member. No matter how bright that junior person may be, it is hard to compete with the wisdom of experience. Experience leads to better decision-making. Because decision-making is a matter of pattern recognition.

No comprehensive business playbook exists – there is no objective right answer to every choice or question. Instead, business leaders must learn to recognize the decisions most likely to yield the desired results, drawing from past experiences and the information available to us. When someone lacks decades of experience, they benefit greatly from partnering with consultants and strategists who do.

As Malcolm Gladwell explains in his book, “Outliers,” getting good at any complex task – whether it’s playing chess, composing classical music, or creating a business strategy – takes practice, not just talent. The next-best-thing to logging your own 10,000 hours is to work side-by-side with someone who has.

A true, differentiated partnership

Another differentiator between a small firm and a larger one is the depth of the client relationship. Conglomerates simply don’t have the capacity to work as closely with clients. Clients want partners who can go deep with them – understand the dynamics of the organization so that they can begin with strategic goals and work backwards to determine the right tactics for each scenario.

It goes back to time spent. Just as more hours spent practicing a craft correlates with the quality of the output, spending more time with a company’s leadership allows top firms to deliver differentiated results.