Ad agencies and holding companies need a Plan B – so just what exactly is that?
As prospects remain uncertain for adland across the globe, Michael Farmer argues holding companies should focus on rebuilding, not squeezing, their agencies.
We’re all familiar with the concept of ‘Plan B’. It emerges out of the haze when Plan A has self-destructed for one of a thousand reasons.
It’s when an unexpected snowstorm cancels our flight. When you have to scrub a key meeting. Too bad. On to Plan B, even if there is no Plan B – we’ll have to improvise.
So it is for ad agencies and holding companies today. Plan A is not working. Profits and growth are drying up, and it’s hard to recruit and retain talent.
Agencies are no longer seen as valuable strategic partners. Agency work has become executional in nature. Fees are commodity-like for creative and media agencies. Holding company prospects are uncertain. Something has fundamentally changed in the marketplace. Do we work harder on Plan A, or do we need a Plan B?
For agencies, Plan A was born during the heady media commission days, when TV advertising was new, and the consumer economy was accelerating in top gear. Highly creative TV and print ads excited agency clients, who (encouraged by their agencies) spent vast sums on media, showcasing agency work.
The better the creativity, the more clients spent on media and the better their brands performed. Creativity plus media spend generated positive results. Creativity plus media spend made agencies rich and successful.
Plan A for the holding companies was different. They acquired agencies who were commercially successful but poor at managing their operations. Agencies frittered away their high commission-based income. Agencies over-invested in headcounts, salaries and overheads. They underperformed in margin generation. They could be squeezed for better profit performance through holding company-imposed budgets.
These two Plan As were colossally successful for decades, through the ‘60s, ‘70s, ‘80s and ‘90s, but they fell on their face in the 2000s. Brand growth slowed, and no amount of Plan A creativity made the slightest dent in brand performance. Globalisation, millennials, e-commerce, procurement and fragmented digital and social media stopped Plan A success in its tracks.
Plan A cost-squeezing by the holding companies ran its course, and surplus agency resources disappeared in 2005, leaving agencies with inadequate headcounts and underpaid resources to deal with their clients’ complicated brand stagnation problems. Clients cut back on spend and invested in in-house agencies. Holding companies innovated with holding company relationships, but agency squeezing remained their primary strategy.
Plan A has played itself out for ad agencies and holding companies. Plan A strategies will not generate growth or positive returns in the future, and those agencies and holding companies who continue down Plan A pathways will pay a heavy price, indeed.
Time for Plan B.
Plan B must focus on restoring client brand growth. Lessons can be learned from the consulting firms, whose Plan As always involved 1) figuring out why clients underperform and 2) carrying out multifaceted action plans to correct the underperformance.
‘Analytical creativity’ served the consultants well. Agencies who poo-poo consultants for being uncreative need to take a harder look at the facts.
Market success for the consultants has given them consistent growth over the past 30 years and the ability to pay handsome salaries and bonuses – something that the cost-reduced Plan A agencies have not succeeded in doing. The consultants’ acquisition of media and creative capabilities poses a genuine competitive threat, since these new skills are being added to their existing analytical and problem-solving skills.
Plan B for agencies requires a consulting-like makeover in thinking, purpose and skills. It will take strong CEO leadership to bring this about.
What about the holding companies? They cannot keep squeezing while their agencies rebuild along new lines. Holding companies need their own Plan B’s, and this should involve helping their agencies become Plan B successes.
Holding companies could, for example, declare that the sole purpose of their agencies is to help clients improve brand performance. They could declare as a matter of policy that their agencies will be paid for all the work they do – not for some guesstimate of how many FTEs the client is prepared to pay for.
Holding companies will have to re-educate their investors to lower expectations for near-term growth. It’s a time to sell ‘rebuilding’.
It’s also a time to mourn the end of Plan A.
Mourning is appropriate – the loss is real, and the glorious past should be remembered and celebrated. Life will go on in new and different ways … with Plan Bs instead of Plan As. Plan A is dead. Long live Plan B.
Michael Farmer is chairman and CEO of Farmer & Company LLC, and author of the award-winning book Madison Avenue Manslaughter: an inside view of fee-cutting clients, profit-hungry owners and declining ad agencies.
A great read. Using data to make creative decisions makes a lot of sense. The holding companies should be providing the platforms to make this happen at an Agency level.
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Agree Plan B is needed. It is also crucial that the ‘old style’ agencies rethink their creative process as well as the business model structure. The concept that they make their income based on head hours is no incentive for efficient creative workflow, and multi-talented teams to be on board. Agencies end up seeing more and more write offs as well, which just ends up reporting badly for their profitability so it is in their interest to do things differently.
The ‘Hollywood Model’ in film production is a proven model to scale up and down and to resource the very best talent for each specific project. No down-scaling of talent experience for cost efficiencies that agencies keep struggling to find which also seems to fuel an industry wide age bias – not because the ‘youth’ are more creative but purely for cost factors. By doing things different there is no shoe-horning of available talent into jobs they are not right for either.
I was recently in a meeting where the head count had to have hit $16,000 with no measurable outcome. That has to change for the industry to thrive.
Time to be doing something different here.
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Great read. Of course, the big question still lies in whether the holding companies really know or trust anything other than squeezing?
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