Jay Pattisall, Keith Johnston, and I have been probing the reasons behind the financial woes of agency holding companies such as MDC Partners, Publicis Groupe, and WPP. What’s going on? Why is the agency holding company business model struggling while consultancies like Accenture and Deloitte see their experience agency revenues soar? What has changed? It would be easy to say that agencies have been slow to embrace the shift from marketing services to experience and transformation services. But it’s way more complicated than that.
The report, “Agency Holding Companies Need A Brave New Business Model,” (link for a free copy below) reveals the gory details. The TLDR is in the next paragraph.
The CMO/agency relationship is at risk. Brands are turning to in-house agencies; company growth agendas bring in CIOs and other business stakeholders; ad budgets face constant pressure; and consultancies are swooping in to take high-margin experience technology services. Our conversations with CMOs and agency holding company CEOs show that agencies need a new business model that puts the client at the center, elevates new services, and blends creative entrepreneurialism with new executional prowess. We’ve identified a path back to partnership.
Pressure is building on the borders of agencies’ special relationship with marketers — they are no longer CMOs’ exclusive marketing and business partner. Agency holding company revenues and profits are falling as CMOs bring agency work in-house and aggressively manage agency fees. Global consultancies like Accenture and Deloitte target CMOs and new business and technology stakeholders with experience agency services. And media and production fees — the age-old foundation of agency revenues and profits — erode under price transparency, automation, and programmatic buying.
The big seven agency holding companies — Dentsu Aegis Network, Havas Group, Interpublic Group of Companies (IPG), MDC Partners, Publicis Groupe, Omnicom Group, and WPP — are responding with modified structures, new leadership, and consolidating service lines. But it’s not enough. They must move faster and take bolder steps.
There is a path back to partnership but only for holding companies that embrace a brave new business model, one that sheds archaic and crippling structures and leadership models to put clients at the center and accelerate the powerful combination of creative entrepreneurialism and brand execution.
The holding companies must move quickly to:
- Build agile client teams that assemble and disassemble quickly to tackle tough problems.
- Add lines of service, including business and strategic consulting, data and technology, and precision marketing.
- Develop leaders with multidimensional skill sets that include business strategy, design, and technology acumen.
- Realign the financial reporting and compensation to motivate creative entrepreneurs while making it easy to move expertise and staff to the client teams and practice areas that need them most.
- Break down the many agency brands, sub-brands, bespoke client teams, or teams of individual agencies into a coherent brand structure that CMOs and marketers can easily understand.
Chief marketers must take immediate action, too. Agencies are only as good as their clients will allow them to be.
They can’t embrace a brave new business model if you can’t make brave decisions. In order for the agencies to transform as quickly as you need them to, and for you not to be sidelined as the executive just creating campaigns, you must:
- End category exclusivity. Exclusives deny you access to the best agency talent and rob the agency of the ability to build expertise in verticals and categories.
- Break down the corporate silos that align clients and agencies to different, sometimes conflicting, budgets, decision makers, and agendas.
- Compensate agencies for ideas and execution. Cost-cutting creativity prevents you from accessing the best and brightest talent, tools, innovation, ideas, and execution.
As part of our CMO and agency coverage at Forrester, we interviewed 50 chief marketers and agency executives for our new report, “Agency Holding Companies Need A Brave New Business Model.” Download a free copy of the report to learn how agencies can adopt a new business model, how CMOs must change to better manage agencies, and what Dentsu Aegis Network, Havas Group, Interpublic Group of Companies (IPG), MDC Partners, Publicis Groupe, Omnicom Group, and WPP must do next.
Download your copy of the report here.