DraftFCB, Two Years After the Merger

This Marriage Was Supposed to Create a Powerhouse Agency. So Where Are the Big Wins?

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NEW YORK (AdAge.com) -- Mention DraftFCB to an ad-industry professional or a casual industry observer, and odds are you'll be able to guess the reaction.

The novice or industry outsider will identify it as the "Wal-Mart" agency -- a reference to the Julie Roehm fiasco, which saw the agency land and then lose the retail behemoth's account without ever billing a cent. One moment the merger of Draft and FCB, just five months old at the time Ms. Roehm tapped the shop, seemed to have been justified at the stroke of a pen; the next it appeared the new shop was tainted with a scandal that might scare off prospective or even existing clients for months or years to come.

Who, what, where, how much

Who, what, where, how much
But the agency vet who understood that even that scandal would pass -- and probably also knew that DraftFCB did nothing during the incident that hadn't been done thousands of times by hundreds of agencies -- will be more likely to focus on more recent issues at the agency. Perhaps most obviously, there have been layoffs, the loss of the Verizon account to McCann Erickson and internal cultural problems -- and that's just in the New York office. Beyond New York, a vet might also mention that the merger has yet to yield any significant proof that it's accomplishing what it set out to do, or the fact that the agency has failed to generate much big news since, well, Wal-Mart.

In truth, in the two years since the Chicago-rooted agencies Draft and Foote Cone & Belding merged, the agency has won more than 250 pieces of business around the globe including Kmart, Qwest, Sharpie and the U.S. Census Bureau. It's also done a fairly good job of managing client conflicts the merger presented and, according to agency Chairman-CEO Howard Draft, has managed to retain and grow its relationship with more than half its clients in that time. And, for the second straight year, the agency will post single-digit growth. Estimated pre-merger global revenue in 2006 totaled $941 million; in 2007 worldwide revenue for DraftFCB hit $1.24 billion.

Standing out
So why doesn't the industry have a lot of good things to say about the merger, a move to create a one-stop shop offering both direct accountability and solid creative? "Draft has not shined," said a search consultant who asked not to be identified. "They are a good agency with all of the tools, and they should be doing well. But I can't think of anything great that they are doing."

The issues that come to mind for others when the DraftFCB name is mentioned are obviously pressing matters for Mr. Draft, as evidenced by his tendency to rattle off a series of questions and answers when one of them comes up.

On the state of the agency: "Do I feel good? Yes, I feel good. Do I wish we were further along in a number of areas? Yeah. Have we gotten the culture right yet? I don't think so. Do I feel like we could have always done better and won more new business along the way? Absolutely. Do I still have a lot to learn? Absolutely. Will we feel great a few years from now and that we built the right culture and succeeded? Yeah, I hope so. Am I 100% we have all the people and disciplines correctly balanced on a global basis? Not yet. I personally don't think you are going to see this agency at the 100% level on a global basis for a couple of more years."

On its creativity: "Are we creatively better? I think, yeah. I think some of the creative work coming out of this company is better."

On the New York office (after saying that it has been doing well and is still making good money): "But do I want it to do better? Absolutely."

Blogger skepticism
Some have already deemed the DraftFCB merger an unsuccessful venture; in particular, segments of the ad blogosphere have been severely critical.

Pointing to odd decisions DraftFCB has made -- such as a somewhat tawdry self-promotional ad that showed two Cannes lions humping -- George Parker, who writes the AdScam blog, said the agency brings the criticism on itself. "These self-promotional videos they put out just toot their own horn talking about how this was the agency of the future and this is the way advertising is going. And if you look two years down the road, it didn't happen," said Mr. Parker. "If I was going to give them one piece of advice, it would be: Shut the fuck up for a year until you have something really conclusive and provable to shout about. And then, a year later, come back and say, 'See, we made it work.' Or the odds are that they wouldn't. Draft justifies about 80% of the criticism they receive because they have gone out of their way to stick their neck out and make dumb statements and claims and then within weeks or months they have been proved wrong."

