CHICAGO (AdAge.com) -- This month marks Leo Burnett CEO Tom Bernardin's fifth anniversary at the network, but the occasion is unlikely to be marked by much celebration.
The agency just cut 75 people from its Chicago headquarters in the second consecutive January it has had to reduce staff. It hasn't won a major new client since Samsung in 2005. And, ranked by traditional advertising revenue (arguably Burnett's strongest suit), it has fallen to 12 from 2 among the major U.S.-based ad networks since 2004, according to Ad Age's DataCenter.
That sounds rough, but Mr. Bernardin is using another word to describe Burnett's just-completed year: "spectacular."
Growth, new business
Mr. Bernardin made that claim in an interview last week during which he and his top U.S. lieutenant, Rich Stoddart, aggressively defended the state of the network and Mr. Bernardin's record running it. His argument: Burnett grew 4% globally last year and nearly 10% in the U.S., fueled primary by growth from existing clients such as General Motors and Samsung.
New business was up too: Burnett netted about $20 million in fresh accounts last year, although it was the smallest gain among networks that weren't net losers on the year, according to a recent analysis by Goldman Sachs, which ranked Burnett's new-business year 11th out of 15 networks.
"We had [a new global management team] fully deployed around the world, and what that resulted in was a year in 2008 that was, particularly in the U.S., just spectacular," he said. "When you get to be the size of [Burnett], and you achieve a certain rate of growth, people say, 'Well, that's not how we want to see you grow.' But we're growing." The network took in $717 million in revenue and employed more than 7,700 people in 2007.
Added Mr. Stoddart: "What did [Mr. Bernadin] do in five years? Set a management team in place around the world. A clear sense of purpose at Leo Burnett that people here will tell you has not been the case in a long time. A clarity about what it is we do, how are we organizing ourselves. Creative product that has continuously gotten better. And growth rates that I think are pretty good for an agency of our size. I think we ought to be proud of that."
Burnett continues to boast a roster of clients that is the envy of most agencies, counting Samsung, Allstate, McDonald's, Procter & Gamble, Hallmark, Philip Morris and General Motors as longtime partners. But Philip Morris, generally regarded as the agency's most profitable account, has been forced to scale back dramatically in the U.S., and GM is weighing enormous marketing cuts even in the uncertain event it survives its current tailspin.
Mr. Bernardin acknowledged he won't be able to count on organic growth in lieu of major account wins this year. "Success in 2009 will be to look at where you finished in 2008 and be right about there," he said.
The market does not appear to share the pair's enthusiasm about the state of the agency. A half-dozen agency-search consultants queried by Ad Age said they regarded the agency's brand as "tired" and its model as "outdated." While most heaped praise on the agency's TV-centric work for Midwestern clients such as Allstate and McDonald's, they said they saw little evidence of prowess beyond traditional media and little being offered by Burnett that couldn't be had elsewhere.
Asked what Burnett offered that no other agency could, Mr. Bernardin at first paused, and Mr. Stoddart interjected, "Creativity that transforms human behavior," a reference to the "HumanKind" mantra sprouting at the agency since last summer.
Told the line smacked of the stuff of Saatchi & Saatchi's "Lovemarks" or Fallon's "Squeezing the Orange," the generally soft-spoken Mr. Bernardin bristled. "We do absolutely believe that we have the power to transform human behavior with creativity," he said.
He said the agency's work on Allstate, McDonald's and Kellogg's Special K exemplified that sort of transformative work, but consultants said those cases, while admired, weren't really regarded that way in the market. "It's really good, solid, traditional work," said one West Coast search consultant. "But they're not doing anything really edgy or particularly innovative. And that's OK, because not every brand needs a mohawk."
This is certainly true, and McDonald's business results certainly speak to the efficacy of the work by its main agencies, DDB and Burnett, as well as to its smart positioning and business strategy. Still, the toughest criticisms leveled at Burnett tend to focus on a structure that, despite several revamps in recent years, still relies on disciplinary silos that have obstructed attempts at a more integrated setup of the kind that marks the more successful shops today.
In 2007, Mr. Bernardin admirably aligned Burnett and its below-the-line sibling Arc Worldwide under the same profit-and-loss statement. But in practice, the two still manage large, common accounts such as Procter & Gamble separately. "I would say it's right on track, and we will continue to operate that model," said Mr. Bernardin, who credited the "collaboration" with a number of new-business wins around the world. "The two brands exist together and exist separately."
A year later, Mr. Bernardin announced what seemed, on paper, a bolder step: an "open-architecture model" in which Burnett, Arc and Publicis Groupe siblings Starcom and Digitas would jointly handle accounts under a single account leader. The model, introduced as "Insight Factory," would even have its own management board, led by Publicis Groupe Media Chairman Jack Klues.
The concept was quickly applied to three large accounts -- Nintendo, Samsung and Kellogg -- and drew raves from Kellogg Chief Marketing Officer Mark Baynes. But it hasn't been applied to any accounts since, and Mr. Bernardin now says that was never the plan. "You have to think of as an internal tool," he said, adding that, despite the formal management board, the press release and the fanfare, it was never intended to represent a new structure for the agency. "We applied it to Nintendo, for example, but it's not the way that we run Leo Burnett."
Both Mr. Bernardin and Mr. Stoddart hinted at -- but wouldn't detail -- more structural changes coming in 2009. With the organic growth that has sustained the agency liable to dry up, the pressure will be on Mr. Bernardin to land his first large-scale new client in years, but he said he's not feeling any more stress than usual.
"To me, the business is a constant pressure," he said. "There will be pitches, and we're going to aggressively participate in those. And I'm looking forward to that ... I'm committed for five more years."