McKinsey & Company’s recent acquisition of VLT Labs saw the 16-person VLT Labs team assimilate with McKinsey's global digital community with over 2,009 digital experts. Going behind the scenes, A+M spoke to Michael Gryseels, senior partner and Asia Pacific leader of McKinsey Digital Labs, to find out what made VLT Labs attractive to a consultancy such as McKinsey.
Gryseels told A+M that the integration of the VLT Labs team is a key move in bolstering its ongoing digital product engineering and design capabilities. In the past, the two had also worked on several engagements, where the teams saw synergy and similarities in the level of talent, focus on client impact, and core values in serving clients in Malaysia and across Southeast Asia.
As such, the “acquihire” made perfect sense to add to “the ongoing growth of McKinsey’s digital capabilities in Asia, where client demand is fast-growing".
“Through this transaction, we are integrating a leading Malaysian digital product and business builder into our global team, bringing greater scale to serve our clients in the region. Our long-term plans continue to include the growth and development of our top-tier talent, while continuing to bring our user-centric approach to innovation and problem solving to organisations all over the world,” he said.
Moreover, today, digital engineering and design are an increasingly important to McKinsey. The use of digital, design and design-led, end-to-end transformation is also increasingly becoming a critical priority for its senior management and boards.
Meanwhile, as an active participant of the startup and entrepreneurship community, VLT Labs has a strong presence and an extensive network in the region’s design and tech community – where McKinsey will continue to grow its talent base in particular in Southeast Asia.
“The acquihire is a key addition to our digital business building and product development capabilities,” he added. When asked if more of such acquisitions were on the cards, Gryseels said:
“Although we cannot comment on our growth plan, like with VLT Labs, McKinsey is acquiring people and assets from specialist companies to offer its clients enhanced services and approaches and new solutions and tools.”
He added as clients face uncertainty and the risk of disruption of their businesses, “we too have enhanced our approach to incorporate start-up team principles and user-centric design to help organisations stay ahead of these risks".
Adding to the conversation, Warren Tan, founder and chairman of VLT Group said, “If I were to be brutal, I'd say that advertising is dead.” In order to serve the clients and businesses of tomorrow, advertising agencies need a complete overhaul of the model. Moreover, clients are no longer wanting to talk about creatives, media, or the channels.
“Instead, we're talking about building products, making their brand relevant to their digital-first customers, and creating real business impact. Agencies cannot think in creative, media and even ‘digital’ silos anymore,” he added.
Tan said that McKinsey's acquisition of VLT Labs is particularly special to the agency as it validates all that VLT Labs have championed, and believed in, over the last few years.
“We've always been huge proponents of digital tranformation, and helping our clients build the digital firms of tomorrow. We've always believed that digital serves a lot more than just an advertising, communications and marketing function, and that true digitalisation means transforming the very core of a business,” he added.
More such deals in Malaysia?
Tan added that there will likely be more deals happening in Malaysia as the large management consulting firms now play catch up in this space. Additionally, media analysts have been predicting big professional services and IT consulting firms such as PricewaterhouseCoopers, Accenture, Deloitte, IBM, KPMG and McKinsey to acquire smaller agencies to boost marketing and digital capabilities in gaining a larger slice of client pie for years.
Ad veteran Tan Sri Vincent Lee who founded NagaDDB and Foetus group, said it is not entirely new that international agencies have their foot set in this country. The trend first began about 40 to 50 years ago, with global MNCs acquiring local agencies “as a quick way to enter the market and/or gain market share".
“Progressive digital agencies will always be in demand and it is actually easier to setup a specialised digital agency nowadays compared to before. Large sums of capital are actually less required and rather it is human capital that has become more essential. In the past, vast amounts of capital was needed simply to gain media accreditation. It is clearly an open game now,” Lee added.
Agreeing that the trend above will continue and intensify, Prashant Kumar, senior partner at Entropia said “big consultancies need these acquisitions, both as a cultural catalyst as well as to bring in new talent assets and experiment with new structures,” in their battle to fight for digital advertising pie.
David Soo, newly minted managing director of Zenith Media Malaysia, said this trend of a global consultancy firm acquiring smaller agencies will continue to unfold globally and in Malaysia, particularly among specialist agencies. Buying up specialist agencies would enable them to provided end-to-end solutions to their clients, he added.
Threat for ad world?
These acquisitions do pose as a threat for some of the industry players in the advertising world.
"The threat is real. These consultancies engage with senior clients and CXOs and they speak the client speak on business and ROI. This is not typically agency speak, which is mainly focused around vanity KPIs such as like shares visits - which are all less important to say a CEO of an FMCG who is concerned about their sales and distribution numbers,” he said.
As such, agencies need to be able to engage at that level by looking at how they approach client problems and start putting themselves in the shoes of marketers and decision makers.
To remain relevant, Kumar said agencies must go upstream, develop strong business understanding and commercial value of digital shifts.
"Consultancies are already plugged into digital transformation and e-business for several major companies. Their expertise, upstream clout and understanding of business value gives them certain advantages in going downstream, where most classical global networks operate. However they are typically at a disadvantage when it comes to insights, ideas and creative thinking. So it makes natural sense for them to acquire assets that can provide a bridge to this other world," Kumar added.