There is a six-storey hole in the ground in Old Montreal with Sid Lee’s name on it. On the rainy autumn day of my visit, the hole is a wet, gray, iron-filled mess of a construction site, standing in contrast to the colourful, bustling agency office across the road brimming with enough international talent to, well, fill the hole.

The hole is the product of Sid Lee Architecture, one of several new business units Sid Lee’s core “commercial creativity” company spawned this year that capitalizes on its expanding list of in-house talents. The company’s partners similarly opened a production company, Jimmy Lee, when they found they were instructing third-party production houses on their particular style of web design. It also created a new service that monitors brands in social media and, if that wasn’t diversified enough, acquired a minority stake in a “nutri-cosmetic” company.

In many ways, Sid Lee is a bit of a square peg in Agency of the Year’s round hole.

It puts on art shows and pitches retail design accounts as often as brand campaigns. But it also goes head-to-head against Canada’s biggest and best ad agencies, and is lauded by them for its impressive international reputation and groundbreaking business model–using a diverse cross-section of creative talents to drive sales, solve business problems and produce eye-catching creative advertising. It’s been working for years, and in the last 12 months won the company new accounts with eight major international brands, a full shelf of major awards (a silver Lion in Cannes, seven Marketing Awards, two trophies from the One Show, a Grand Crea and a Webby) and a 10% revenue bump.

Others on Marketing’s Top 10 Agencies list bested the recession by posting revenue increases, Mosaic and Twist Image to name two. The list also highlights solid Canadian-made creative work.

The Hive’s standout “Bicycle Factory” work for Cadbury not only gave the international brand a unique Canadian flavour, it did a lot of good in Africa where it shipped 5,000 bicycles.

But 2009’s Agency of the Year is not simply the biggest earner or most noticeable creative department, important though those factors are. This was the year the industry changed drastically and perhaps permanently. As traditional agencies adjust their operations to accommodate lower ad spend and fragmenting media habits, many are starting to look–or at least say they want to look–like Sid Lee. We considered that proof of its concept, cementing its place as Agency of the Year.

Large and small agencies alike are now seeing value in hiring across multiple, non-advertising disciplines to stir their creative tanks, coming closer to Sid Lee’s “cross-section of creativity” approach that assembles diverse creatives into studios or ateliers for each assignment. The next time you hear talk of media agnosticism or breaking down silos, bear in mind that Sid Lee has never had silos to break.

Though many agencies are trying to work their way deeper into client operations to do more than straightforward advertising, Sid Lee has never been afraid to shun advertising in favour of retail design, product creation or, as it recommended to Tourisme Montreal, drop all traditional advertising to focus on online and social media outreach. “[Sid Lee] confronts us every day with new ideas, new ways of doing business,” says Emmanuelle Legault, director of communication for Tourisme Montreal.

Quebec telecom Videotron (which spent $33.5 million on measured media in 2008) moved its account to Sid Lee without a review late last year, marking one of the largest account shifts in the province. The agency rebranded the company across all its divisions, including phone, Internet and cable. Sid Lee got the job partly because of its global reputation for stand-out creative, and partly because it’s a square peg.

“They’re not just doing advertising,” says Claude Foisy, vice-president, brand and content at Videotron. “They are able to look at the brand and go deep into tactics to make it real, a living brand.” Perhaps Sid Lee is successful in pushing clients in new directions because it is willing to do so itself.

What began as a design company run by graduates in 1993 got into advertising through direct marketing projects for local clients.

It went digital in 1999 by acquiring Stratego, thus beginning its atelier model of mix-and-match creative teams. Fast-forward to 2009, the company isn’t only creating advertising but creating companies, investing its capital and reputation in Functionalab, a nutri-cosmetic company that sells cosmetics and nutritional supplements in a “store within a store” at upscale New York retailer Henri Bendel.

Even its new architecture arm won’t stay within conventional lines. In addition to the hole in the ground in Old Montreal–destined to be a 20-storey multi-use building–it has designed a spa called Spa NYSA on a boat that will moor in Montreal’s Old Port.

There is temptation to overplay Sid Lee’s unconventional-ness. At first glance, Müvbox–the portable, restaurant that transforms from a shipping container inspired by the work of artist and designer Adam Kalkin–may have seemed like a stunt to generate attention and awards. One can look at the Sid Lee Collective, its “creative incubator,” or the family-like atmosphere that exists around the communal lunch table and think the shop bohemian. But the agency partners bristle when they’re called “artsy,” a term agency president Jean-François Bouchard recalls reading in a recent article.

“Our belief is the most potent business weapon is creativity,” says Bouchard. “Everything is rooted in strategy and market success.” “I think the [artistic] look and feel of our agency has a tendency to project out,” adds Bertrand Cesvet, agency chairman. “That doesn’t mean we’re not rooted in something that’s really materialistic and commercial.”

Yes, part of the Collective’s goal is art for art’s sake. But François Lacoursière, senior partner and executive vice-president, says it’s also a great talent magnet.

