Agencies as Business Transformers: The Current State of Play

By Madison Avenue Makeover Archives
Cover image for  article: Agencies as Business Transformers:  The Current State of Play

Agency senior executives are coming to terms with changes in client needs.  “More growth” rather than “more creativity” is what they are hearing.  The agency of the future is starting to sound more like a consulting firm with media and creative capabilities than a traditional service-oriented agency that wins awards.

For more than a decade, agency clients have struggled to rekindle brand growth in the face of challenges on many fronts: media fragmentation, digital transformation, e-commerce disruption, generational shifts (Boomers to Millennials) and the constant pressure of "increased shareholder value" to support inflated client pay levels (in 2018, CEOs of S&P 500 companies received, on average, $14.5 million in total compensation).

We should not be surprised that advertisers failed in their brand-growth missions. There were too many variables changing at the same time, and marketing did not have the experience or the understanding to generate growth in this frightening new world. Their agencies were of little help. Consequently, advertisers pivoted to cost-reduction strategies -- margins had to be generated one way or another, and when top-lines falter, costs will be cut. This, more than anything else, explains the rise of procurement and the decline of CMOs in the executive suite.

Media and creative agencies took it on the chin, and under pressure from their holding company owners they, too, focused on cost reductions -- cutting headcounts and juniorizing their staffs, all the while struggling to handle increased client digital and social workloads. This strategy appeared to be working if all you measured were holding company share prices. WPP’s share price grew from about $25 in late 2008 to nearly $120 in mid-2015, stage-managed by the ever-aggressive Martin Sorrell. Omnicom and IPG share prices grew as well, although not at the same high rate.

However, these agency cost-reduction strategies were tactical successes and strategic failures. Hidden from the investing public but more visible to clients was the decline in agency capabilities at a time when more, rather than less, brainpower was required. Client relationships became unstable; agency reviews were more frequent, and clients changed agencies and accelerated their investments in in-house capabilities.

The share price bubble burst for WPP in 2017. WPP agencies could no longer cost-reduce their way to growing margins, and WPP shares slid to $54 by the end of 2018. Sir Martin departed WPP earlier in the year, and Mark Read took his place as CEO, announcing that henceforth WPP would be repositioned as a creative transformation company with a simpler offer. "What we hear from clients is very consistent: they want our creativity, and they want us to help them transform their business in a world reshaped by technology," he declared.

Mark Read was not the only new holding company CEO with changed priorities. In late 2018, Tim Andree replaced Jerry Buhlmann at Dentsu Aegis Network, and he announced his intent to change DAN’s offer to help clients grow. "No business has a future if it does not stay ahead of the latest developments," he said. "That means higher levels of integration … It means greater focus on long-term, sustainable growth, using marketing as a driver of business value and transformation. And it means higher levels of operational excellence… This is what clients are telling us and why we’re evolving to meet their needs."

Tim Castree, CEO of GroupM North America, interviewed last month by MediaVillage, described how GroupM is elevating its game and refocusing its teams to help clients reignite brand growth. "It’s not about doing a better job in media planning and buying," he explained. "It’s about helping clients identify the things required to effect brand performance improvements. It requires a change in mindset, in capabilities and in measurements and standards."

Industry leaders are coming to terms with changes in client needs. Cannes notwithstanding, the longstanding industry myth that creativity is all that matters is being replaced by the recognition that consulting-like disciplines are needed to identify and implement pathways for growth. Holding companies and their agencies are adopting new strategies for themselves. It’s been late in coming -- more than a decade late -- but it’s well on its way. Accenture and Deloitte will not have the consulting marketplace to themselves.

Cartoon credit: Robert Leighton, The New Yorker, The Cartoon Bank. With permission

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