Agencies: Holding company siblings should compete, cooperate

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Getting employees from sibling ad shops to both "kiss and punch" is one of the ongoing challenges facing the heads of holding companies, as chief executives from two of the world's largest advertising groups made clear at AdWatch.

The goal at every holding company is to ensure that agencies, public relations firms, research shops and other entities can deliver a coordinated offering that's better and cheaper than their competitors.

Clients "come to us for three things," said Martin Sorrell, WPP Group's group chief executive. "Creative execution, strategic thinking and coordination." For agency companies, he said, a key management issue becomes "how you can get people to compete and cooperate-to kiss and punch."

"We must continually change the way we are organized," agreed Maurice Levy, chairman-CEO of Publicis Groupe, parent of agencies including Saatchi & Saatchi and soon-to-be owner of Bcom3 Group.

on the wane

These challenges come at a time when growth through acquisition is on the wane and agencies' organic growth rates are slowing significantly in comparison to previous years.

Mr. Sorrell noted bigger is not always better within an agency. While scale in media buying is an advantage, he said, there are "diseconomies of scale" in some other areas of an ad agency, such as the creative department, where enormity can be a disadvantage.

Both executives talked about opportunities beyond media advertising, including the roles that Hollywood talent agencies could play as advertisers seek more inroads into entertainment. But Messrs. Levy and Sorrell said they could get access to talent agencies through alliances without having to own a talent shop.

Mr. Sorrell, meanwhile, said there is more room in the agency business for improvement in productivity and processes. On the cost-cutting front, he said WPP this year has cut 10% of its staff-on top of job cuts made last year.

In a statement issued June 24, WPP said weakness in revenue in the first five months of 2002 and the "possible continuation of this trend" will make it difficult to meet its target of 15% operating margin for the year.

"A pronounced recovery will have to wait till 2004," when U.S. elections and Olympics in Greece will boost spending, Mr. Sorrell said.

Mr. Levy, meanwhile, remains cautious, though he expects Publicis to outperform the market. "What we are lacking," he said, "is visibility for the second half."

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