“We also use these projects as an R and D experience to try new ways of working, of creating and be able to market projects in a unsual way,” he says.

As for Müvbox, Bouchard says it was all about showing “how we can come up with a comprehensive solution for a small entrepreneurial client.” The concept has been sold, incidentally, to an international restaurant chain. Look for it to appear in Europe next year.

Foisy believes the agency’s artistic spirit benefits Videotron because the creative thinkers are freer to follow their instinct.

“They’re more open to new ideas and coming at problems with new eyes,” Foisy says, but he knows the agency is focused on his bottom line. “They don’t think outside the box for the sake of thinking outside the box.”

The agency calls this philosophy “commercial creativity,” the belief that creativity can drive profits alongside innovation. As proof of Sid Lee’s nonartsy business savvy, Bouchard points to his success with retailers like IGA and Societe des alcools du Quebec, where success metrics like foot traffic and sales growth are immediately apparent.

Bouchard even breaks down assignments for “artsy” clients into business-like terms. “With Cirque du Soleil, our job is just to sell tickets.”

The creativity-as-a-business tool approach works for more traditional ad assignments as well. After winning agency-of-record status for Adidas Originals, the agency produced the “House Party” brand campaign late last fall.

“It’s a big brand with a lot of breadth in terms of the consumers it talks to,” explains Cesvet. “The kid who listens to hip hop is not the same kid who listens to electronic music. We had to create a campaign that could bring all these constituencies together,” which it did by bringing celebrities from these “constituencies” to a house party that lived as an online film, video teasers and vignettes, a website and, surprisingly, in clubs thanks to the song Cesvet found for the campaign soundtrack–a particularly catchy remix of Frankie Valli’s “Beggin’.”

After the campaign launched, Cesvet recalls visiting a New York nightclub.

“All of a sudden, they put on our mix of “Beggin’ ” and the crowd went nuts.

People jumped… It was resonant. I mean, we work in advertising. Did I sell something? Yes. Did we get a million hits on YouTube? Yes. But creating something that’s culturally resonant, that’s a first.”

Incidentally, Sid Lee says Originals’ sales went up, too. Adidas won’t provide hard numbers, but liked the campaign enough to pass more work along, including design duties for its SLVR retailer, and digital creative duties for its fashion label Y3.

So, the model works and, according to Bouchard, will work next year regardless of how the economy performs. Sid Lee is not immune to the recession, he says, but “the notion of doing more with available resources is a big part of our thinking. Part of our strategy is making sure that when a dollar is given to us, we have the means to fully exploit it. Our craft is about helping clients manage all contact points with their own customers. If you’re more efficient in doing this, you make better use of budgets given to you.”

Because it has never been tethered to the 30-second spot–which we all know faces an uncertain future–Bouchard says the agency has only been exposed to half the “calamities” others have faced and sees no reason to rethink how it does business.

“This industry is on shaky ground for two reasons. One is circumstantial–the economic context. The other, I believe, is fundamental–the service offering.The status quo is far riskier than pushing the envelope.”

The agency’s partners are so confi dent in their business model that they exported it to Europe, opening offi ces in Amsterdam late last year and in Paris this year, the latter to work primarily for Ubisoft. The video game company is treating the collaboration like a state secret. While Bouchard only says it involves “important assignments... launching games worldwide,” Ubisoft has three blockbuster franchise games launching in the coming months, including one for James Cameron’s digital fi lm opus Avatar.

The 10 Sid Lee staff in Paris have also won work with Eurostar, the rail company that moves passengers under the English Channel between London, Paris and Brussels . It s “New London” campaign used the agency’s considerable online expertise to create an experience beyond transit maps, rates and schedules. To increase travel to London from the continent, it hired British artist James Jarvis to create two art pieces in a studio space monitored by cameras.

Visitors to NewLondon.fr could track the works’ development over fi ve days with a 200,000-photo timeline that’s easy to view thanks to a slick and simple interface–one of Sid Lee’s trademark web elements.

“It’s about the street credibility of Eurostar as this player that knows London better than anyone, that can connect you to the right scene,” Cesvet says.

Eurostar is just about the only other European client Sid Lee will make public; many companies are unwilling to acknowledge on the record that they work with Sid Lee for fear of damaging other agency-of-record relationships.

“In Europe, we knock on doors and people want to get to know us,” says Cesvet, who moved to Paris to oversee operations there. “People give us projects.

We go in, people fi nd us interesting and tell us ‘We have this thing that doesn’t fi t in any box. My agency of record doesn’t know what to do with it.’ So we get in based on that.”

Bouchard calls them “Trojan horse” projects. It was project work that led to multiple brand assignments with Adidas. Sid Lee now has Trojan horses inside the European operations of a major soft drink company, an international beer brand, and a new chunk of an existing client’s account. Fully 20% of Sid Lee’s revenues now come from Europe thanks to such projects–from offi ces open barely a year.

Now that the partners have Toronto in their sights for the company’s next expansion, maybe Canada’s agencies should brush up on their Homer too.