The view from here
Madison Avenue: Let’s Be Great Again!
Brent Kuhn, Vice Chairman and the “K” in BKV, recently shared his opinion of our ever changing industry and how agencies can benefit:
In my 40 years in the fast-paced advertising world, I’ve always enjoyed reading advertising and marketing books and encouraged others to do the same. A recent discovery was Madison Avenue Manslaughter by Michael Farmer. After reading this book from cover to cover, I began thinking about how well this book depicted the evolving industry as we see it now.
Not only did Madison Avenue Manslaughter (MAM) provide a wonderful history lesson, it also provided insight into the changes that are impacting our industry right now. Throughout this book, Farmer was able to capture the essence of these changes. A few that struck a chord with me were:
- We live in a fee-cutting environment
- More and more clients are taking work in-house
- Consultants, rather than agency CEOs, now have the ear of top management
Farmer also offered some steps for agencies to take to combat these issues:
- Better tracking of workload
- More accountability for profit
- Better review processes
- Better talent
Who can argue with greater efficiency of operations? I’d propose that there actually can be too much concern to the detriment of strategic vision. But generally speaking, efficiency and better procedures are good things.
But this is where our points of view begin to diverge.
I believe that this seismic shift that Farmer describes provides a huge opportunity for larger independent agencies.
Larger independent agencies can take advantage of the misfortunes the big brand agencies have brought upon themselves.
The mega holding companies, with their drive for profit, are making the big agencies non-competitive. To quote Farmer, “Holding company profit requirements have contributed to the agency downsizing problem and been a factor in agency disinvestment for the past 10 years.” I would say this problem has existed for much longer than that; as a management supervisor at McCann in 1980, I was aware of the rake that Interpublic took off the top.
The death of big agencies has created an environment for the rise of independents.
Why would a client assign an account to an agency owned by a mega holding company that was only ALLOWED to spend $.48 of every dollar the client paid him to pay the staff assigned to his account, when he could have a strong 100 to 200+ person agency that was willing to spend $.58 (i.e., 21% more staff)? Independent agencies have a REAL story to tell. On top of that, they’re flexible. They have the opportunity to choose to invest more staff on a client’s business ANY time and for ANY reason without ANY red tape.
Farmer states that big agencies suddenly have to think more in terms of the client’s ROI. But I’d say the good independent ones have been doing this for years.
The purpose of all advertising is to help produce sales at the most reasonable cost—yes, even brand advertising. This means the best ROI. Any person at any agency with a title of account executive or above who doesn’t understand this should resign; They’re in the wrong business. But if Farmer is right, and there are many within the large agencies that don’t think in terms of ROI, these agencies are truly on their way to becoming dinosaurs.
So, here is how I would address these points above: In my early years at Tatham-Laird & Kudner (at the time a large packaged goods agency, subsequently acquired by a large holding company), we were specifically trained not to be salesmen. We were trained to be good marketers. We worked with our clients to help meet their objectives. If we did what was right for the clients even though it meant less billing now, the successes we achieved in the end would make the agency grow.
In my opinion, mega holding companies are perhaps the worst thing that ever happened to the advertising industry. Do agencies the size of McCann, JWT, Ogilvy, etc. with many offices around the world really need the added overhead of a mega holding company? No. Do clients need it? No. Why do they exist? Giant holding companies are a tool for smart financial people to make a profit on a previously profitable industry. Think about it: They certainly don't include efficiency, nimbleness, better advertising—and in fact, they produce the opposite.
Now, let’s talk about specific problems that Farmer identifies (and some possible solutions). There are considerable differences in what I see as solutions and what Farmer sees as solutions.
1. According to Farmer, “Poor pricing is the fundamental problem that must be solved.”
It certainly is a big problem. And it’s compounded by agency systems that do not track jobs well enough. Farmer’s fundamental thesis is that better tracking, more accountability and discipline are the solutions to agencies’ current profitability problems. I agree that discipline and efficiency are good things. But they’re neither the big idea, nor the solution.
