The global advertising industry is undergoing a dramatic shift. And while the change will bring about massive opportunities for those who catch on, the less dynamic agencies are likely to face a downward spiral.

In conversation recently with a top executive from one of the communications conglomerates, we discussed the current pressing topics in the advertising industry. Perhaps the most central issue is the continued erosion in clients' perceptions of value creation by agencies.

Specific symptoms include pricing pressures from a procurement mentality, increasing competition from adjacent industries such as the new digital media companies and strategy consulting firms, and a drive to the commoditisation of advertising creative within the array of services offered by the advertising and marketing communities.

Chasing the play
If a potential client goes to London advertising agency St. Lukes and asks them to go away and create an advertising campaign, they refuse. Yet the agency's billings have consistently outperformed its peers. "We only co-create with our clients," St. Lukes chairman Andy Law says. St. Lukes, as a matter of course, works closely with its clients to result in campaigns that have been created by the joint efforts of both parties.

The global advertising industry is in the midst of a dramatic transformation, and St. Lukes is one of the agencies at the vanguard of these deep shifts. Over the last decade, traditional advertising agencies have been squeezed hard both by new competitors and clients, which often saw them as providers of commoditised services. Now, the dramatic explosion of media and communications driven by digital technology is resulting in massive opportunities for agencies. However, only those firms that adopt new ways of working with their clients and develop new skills will be able to take advantage of these opportunities, while the less dynamic firms will struggle at best.

In my book "Developing Knowledge-Based Client Relationships: The Future of Professional Services", I describe the difference between black-box services and knowledge transfer. A black-box service is one in which a service is rendered to clients, but they do not know what goes on in performing it, and are literally none the wiser as a result. In contrast, knowledge transfer requires rich interaction between client and supplier, usually draws on the diverse skills, experience and knowledge of both, and often results in greater knowledge and capabilities for the client, not just a service performed.

The traditional black-box view of advertising is that the agencies' job is to go away, and in some creative miracle, come up with brilliant ideas to present to their grateful clients. This no longer works, not least because in this model, there is no true relationship with the client -- just the briefing and final presentation. Agencies sometimes wonder why they are not getting respect from their increasingly sophisticated clients; many of them desperately need to lift their game.

Of course, a collaborative approach only works if the client is willing to engage actively with its agency. Some clients are placing strong pressure on their agencies, notably on fees, while unethical practices such as stealing ideas presented in pitches are still sometimes seen. Interestingly, the agencies that focus on collaborative approaches tend to find the most sophisticated clients.

What is likely to happen is a growing divide in the industry. The best agencies will be in a position to choose as their clients the most sophisticated companies that want to work in highly interactive processes, while not only will the other agencies be left with the rest of the clients, but the clients who treat their agencies as providers of commoditised services will find they can only find second-tier firms to work with them.

Ross Dawson is chairman of Future Exploration Network and a globally recognised keynote speaker and author.