Digital Structure In Traditional Agency

Interesting question.

Think the approach you take depends on a number of existing factors:

1. Culture - if the agency has a negative culture (it'll never make money) culture towards interactive then it may be best to break it out to a separate P&L and prove the capability as a stand alone entity (at least in accounting terms. Once you have the numbers to prove it the exec will slowly change their tune and hence agency culture will begin to change.
2. Skills of existing staff - No point blending in with the existing Account Service/Creative function if they simply don't have what it takes - interactive AMs/ADs have a totally different set of skills and it is sometimes tempting to think that they can manage digital in the same way as other activity. Let's face it digital is complicated and its very easy for AMs to start making promises that will never stack up in production.
3. Nerd Factor - Most of the great interactive agencies have 'real nerds' - not the interface designing, mac loving, flash building kind of nerd - we're talking PC loving, AJAX coding, LAN gaming, Star Trekkie kind of nerd. These kind of guys are the key to turning out work that not only looks good but works well too. In my experience it is rare to find a traditional agency that understands the wants and needs of this very important ingredient.

Thanks for the response, it is great input.  The executive group is behind digital, we've had a fledgling "team" for about 4 years. We definitely need more nerds.  It sounds as if a distinct group makes sense and then blend with the rest of the agency as we educate and transform the rest of the agency.  I believe we need to be digital at our core, but I don't want to pretend to have it.  Where would you put web strategy with Acct Mgmt or Media?

I would start it in Account Management as digital strategy goes way beyond media. It means you need to find Account Managers/Directors who really get digital - not an easy find in today's market.