The issue came to the fore last week at the annual meeting of the American Association of Advertising Agencies, during key speeches and in interviews with attendees.
WPP Group Chief Executive Martin Sorrell warned audience members in a speech: "We're vulnerable . . . We face competition not just from each other" but from management consultants. "Agencies are drifting downstream, leaving room for consultancies and brand strategists."
When consultants take over that strategic role, he and others said, agencies are reduced to delivering only creative solutions.
Responses to the growing threat are likely to range from in-house strategic units at agencies to acquisition by holding companies of consultancies. Interpublic Group of Cos. is said to be looking to acquire a strategic or management consultancy, a possibility denied by Chairman-CEO Philip Geier, although another IPG executive said it's being considered.
Young & Rubicam also is said to be considering a joint venture with a consultancy.
Mr. Sorrell, asked if WPP would consider such a purchase, said he would rather "take a group of a half-dozen consultants" out of a leading consultancy and set them up as a dedicated strategic-marketing group within WPP.
He said he believes marketers turn to consultants rather than agencies for strategic thinking on their brands because "they don't think we're smart enough to do that."
ONE CLEAR ADVANTAGE
But outgoing Four A's Chairman Ralph Rydholm -- who's set to retire as CEO of Euro RSCG Tatham, Chicago -- said he's baffled by the popularity of consultants since agencies have one clear advantage: "We do not simply point out problems like [consultants] do, we solve problems."
Mr. Sorrell agreed: "We have an understanding of the touchy-feely [emotional side of branding], which the consultants don't. They're not people who understand the true value of branding. They can strategize, but they can't deliver."
(See related story on Page 6.)
Such major marketers as AT&T Corp.; Sears, Roebuck & Co.; and Unilever have turned to management consultants for help on branding and marketing issues. Consultants with marketing practices include Andersen Consulting Co.; Bain & Co.; Booz, Allen & Hamilton; Boston Consulting Group; and McKinsey & Co.
Others devoted to marketing have cropped up in recent years, including Bright Sun Communications and Lightbulb.
ISSUE AROSE BEFORE
The role of consultancies and their impact on the ad industry have risen as an issue before. The former Saatchi & Saatchi Co., controlled by the Saatchi brothers, acquired management consultancies in its 1980s expansion phase but later sold them.
The issue has resurfaced as agencies come under increasing pressure from marketers, pressure that has already resulted in the collapse of a number of decades-long agency/client relationships.
"This is a significant issue for agencies," said Arthur Selkowitz, chairman-CEO, D'Arcy Masius Benton & Bowles, New York. "There is something to be learned from, and a potential threat from, the consulting area."
"We have to find ways to keep clients with what seems to be their main priority across the board -- building brands," added DDB Needham Worldwide Chairman-CEO Keith Reinhard. "We have to become builders -- if we don't, we'll see our clients going more and more to consultants."
And, said Dawn Hudson, Pepsi-Cola Co. senior VP-new products: "If you think we spend a lot on the agency business, you should look at what we spend on consultants."
LOOKING BEYOND COST CUTTING
Both agency executives and consultants point to advertisers' need to increase unit growth as a reason for the boom in strategic consulting. Those executives said marketers are now looking beyond cost cutting, downsizing and re-engineering to increase profits.
"Corporate America thrives on the corporate earnings report," said Gary Langstaff, principal at Lightbulb. "Advertising has all too often been used as a promotional vehicle . . . what you see now is an increased demand for brand identity."
Sam Hill, chief strategic officer at DMB&B and former chief marketing officer at Booz Allen, agreed: "Agencies left a void and consultants found a back door through re-engineering. Once they got into that back door, they got into the marketing department."
Mr. Hill said management consultants have easier access to advertisers' top ranks since they "talk the same language of CFOs and CEOs."
Agency executives agree consultants' high-level access many times puts an agency at a disadvantage.
Consultants "go in at the very top. We work with the ad manager and consultants work with the CEO, and we get handed a set of blueprints," said Mr. Reinhard. "If we don't do something about this, we'll be the carpenter shops of the future."
That fear is not unrealistic. Some consultancies see agencies' roles as merely to execute strategies they have no hand in developing, reducing them from partners to mere vendors.
"Clients now view agencies as line items. . . . [agencies] are more like a restaurant, and they can order off the menu," said Mark Gleason, a former Advertising Age reporter who left the publication to join Bright Sun in 1997. Mr. Gleason, who has since left Bright Sun, added that agencies have hurt themselves by promoting only their creative abilities.
"They've been saying `We have the best creative on the street,' " said Mr. Gleason, adding that agencies are "being paid to be a creative vendor, not a partner, and now they want to get [that] back."
Patrick McGinnis, CEO of Ralston Purina Co., said he feels agencies should do more to address a client's strategic needs. Shops need to "step out of the box and add value to the strategic process."
He added there's not "enough action" on the agencies' part in helping clients "evaluate and define the largest strategic issues."
Agencies have tried a variety of solutions to both keep and regain their strategic roles. One is the creation of in-house strategic marketing units; DMB&B and Bates USA have spawned such units this year.
Bates' strategic consulting unit, Whetstone Resources, counsels clients on integrating marketing resources and business strategies. The unit will work on new-product development, marketing analysis and resource allocation.
Offering strategic consulting can reinforce an agency's credibility as a brand builder with clients, said Bill Whitehead, CEO of Bates North America.
Not everyone believes agencies will be able to successfully challenge consultants.
"It's a high hurdle for most agencies, especially when they haven't had the experience in the past," said Geoffrey Sands, partner in Booz Allen's media and entertainment unit.
Agency executives and industry observers say agencies have to do more than just hire consultants; create in-house units; or position themselves as providers of marketing solutions rather than 30-second TV spots.
"The agency of the future has to reinforce their analytical side and apply that side to the intuition side and the creative side," said Mr. Selkowitz, who said he feels agencies have an advantage over traditional consultancies since consultancies don't have an intuitive/creative side to marry to anything in the first place. Ultimately, he believes, "that will yield the strongest advertising."
However, Mr. Selkowitz and other executives agree that agencies and consultants can work together and learn from each other.
"At the end of the day, the agency has to be a partner in developing and understanding that strategy," said Leslie Benning, partner at the Cambridge Group, a growth-focused consultancy. "The goal is to use their complementary skills to the clients' advantage. It's about working together to manage the different skills and insights and get a breadth of ideas for the client."
"We're not there to work to the exclusion of advertising agencies, we're to work with them," added Mr. Langstaff, himself a former agency executive, as is Peter Kim, founder of Bright Sun.
Bob Schmetterer, chairman-CEO of Euro RSCG Worldwide, believes that agencies and consultancies can coexist peacefully, even partnering at times.
"I don't view consultants as a threat, I view them as allies," he said, adding that Euro RSCG has worked with consultancies including McKinsey in the past. And a recent deal partners Euro RSCG parent Havas with Andersen Consulting (AA, Oct. 27).
"You have three perspectives [client, consultant, agency] each bringing a strong asset to the table that the others don't have."
Mr. Schmetterer warned, however: "In the end, the difference between any of these relationships is that agencies are held accountable for the results in the marketplace. Consultants don't have to produce anything that is tangible . . . We're held accountable in the marketplace.
"Agencies by and large have more at stake, work harder and with more passion. Nobody looks at McKinsey's reel, or wonders about the percent of market share they increased."
Contributing: Mercedes M. Cardona, Pat Sloan