So, what is the solution, then? Agencies, buy your companies back from the big holding companies! Here’s why: According to Farmer, the average percent of income that a mega holding company agency can allocate to staff is 48%. BKV and other independent agencies can easily afford 58% and still turn a profit in the high teens. Just think about what investments could be made with that extra 10%!
2. Farmer states that unlimited client service is no longer affordable.
I believe that agencies can’t afford not to provide unlimited client service. Agencies that stick precisely to the scope of work in their quest to be as profitable as possible experience another pitfall identified by Farmer: “Agencies have lost a lot of problem-solving credibility with their clients." Finally, Farmer makes the point that agencies are losing their ability to interact with top client management. It’s pretty obvious that this all ties together.
The solution? Recognize that advertising agencies are first and foremost idea factories. Think about the client’s business beyond the scope of work, because new ideas are not found by sticking to scopes of work. Overwhelm clients with great new ideas— (including creative ideas, media strategies, sales promotions, etc.) If an agency immerses itself in a client’s business, they won’t be able to prevent a flow of ideas, and these ideas will know no bounds or silos.
Unfortunately, agencies are becoming more executional, sticking more and more to the silo (or the SOW). This trend is causing top clients to lose confidence in their agency’s ability to bring them new ideas, and they are instead turning to the consultants of the world. Consultants may be great when it comes to management efficiency, but not in producing the big innovations that move companies ahead.
My advice: Reconsider the role of the consultants and bring the great creative minds of ad agencies back into the boardroom. It’s a tall order, because unfortunately agencies have allowed themselves to be marginalized. But this doesn’t have to be the case.
After all, a similar situation occurred with the automobile industry. Think back into the ‘50s and ‘60s. The industry was booming. Remember the adage,“What is good for GM is good for the United States”? But, much like the ad business, the American auto industry lost its way. They were led into collapse by hapless CEOs (influenced by bean counters and consultants I presume) that actually put Chevy engines in Buicks, and made countless other stupid decisions.
Their mantra? Efficiency. The result? Distinct brands were “vanilla-ized” and eliminated entirely. Proud brands like Pontiac, Oldsmobile, Mercury and Plymouth. It’s not that the auto business shrank. In fact, new brands like Isuzu and Hyundai came in to fill the gaps and create new segments—segments that GM and Ford should now own!
The same is happening in the advertising business now. A new breed of agencies is already moving in. Many of them are hybrids of traditional ad agencies and technology companies, media companies and other combinations.
My prediction: The agency business will go through a purging process that will only accelerate. But, throughout that process, new agencies will continue to emerge and grow. Many of those will choose not to be encumbered by the big holding companies. They will create a great product like the ad agencies used to do. After all, JWT, McCann and their cohorts didn’t become great by being efficient; they became great by doing great work. These new agencies will produce great products because they love their work, not because they are constrained to silos with given amounts of hours to do a project.
I believe the ad business will bounce back from the destruction wrought by the consultants and the efficiency experts, and become the great idea factories they once were. Efficiency while important is not the driving force that made ad agencies great. It is ideas that made agencies great and clients need these ideas unfiltered at their highest levels.
And the DAEDALUS agency that Farmer refers to that showed a downward trend over a nine year period. This was an exciting period in the early digital age where independent agencies like BKV boomed. The CEO and management team at DAEDALUS were simply the wrong people for the job. I read all the excuses about client’s bringing work in-house, the devil of the purchasing dept., etc. The solution was not more efficiency, it was BIG ideas, new directions, investment in new technologies.
So, my advice to ad agency CEOs is break the chains of unnecessary mega holding companies, use that found money to invest in this great new world of rapidly changing technologies, batter your way back into the client’s board room with new ideas that do NOT fit into the scope of work, be willing to make only 5% in a given year to produce great work, invest in your staff and in learning your client’s business, rather than being restrained to an annual 15% profit goal. This strategy will result in years that produce 20-30% profit— I have seen this in my own company.
Be free, be excited. Ad agencies, you are in a stimulating, challenging, creative side of the business world. It’s a business that encourages creativity—not just in the creative department itself, but also throughout the entire agency, from account service to analytics. It’s a business where you can accomplish great things and enjoy your work.
Go forth now, be fruitful and multiply!