Mr. Draft, who is singled out for personal criticism by the likes of Mr. Parker, said bloggers don't keep him up at night. And he said it's too early to pass judgment. "Successful mergers can take up to five years to gel," he said. Mr. Draft, DraftFCB President-Chief Operating Officer Laurence Boschetto and Chief Creative Officer Jonathan Harries say these next few years are what the merger should be judged upon.

"The first two years have been about tactically executing against a business, our own as well as the businesses of our clients," Mr. Draft said, seated in his New York corner office, new-business documents and an iced coffee on the table in front of him. "All of the heavy lifting is almost done. ... Now we are in the execution and cultural stage, and in the next three years, it's incumbent upon us to get the culture, motivation and model evolved to the point that it runs itself."

Ahh, culture. If there's anything more top of mind for Mr. Draft or Mr. Boschetto, you'd be hard-pressed to find it. The word came up 29 times, in separate interviews with each of them totaling a little more than two-and-a-half hours. In bringing together a below-the-line agency with a creative shop, cultural differences were bound to arise. A few former Draft employees said the "entrepreneurial" spirit that defined Draft was lost in the merger. "There were cultural differences, and that made it a tougher place to integrate," one former Draft employee said.

Gestation period
Mr. Boschetto said establishing the merged agency's culture will be a continuing process. "When you put different combinations of people together with a shared purpose and goal, they tend to find the connective tissue that unites them instead of the differences that separate them," he said. "The more you do that, the more the culture gives birth to the model."

That former employee also said when the merger took place there was a sense that it was suddenly going to be the FCB way of doing things; direct would simply become just another service it could offer. Mr. Draft said while staffing was always based on who was the best person for the job, he bent over backward for FCB people in order to appear fair. That may have resulted in some of those ill feelings among Draft employees.

DraftFCB's New York office, which won the U.S. Census Bureau assignment last year, has been making more news than the agency's other satellites. Unfortunately though, it hasn't always been for the right reasons. There have been layoffs -- the agency would not disclose how many, but they were across all levels -- the loss of one of the agency's largest accounts and the recent announcement that its chief creative head, Chris Becker, was leaving. Mr. Harries dispelled rumors that Mr. Becker was fired, saying he would remain with the agency but would be working in another region. Mr. Becker, via e-mail, said he initiated the move himself. "I am considering several creative positions which have recently opened up [in the network]," Mr. Becker said. "At this point I haven't made any decisions."

Mr. Draft, who describes himself as a frustrated perfectionist, doesn't pull any punches when it comes to discussing the problems of the 650-person DraftFCB New York division. "We have had some issues here in New York," he said. "No one is going to deny that there's work to do here. Morale in New York is not as good as it needs to be -- not even close. ... When you're growing you feel good about yourself, and when you have to cut back staff, you never feel good about it."

Improved output
Peter DeNunzio, president of DraftFCB New York, who joined in September 2006 from Ogilvy, said the work coming out of the office has improved since everyone has been under the same roof. (The office was operating from two locations until last year.) As for the layoffs, Mr. DeNunzio said they don't indicate any problems that are specific to the agency but are instead related to client budgets being postponed or not coming through at all.

"The reasons why we right-sized the agency were 100% economic and financial," he said. "There was some economic right-sizing that had to happen as a result of some shifts in client budgets. There were changes in the volume and kinds of work we were doing for some clients that necessitated changes in staffing levels on their business, and we had to make some very tough decisions."

He said the office has managed to win some "nice assignments, but I'd like to have one or two more seismic wins." Mr. Draft pointed out that, despite its problems, the office is still one of the biggest in New York, "hasn't lost a single client since Verizon" and still makes money. Its health-care practice, he added, is "best in class."

James Chase, editor in chief of Medical Marketing & Media magazine, said DraftFCB Healthcare is a top 10 agency. "They are definitely one of the few success stories of the traditional medical agencies of the last few years. Everyone is having a tough time, but they have found a way to adapt and generate new business."

Mr. DeNunzio said the office has begun to move on and morale is being restored. "Like any business, it goes through ebbs and flows, and I feel like we're in a good place right now," he said.

