BURNETT FACES ITS FUTURE: CULTURE SHOCK: AFTER HIGH-PROFILE SETBACKS, TRADITION-BOUND AGENCY STRUGGLES TO CHANGE WITH THE TIMES (PART 1/3)

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Every new employee's indoctrination at Leo Burnett USA begins with a viewing of a 1967 film of the agency founder uttering his legendary speech, "When to Take My Name Off the Door."

"This agency means everything in the world to me, its philosophy and its character," intones Mr. Burnett, in a grainy, b&w film reminiscent of an old-time newsreel. "And so does its future. Not just next year and the year after that, but 10,

20, even 50 years from now, especially if my name is still connected with it."

SWEEPING CHANGES

Twenty-six years after Mr. Burnett's death, the privately held ad agency giant-blinking unaccustomedly in the glare of scrutiny following three highly publicized account losses in 18 months-is facing its future.

On the stage of the historic Chicago Theater early last week, Chairman-CEO Richard B. Fizdale revealed a reorganization plan to 1,916 U.S. employees. The changes he unveiled were the most sweeping in Burnett's 62-year history-involving the creation of "mini-agencies" and a stand-alone media department. Together, he said, they resulted in "a new Burnett."

But they are hardly a watershed considering other agencies have had similar structures for years. Burnett's problems run deeper, observers say, and lie in a weakening of its creative department; an insularity that resists bringing in new blood; an unwillingness to update its client-service focus; and the slowness to unbundle operations.

Most of all, they blame the company's woes on a tradition-bound culture symbolized by icons dating from its founding that include shiny red apples, pencils and a hand reaching for the stars.

ADMITTING NEED TO CHANGE

What was surprising to observers about last week's developments is that closely held Burnett admitted the need to change at all.

"Burnett feels it's on the defensive, trying to show a new face," said Alan Krinsky a partner at ADvice & ADvisors, New York. "It definitely sounds like they're trying to reinvent themselves in a way that's been a selling point for smaller agencies."

As testament to Burnett's clout and heritage, many of those interviewed by Advertising Age for this story-including past and present employees, industry analysts and competitors-didn't want their names to be published. Burnett itself denied Ad Age access to Mr. Fizdale, Chief Creative Officer Cheryl Berman and President James Oates.

No one is predicting a big tumble for Burnett, the country's fourth largest agency by billings, with $2.65 billion, and a powerful roster of blue-chip clients that includes Coca-Cola Co., Kellogg Co., Philip Morris Cos. and Procter & Gamble Co. But industry observers said Burnett needs to evolve to meet the needs of a new world order in its industry.

"They are not prepared for the next generation of advertising," said Charlie Tarzian, president of Blau Marketing Technologies, Wilton, Conn., a direct marketing agency whose discussions with Burnett about a joint venture fell through earlier this year-he wouldn't comment on those discussions.

TIGHT RELATIONSHIPS

Historically, Burnett has had some of the tightest agency-client relationships in the business. But client relationships are changing; advertising's old-boy network has been destroyed, in part by increased turnover in client management.

Such changes, observers said, left Burnett and its bundled, central-office style out of favor with clients who increasingly want to steer their own marketing.

The agency's problems with United Airlines, for example-one of three key accounts lost, along with creative for Miller Brewing Co.'s Miller Lite and lead-agency status for McDonald's Corp.-came after a changeover of top management at the airline. Burnett had worked for United for 31 years.

"The bonds with clients at Burnett were so deep no one could upset the boat," said Jeff Hicks, president of Crispin Porter & Bogusky, Miami, and a former Burnett executive. "You went to a meeting with any one of Burnett's longtime clients and you could not tell who worked for whom .*.*. they knew as much about the client's business as the client."

CHANGING EXPECTATIONS

Now, however, client expectations have changed, with marketers cherry-picking among media buying services, creative resources, direct marketing agencies, Web providers and more.

"They were the golf bandits," Mr. Krinsky said, referring to Burnett's ability to build its business by forging cozy personal relationships with client executives. But, he said, the ad business today relies more on sophisticated account planning than the kind of intensive account management for which Burnett is known.

Burnett remains one of the strongest media shops in the business, and given the announced spinoff it appears the agency is acknowledging and strengthening that part of its business. Even after losing creative, Burnett retained Miller's media, plus it added P&G's $250 million print buying assignment and is a contender for that marketer's TV buying account. Burnett also picked up media business from Walgreen Co.

But media accounts lack the prestige and profits of full-service and creative assignments. Media commissions typically range from 3% to 5% of billings, while full-service commissions often range between 10% and 15%.

And unlike media, Burnett's direct marketing, interactive and other services are not first-rate when unbundled, Mr. Hicks said.

'B-RATED PRODUCTS'

"If the client is not buying the whole package .*.*. it's all B-rated products put together," he said, adding that Burnett no longer has the "kick-ass creative" that some clients want and which itself creates visibility and reputations. Burnett has fallen short recently in some big account reviews, including those for Delta Air Lines, Gateway 2000 and MasterCard International.

Part of the reason cited for the creative woes by observers is that staffers at Burnett typically stay for their entire careers. "It was like North Korea," said one former executive.

That, however, may be changing. With some showcase accounts gone-like Reebok International, the $100 million account Burnett resigned in May after the client sought out other creative resources-creatives seem more inclined to move on.

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