It is official. Creativity is declining. A study conducted by KRC Research among creatives in the US and the UK states it. Released during Advertising Week 2013 in New York, it reveals that 50% of the creatives feel that the level of creativity has declined over the last 10 years. Digital communication means that across media, more standout work needs to be produced in less time at lower budgets. Sometimes the pressure is unreasonable. The most revealing comment cited by the study was from a client asking the creative team to “make the black darker" in a particular advertisement. Most seasoned advertising people have their own versions of such incidents (just see Clientsfromhell.net).

Whatever the accuracy of the study, it confirms what many insiders are sensing for a few years now. The creative industry is undergoing a classic disruption, in which an innovation creates a new market that ultimately overtakes the existing market. The innovation shaking up the creative industry is obviously the Internet and the two-way communication norm that it sets—away from the one-way norm of classic media. The number of two-way channels to reach people is proliferating by the day, causing fragmentation of communication as well as new opportunities. The launch of 4G telecom services by Reliance and Airtel has the potential to cause not only a developmental revolution, but also one in India’s advertising industry.

All over the world, cheaper and more flexible agencies are eating into the classic business of the traditional big agencies. It started with search engine optimizers. Then came the online advertising agencies—who could help brands go viral (or so marketers thought). Then came the pure social media agencies and then the online activation agencies and creative digital platform builders. Then came technology specialists, who could do amazing things with projection mapping or augmented reality, for example. Then came mobile communication agencies and app developers who began to demand a part of the communication budgets. PR firms started doing digital PR.

The big agencies responded by setting up their own departments in all these areas or by acquiring successful specialist. And it seems they are doing reasonably well. Over the past couple of years, the return on invested capital—perhaps the most important measure of long-term economic success—has been relatively steady for large networks such as Omnicom (owner of BBDO, DDB, TBWA), WPP (owner of Ogilvy, JWT, Y&R) and Interpublic Group (owner of McCann, Lowe, Draft). But, according to some analysts, only Omnicom, which is merging with Publicis, is consistently generating returns above the so-called cost of capital (the interest on the debt plus the risk premium for investors of the equity capital the company has attracted to invest in the enterprise). Only when a company invests above the cost of capital (around 10-12% for most companies) is it creating financial value. If this cursory analysis is correct, the shocking conclusion is that large parts of the creative industry are simply not creating value. In fact, they are destroying it. Despite many individual agencies doing great, all is not yet well in the industry as a whole.

The biggest problem for the creative industry is not digitization itself, in my view. It is the lack of high-calibre business and brand strategy thinking inside agencies and their client’s organization, to link creativity to what really matters to companies in the long run. With good strategy, good creativity can produce disproportionate financial value. Without strategy, however, creativity can become colourful chit-chatter. The best creatives think strategically, but they are a tiny minority. The rest need back-up.

The structural problem is this, in my opinion. Brands must influence two types of customer choices: stimulus-based choice (you see a promotion and you buy the brand) and memory-based choice (you form a subconscious judgement about a brand over the years and act to buy it at some point, unprompted by an external stimulus). Everyone can buy the tactical support to create stimulus-based choice online and offline, which is necessary for most brands. But the ability to also generate memory-based choice is the hallmark of really great brands and the outcome of strategy.

However, the proliferation of digital media is especially used to increase the number of opportunities to induce stimulus-based choice, generating instant sales conversion. And that pulls more and more attention away from developing sustained strategies over time that build robust, relevant and distinctive impressions in the minds of the people on who’s trust a company depends to become a great brand and institution. The creative industry is, therefore, increasingly losing its ability to contribute to long-term wealth creation in favour of short-term sales stimulation. My prediction is that this will undermine its margins and make it less stable.

Agencies who are able to really link creativity to long-term value creation, in a process that relies on hard work rather than fuss and fad, will be able to create tremendous value for clients and for themselves. They may be able to forge the business model change to counter the industry’s disruption. It is not easy, because it requires the integration of a broad range of experts who traditionally do not speak the same language and can initially even be antagonistic to each other. Yet, there are firms who are taking steps in this direction in ways that look promising. It may offer great hope to creatives. And to CEOs, CFOs, CMOs and business owners bent on continuing to build great brands that last.

Tjaco Walvis is the managing director of brand consulting and advertising agency THEY India, and a speaker at the Outstanding Speakers’ Bureau. He writes a fortnightly column on the softer cultural aspects of marketing that often tend to be ignored by marketers.

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