top creative talent, because big accounts have always attracted top talent. As far as finding the right agency partners, that’s what the review team is supposed to do. And it also helps to obviate the holding company turf wars and conflict issues by creating another alternative that perpetuates shared interests. Eventually the new dedicated agency is planning to bring on some smaller accounts as it secures its footing. But bringing creative and media resources back together is something to watch in the quest for simplification.
MD 2015
The Agency Model: Bent, Not Broken
“If the agency is held monetarily responsible for a brand’s success in the marketplace, then they must have a bigger seat at the marketing table.”
It seems that everyone has declared the agency model broken. I disagree. It is just bent out of shape by at least three seismic marketplace fractures, to which it is trying to accommodate.
Fracture One: Short-term Accountability – Beginning in the mid-1980s major agencies merged into holding companies in a drive for growth and economies of scale. With unexpected suddenness, old relationships were strained by the quest for greater profit margins and the loss of familiar talent that was eliminated in the shuffle.
The new agency holding companies realized they could make even more money by forming media buying companies. Buying services, while introduced in the late 1960s, never received the imprimatur of legitimacy that was to follow in the wake of the new goliaths. Today, the media agencies are larger than their creative counterparts. For example – it is reported that Mindshare (a top-ranked media agency) bills roughly $24B worldwide, while JWT (a sister WPP full-service/creative agency) bills an estimated $13B.
With all this money at stake, everyone became instantly accountable. The average CEO’s tenure is now less than two years and a CMO can expect even less security. Instability at the top trickles down and can infect relationships throughout the ranks.
Furthermore, to ensure economies, purchasing departments were granted license to partner with marketing departments in the management of agency resources. Their cost-cutting measures create further financial tensions at agencies. Compensation consultants, of whom I am one at times, have occasionally been known to exacerbate the situation.
Finally, around the beginning of the new millennium the search for the holy grail of IROI (immediate return on investment) began in earnest. Everything needed to be measured as we in unison chanted “accountability.”
Fracture Two: New Compensation Practices Naturally Follow – By holding the agency responsible for advertising and sales results in the marketplace, the standard for judging an agency’s performance was beginning to change with the new millennium. According to the ANA, just short of half of clients are offering incentive plans to their agencies based on performance goals. For the most part agency costs are covered, as well as 5-10% of profit. If pre-established goals are met, however, bonuses are paid that could easily increase the agency’s profit above 20%. The thought is that an agency would work harder and smarter if offered a bonus tied to results in the marketplace.
The same ANA survey claims 3% of client/agency relations are on a Value Compensation program. More importantly, it is the talk of the industry at the moment. Value Comp suggests that the agency fee is no longer predicated on labor-based indicators. Rather, all or at least a significant part of the fee is predicated on meeting pre-established goals. Since sales are a prime criterion for value and incentive compensation plans and a brand’s sales are by no means entirely within the province of an agency’s work in the marketplace, this is an implicit invitation to the agency to begin making contributions beyond advertising alone.
Lastly, some agencies have visited non-transparent compensation practices upon our shores from overseas, and the industry is still grappling with the consequences.
Fracture Three: Proliferation of Everything – This fracture is seismic and is bending our business in new directions. The introduction of new media forms every day and their consumer engagement have changed forever the way agencies write, draw, plan, buy and think. Strategic communication choices abound, but if one doesn’t exist to solve a marketing problem, smart strategists are just as likely to invent a medium or a partnership as they go along.
Moreover, anyone who uses a computer knows how difficult it is to filter through their daily information dump in order to screen to what is relevant and useful. While it facilitates the availability of information when we need it, it overloads us when we don’t ask for it. Oftentimes this destroys our ability to focus on what is really important.
The result of these fractures is discontent.
Result (Short-term): Discontent – A recent count of agency reviews last year totaled over 150 accounts in review totaling $27.5B. That is 57% over last year and the highest total ever. Fully 49% of CMOs polled said they intended to put their accounts in review this year. With creative, media, digital, sales promotion etc agencies, the opportunity to become unhappy with service has multiplied exponentially. Every time discontent is expressed in the form of a review another campaign is plunged into uncertainty. One easy way to express this discontent is to proclaim the agency model broken.
Result (Long-term): The Changing Agency Shape – For agencies to thrive in this new environment they have to change the way they do business and get paid. But if Value Compensation is an answer, and the agency is held monetarily responsible for a brand’s success in the marketplace, then they must have a bigger seat at the marketing table to more directly affect some of the many other factors that drive brand sales—including price, packaging and distribution. This alone dramatically changes the agency model. Together with the array of new media forms, the agency will be increasingly asked to choreograph an integrated marketing effort. Essentially the CMO will be able to call upon an outside resource (the agency) to market products and services. Politicians have been using their marketing resources this way for decades.
The Next Step: “A Blue-Ribbon Panel” – I have often wondered why the ANA explicitly has a Client/Agency Relationship Committee and the 4As does not. The industry really needs its best brains working together to chart the future course of our business. A blue-ribbon panel of ANA and 4As members, moderated by a few sympathetic consultants, should be brought together to map these new directions and gain consensus. It is time for missionary work to begin.
SF 2008 (First appeared in Advertising Age)
Agency of the Future
“Holding companies will offer integrated marketing teams tailored with talent from across its agencies."
But First the Past
[In 2008] I published an article in Advertising Age entitled “The Agency Model Is Bent, Not Broken.” It was in response to claims that it was broken. Now, a half-dozen years later, I believe the model is finally evolving to the shape of the future.
Last August, when the planned merger of Publicis/Omnicom was announced (the deal eventually fell apart), the trades explained WPP’s “agency team approach,” in response. Sir Martin Sorrell did not emphasize competing on size, but rather on shape.
Quoting Ad Age: “WPP promises a client an integrated marketing unit tailored with talent from across its agencies… The teams range in size and structure; some are merely partnerships
