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Service Provider Consolidation in 2014: It’s Happening, So Get Ready

speedskatersMicrosoft has an eye-popping $1.3 billion marketing budget, according to a recent AdAge article, and is now undergoing a strategic review of its agency relationships. The article noted that incumbents that will be vying for this business include Publicis (who in turn recently announced a merger with rival Omnicom), WPP, and Interpublic. One can only imagine what kind of frenzied activity is happening among the ranks of those agencies to get through this review successfully.

Get ready – more companies will follow Microsoft’s example

Researching for our customer experience management (CEM) guides for North America and more recently Europe (to be published in late March this year), we’re seeing a major shift in the service provider/buyer relationship. To more and more companies, customer experience is no longer considered a concern for their marketing or customer service departments alone. Service providers – digital agencies, as well as systems integrators – report that they are starting to see savvier buyers who come increasingly from the top ranks of an organization, rather than from individual lines of business. These new buyers have a strategic mandate to improve customer experience, which is coming directly from from the CEO or equivalent.  And when they dive into planning to do this, companies are finding that they need to rethink their entire organizational structure. As a first step, the more forward thinking companies are appointing senior executives who can bring together the physical and digital worlds: witness Apple’s hiring of former Burberry CEO Angela Arendts last autumn.

Change in perspective

When you start making big changes to your organizational structure, your existing partnerships may no longer make sense the way they once did.  It’s the same as if you undertake a home DIY project: you paint a room, and once it is done you realize that the lighting is too bright or the blinds need a good cleaning or the sofa needs reupholstering. When you change the way something has been for some time, all its related bits and pieces may no longer fit.

Consider Microsoft:  CEO Steve Ballmer unveiled the One Microsoft strategy in July 2013, in which the company would be reorganized by function rather than by brand. One piece of this strategy was the creation of a new centralized marketing group, which subsequently decided on the agency re-evaluation. As businesses look for partners that can wrangle their own diverse products and divisions into a more unified structure to improve on the experience they provide to their customers, M&A amongst service providers is expected to accelerate. Currently the market is complex and fragmented. In our service provider interviews, a frequent response to the question “whom do you see as your main competitors?” was “it’s complicated,” sometimes accompanied by a little chuckle. Indeed, some service providers we spoke to had just recently been acquired (Everis by NTT Data), were acquired shortly after we spoke to them (Profero by Interpublic), or in turn did the acquiring (SapientNitro of La Comunidad).

CEM Shake-up

This two-pronged consolidation – of companies and their service provider relationships, and of service providers looking to improve their scale and capabilities to successfully compete – will create a shake-up of the CEM landscape. This is a good thing. And a trend that all players in this market need to prepare for.

  • For software vendors, this will mean more opportunity for increased sales as CEM initiatives increase in size and across geographies; executives responsible for service provider partnerships will need to be prepared for this.
  • For service providers, the time is now to spend more time considering where you want to be in the next 2-3 years, and if that will mean organic or purchased growth.
  • And for the buyers driving this consolidation, though addressing customer experience requires speed, make sure you do adequate diligence on your future partners and how they will advance your goals.  Merely choosing by sheer size or brand reputation may come back to haunt you in the longer term if the capabilities you most need are absent.

As always, if you’re looking to find the right-fit service provider or you need some guidance understanding the nuances of the agency / integrator landscape, we specialize in helping with both. Please feel free to contact us. We’d be honored to help.


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