Collapsing silos
But what really matters when you're talking about any agency is the work. And while the thought of bringing accountability and creative together as a holistic unit was appealing to Mr. Draft, it meant he was going to have to start undoing all the work he did in pushing for silos. "I always asked my clients to have silos," he said. Now he's saying it's better to tap into an integrated shop.

DraftFCP wins and losses
As excited as he and Interpublic were about the model, there was always a sense of concern about whether marketers were ready to accept it. Many agencies feel that while marketers cite integration as their No. 1 goal, they're often not set up for it and are their own worst enemies when it comes to being able to execute across disciplines and media. "My biggest fear of the merger at this point is making sure the client evolution follows what we believe the evolution of the marketplace is, which is to have a single-[profit-and-loss] model," Mr. Draft said. "There are usually not too many things I'm 100% about, because I'm not good with numbers, but I'm 100% that the model is right."

Jeff Fox, chief creative officer at Yum Brands, which works with DraftFCB on its Taco Bell and KFC brands, said Yum, originally a client of FCB, had no apprehension when hearing about the new model.

As for what Mr. Fox sees taking place culturally inside the agency, he said it's no different from when he used to work solely with FCB. "I'm in there on a daily and weekly basis, and I feel no change."

In the two years since the merger, one of the biggest pieces of business the shop won, aside from Wal-Mart, was Kmart in April 2007. DraftFCB said the retailer chose the agency in lieu of a formal review and based that decision on the new model. Kim Picciola, Morningstar senior retail analyst, said the struggling discounter has been looking for guidance; it has had a tough time establishing itself and differentiating itself from the competition.

Kmart is "not really giving consumers a compelling reason to shop their stores, and they have continued to lose market share because of that," she said. "It's hard to say how much advertising has to do with that. It really is a combination of many things, like the right advertising, the right merchandise and the right locations."

In the second quarter of 2008, same-store sales fell 5.6%. However, those numbers are somewhat stronger than the first quarter, when same-store sales fell 7.1%. And the retail sector, of course, is being badly battered by the economy.

Kmart, whose spending from April 2007 to June 2008 totaled $270 million, according to TNS Media Intelligence, declined to comment.

Lack of interest?
A number of search consultants, however, said they haven't gotten a lot of requests from marketers to seek the agency out. "I think the vision [behind the merger] was good," said a second search consultant who asked not to be identified. "But I don't know that they paid it off in any way with any clients yet."

DraftFCB's Mr. Harries said the agency is getting its share of inquiries from marketers, but there haven't been many big pitches to take part in the last couple of months. And, not surprisingly, he doesn't believe the agency has hit a lull creatively either.

"The whole thing with creativity is always bringing something new into existence," he said. "I feel really good about what we are doing, and it's amazing what we have managed to achieve."

Interpublic CEO Michael Roth said he doesn't pay attention to the gossip that surrounds the agency and would make the same decision on the merger today that he did two years ago. More importantly, he said the agency has been profitable and had a strong first half this year.

Mr. Boschetto said in hindsight there are always things he would have done differently, but the agency is performing better than legacy agencies "in isolation."

'Lost focus'
An executive said Draft, the direct-marketing agency, lost its way after the merger. "They ... had a good proposition, understood where they were going in the marketplace, but got caught up in their own BS. It lost focus and ended up no place."

Mr. Draft disagreed, and said he doesn't think the company has lost its way or its edge. Growing organically is arguably more important than tacking on new clients, but it's the big new-business wins that make industry watchers and analysts take notice. Mr. Draft said the agencies merged so they could "hunt whales," but due to a lack of whale-type reviews, he's more than happy to focus on the agency's existing business. "If it's between winning another $10 million account vs. focusing on the great clients we work for," he said, "it's more important for me to focus on the great clients we already work for."

"We're healthy, and we have our global accounts intact," he said. "Now it's about winning new business, evolving the culture."

Mr. Draft said he's never satisfied, and the agency has a long way to go. That's the attitude he needs, because, despite winning 250 pieces of business and steady growth in a tough economy, DraftFCB still has a lot to prove.

"We've come a hell of a long way in two years," he said. "The agency is stable, solid and a healthy business. Now where do we go with it?"

The man who answers all his own questions has no answer for that one. At least, not yet.
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