Don't Count Out the Holding Companies -- At Least Not Yet

Holding companies have been visibly with us for the past 30 years and during that time they have pursued Three Big Growth Strategies 1 acquiring marketing communications and research companies 2 setting and enforcing aggressive portfolio company budgets requiring agency revenue and margin growth through business development cost reductions and other efficiencies and 3 selling quotholding company relationshipsquot to give clients a broad range of agency services across media disciplines required because their individual agencies did not integrate across disciplines amp160There are other holding company initiatives of course like providing backoffice services for portfolio companies travel accounting IT etc but the Three Big Growth Strategies have dominated their activitiesIndividual agencies have been highly affected by the budget setting and margin growth priorities amp160Indeed over the past 30 yearsamp160agencies have become veritable costreduction machines and even though chronic cost reduction has had adverse effects on agency capabilities and relationships it has remained Job No 1 for agency CEOs and CFOs amp160quotMaking the holding company marginquot has dominated executive thinking and action and even though their client relationships were slowly deteriorating becoming shorter and more marginal over time and their client fees were being reduced these factors did not alter in any way their focus on improving margins by lowering costsWhat agency CEOs did not react to though were the growing threats to their clients39 brands brought about by competition from ecommerce the generational shift from Baby Boomers to Millennials the growing strength of the trade39s private label products the proven ineffectiveness of the current mix of advertisingcontentamp160and the increased difficulty their clients were having in generating improved shareholder valueI39m not suggesting that agency CEOs were unaware of these problems or could not talk about them in intelligent and profound ways amp160What I39m suggesting is that their awareness of these client problems did not get translated into a call for action at their agencies amp160They did not say quotIf we don39t help our clients get their brands moving again they39ll cut their marketing spendamp160and we39ll be even more screwed than we are todayquotWell there you have it today39s cuts in marketing spend are screwing everyone amp160Marketing cuts do not solve client brand growth problems or improve shareholder value in sustainable ways amp160The marketing cuts are reactionary and tactical resulting from frustration a last resort amp160And everyone suffersThe missed opportunity by agencies to help their clients maintain brand growth represents the holding company opportunity for the futureSir Martin does not need to merge any of his legacy agencies as some observers have suggested amp160He should not restructure or simplify or redouble cost reduction efforts at his agencies amp160they are already starved and feeble amp160Cost management should not be the holding company priority in the face of client spend cutbacks amp160Instead holding companies should refocus their agencies so that they are committed to understanding and solving their clients39 brand performance problems giving their clients analyses strength and conviction that marketing spend levels can be restored amp160generating a positive ROI and making a hero out of their CMOsHolding companies need to see their portfolio companies as problemsolving companies with marketing implementation capabilities amp160That39s a far cry from what they39ve become after 30 years of an intensive focus on cost performance amp160Today agencies are mostly passive recipients of clientdictated fees and inflated and partially unpaid Scopes of Work amp160Agencies do not participate as equals in SOW planning to solve brand problems They do not even document or measure uniformly the SOWs that they carry out much less negotiate their fees based on the growing amount of work they carry out every yearImagine the growth potential for WPP and other holding companies if client brand problems could be solved and spend levels not only restored but increasedHigher revenue and profit growth is possible but the holding company business model amp160and mission must change amp160That39s the real challenge for Messrs Sorrell Wren Roth and Sadoun amp160They are not passive victims of their unreliablyspending clients amp160In some ways the holding company longterm focus on margin performance has brought them to this pointNow is the time for new priorities new operational skills new commitments and new successes amp160All of these are much more difficult to achieve than bringing down costsThe holding company CEOs should give their agencies new directions amp160Success will rekindle holding company growth amp160The game is not played out by the holding companiesCartoon creditamp160 Mick Stevens The New Yorker The Cartoon Bank With permissionClick the social buttons above or below to share this story with your friends and colleaguesThe opinions and points of view expressed in this content are exclusively the views of the author andor subjects and do not necessarily represent the views of MediaVillagecomMyersBizNet Inc management or associated writersamp160

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Don't Count Out the Holding Companies -- At Least Not Yet

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Michael Farmer

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Don't Count Out the Holding Companies -- At Least Not Yet

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