Holding Companies Need High Level Strategic Plans, Not Just Announcements of New Structures and Cost Reduction Targets. Independent Agencies Will Take Advantage...

We should be hearing "Our new mission is to help advertisers grow again. We will work to make our clients successful. Success will enhance our fees and re-establish long-term relationships."

Credit: William Hamilton, The New Yorker, The Cartoon Bank

In the current advertising environment, holding companies Omnicom and WPP may be too big to succeed rather than too big to fail — too complicated, too wedded to Wall Street and The City and too lacking in C-Suite vision to do the right thing.

What they need are transformations so dramatic and disruptive that near-term quarterly earnings cannot grow. Major write-offs and reserves must be established.

However, the holding companies are limited by being hostage to “shareholder value” concerns, always on a quest to achieve an unbroken growth of sales and margins to enhance short-term share prices.

The holding companies will implement change but not too much of it, with announcements that sound reassuring but are without transformational substance:

• “We’re increasing our cost reduction targets to $1.5 billion.” (Omnicom).

• “We’re not a holding company any more. We’re a single operating company. We’ll no longer be a shopping basket full of hundreds of standalone businesses.” (WPP).

• [But] “We are not merging agency brands. On the contrary, we will unite them in new ways and empower them like never before.” (WPP).

Really? Do we say, “Wow? We’re impressed!” Not really.

Remember what happened to IPG’s Huge? There’s a lesson in IPG’s poor handling of Huge’s transformation.

Huge, the former IPG digital creative agency, was successfully transformed by CEO Mat Baxter between 2021 and 2023 (see Madison Avenue Makeover: the transformation of Huge and the redefinition of ad agency business). During its transformation, though, Huge failed to “make its numbers.” This was not surprising. Transformations are disruptive.

IPG’s response? Get rid of the agency. Sell it to a private equity firm at the end of 2024. IPG learned nothing about transformations other than that transformations are disruptive.

Huge was too small to affect IPG’s overall financial performance, but its failure to make its numbers needed to be avenged. So, it was sold.

Independent Agencies Will Step into the Spotlight

Independent agencies are more likely to do the right thing, taking advantage of the internal confusion and distractions of their holding company competitors.

Independent agencies have been waiting for this moment for a very long time.

What are the independent agencies likely to do?

1. Adopt a mission to restore brand growth for clients.

   Public data tells us that the 2009-2024 sales growth rate of 40 out of 60 major advertisers has been very depressed, averaging (as a group) only 2% per year for 15 years.

   By contrast, the market had real GDP growth of 2.4% per year plus inflation of 2.3% per year — so the benchmarked nominal GDP growth rate was 4.7% per year.

   Imagine! The group of 40 out of 60 big-spending advertisers grew at less than half of the nominal GDP growth rate for 15 years.

   The low-growth list includes advertisers IBM, GSK, Conagra, AT&T, Altria, Nestle, Kimberly-Clark, Nissan, Sony, P&G, Sanofi, McDonald’s, Novartis, eBay, Unilever, Verizon, Campbell’s, Wells Fargo, Bank of America, Pfizer, Honda, Colgate-Palmolive, Diageo, General Mills, Clorox, J&J, Toyota, Coca-Cola, Citigroup, Ford, AstraZeneca, General Motors and a number of major retailers.

2. Diagnose and understand the reasons for low brand growth, using the same diagnostic tools and disciplines as the strategy consulting firms.

   This is not rocket science. The disciplines can be easily taught. They just need to be done — answering the question “What accounted for a slowdown in brand growth rates for these and other brands after 2009?” Even Claude and ChatGPT can provide some of the answers.

   The reason that ad agencies do not have answers for this question is because they do not ask the question in the first place.

3. Develop action plans and scopes of work that have the highest probability of restoring brand growth. Agencies need to recommend corrective steps in partnership with their clients, discussing and debating the findings to create agreement and action.

4. Be paid for the work to be done, not for some guess at man-hours — and when the work is successful, raise prices for future work to be done. Why not? The achievement of growth will generate such value that agency price levels will be inconsequential. Consulting firms have been doing this for decades, charging 5-6x the cost of their people (in contrast with agencies, who can barely charge 2x).

   It goes without saying that agencies will need to begin documenting and measuring their work, using ScopeMetrics® or a comparable SOW-measuring system, in order to charge clients for outputs. Holding company agencies have never documented or measured their SOWs, and in today’s world, the SOWs are vast and fragmented.

Cindy Rose and John Wren underestimate the degree to which their agencies are stretched — doing huge amounts of unmeasured creative and media work, far in excess of the fees currently being paid and the resources their agencies can allocate. Creative and media departments are stretched to the limit. If WPP and Omnicom knew how large the gap was, they’d hesitate before continuing to cut costs.

Madison Avenue needs exceptional C-Suite leadership today. Reorganizations and cost reduction programs fall well short of needs and are unlikely to create sustainable long-term value.

Who, among the many holding company advisors, is prepared to diagnose and tell Omnicom’s and WPP’s leaders the truth about their strategic situation?