NEW YORK (AdAge.com) -- It hasn't been this bad for 66 years.

Our annual dive into agency revenue figures shows shops of nearly every stripe lost revenue last year. In total the agency industry tumbled 7.5% to $28.4 billion in revenue in 2009. That's the sharpest decline since we started this listing in 1944.

No doubt the economy has been the biggest culprit, but there's also a more troubling trend -- one that has little to do with a stock-market crash and consumer-spending decline. In our reportage from all areas -- the marketers, the agencies, the media companies -- we hear of cracks in the already-complex relationship between agencies and the marketers they service. Just last week, Chevrolet parted with Campbell-Ewald after 88 years.

Some blame the rise of social media, which has agencies rapidly trying to expand their offerings and sometimes promising capabilities they are unable to deliver, some blame even more agency partners at an already-crowded marketing table. At one point the No. 1 enemy was Google (no more) but today it's more commonly the procurement officer, often called a cost-cutting zealot who treats advertising like office supplies. We decided to get their side of the story and spoke to the chief procurement officers at Pfizer and Intel. Yes, they actually care about quality and creativity and no, to them shopping for an agency is not just like buying paper clips.

Make no mistake: Examples of successful longstanding relationships between clients and agencies, such as the one between Apple and TBWA/Media Arts Lab, still abound in many corners of Madison Avenue. But some of the things those types of relations are built on, such as the trusted keepers of the client-agency relationship, are becoming marginalized.

Meanwhile, everyone's getting into everyone else's business, which can be confusing for marketers and create new competitors for agencies. Take, for example, the kerfuffle around Home Depot's recent Hispanic agency review and the tension it's created between Hispanic agencies and general-market shops that are growing their multicultural practices. Or the media companies that have started to tread on traditional-agency territory. Want to create an integrated campaign for your latest luxury launch? Cond? Nast is open for business -- and you don't even have to buy ads in Vogue.

In all, it's leading to an unprecedented strain for the agency community and the marketers it services -- and we hope in Ad Age's first Agency Issue to diagnose some of the problems and help point the way toward solutions.

Yes, there are solutions. To find them, we canvassed people across the industry to get a feel for what's prompting the problems in the first place -- Kimberly-Clark CMO Tony Palmer flagged five areas keeping him up at night -- and what sorts of actions can be taken to remedy the relationship.

What's straining the agency-marketer relationship today?

"Too many agencies are wondering, 'Am I going to have a job six months from now? What does my client really think?' When the agency doesn't know where it stands or if the client believes in it, it becomes dysfunctional. That's the biggest thing that's missing. If the client's not happy, get on with it. Tell them what's wrong and what they need to do. Marketers also shouldn't be afraid to challenge their agencies. The best teams ask outrageous questions of their agencies. And agencies love that. And when you answer those, you get great work." "There is a bottom-line issue that is affecting all of us, not just agencies -- clients are being asked to deliver more. When I started in this business in 1985, the production budgets then felt like they were higher than they are today. Some of it makes sense, because you can do a lot more for less with technology. I just hope we don't sacrifice quality. We're treating ideas as commodities, and sometimes the worst idea is funded the same as the best idea." "Design and creative agencies are better than media agencies at convincing brands that they have the brands' interests at heart. That may explain some of the pressure media agencies feel from clients, and some of the reason clients seem to view media as a commodity more than certain other crucial areas." "Huge tension exists as marketers and agencies strive to globalize. What's the domain of global marketing teams and their agency counterparts? What's the purview of local teams and their agency counterparts? Often today the desire to take advantage of opportunities and the need to get to market first are so great that less thought is given to how that should be done -- inside the marketer, as well as inside its agencies." "It's very hard to figure out what's appropriate compensation. You go back 10, 15 years ago, and people knew how to pay a traditional agency. But now it's very hard. What do you pay somebody when they're setting up a Facebook page? That gets very confusing. That's why you get some of these purchasing departments getting involved. And that creates tension because there's no generally accepted formula." "It's probably the same dynamic that has played out for a few years now: Clients want better, faster, cheaper. If you as an agency can do that you're in a good space. Most clients today want to pay less for doing the same job they would have five years ago." "What you saw in the past was a much tighter collaborative relationship between agencies and clients. There are still a lot of questions in corporate America about the power of advertising. There is also procurement -- which we should support as a discipline -- but not everyone in America is using it as a strategic discipline, they are using it as a cost-cutting discipline. Agencies continue to struggle to demonstrate their value." "[There's] impatience for efficiency and effectiveness with little or no compromise toward delivering either. There are higher expectations of accountability from clients driving the need for more rigorous and relevant creativity. This is an enormous force for change in marketer-agency relations because of its impact on the way both do business." "One of our biggest challenges as an industry is that as the consumer has faced millions of media choices, the agency landscape has fragmented as well. We are challenged by some clients that have upward of 10 or 15 agencies and, while [they are] all "microspecialists," sometimes that hurts our ability to develop a cohesive strategy. We all know that the same consumer is online and offline -- sometimes at the same time!" "This contradictory tension [is] between someone who can solve my business problem but who also can be price-competitive. Once you deliver real value to the client you deflect that focus on price. The conversation should be about value."

How can the relationship be improved?

"Those relationships that allow for change as culture and climate evolve should be fine. I am a firm believer in flexibility in this economic environment and in this consumer-led environment. The agency-marketer relationships that build in flexibility have a greater chance for success." "Have senior, seasoned impact players on the front line (who are experts doing what the client can't do vs. what the client doesn't have time to do) focused on deploying their creativity on ideas that drive client's business. Be focused on value creation, embrace and use data and analytics to elevate work, and be collaborative." "We have got to be more comfortable experimenting with different models. So maybe a client just needs execution people or a lot of young people who are great with social media. We don't always have to give them the pyramidal structure of senior VP and account supervisor. We're doing models that suit us, and I'm not sure that's so smart. We also have to take the risk of saying our media mix has changed, and here's a better strategy. We shouldn't stay in our little boxes of execution. ... We have to be brave enough to take that risk." "The opportunity for improvement centers on an ability to find new models that link price, performance and value. Within that, agencies must have the ability to track, measure and synthesize, and this must be synchronized with client objectives. The best discussions occur when the marketing and procurement functions are unified and seeking value in all areas." "You really need clear alignment on goals between agency and client. And people need to think about, what are the deliverables? And what are the expectations? Often where you see trouble is when there's confusion as to what somebody is thinking they're getting and what somebody thinks they're delivering. Eventually what marketers will need to get to is an understanding that this all takes real resources and real money to do great work on the agency's part. Clearly, there's an onus on both sides. As we learn more about how to evaluate some of the new marketing tools that we now have, it will be easier to structure the agreement." "The keys to improving the relationship are clarity, better understanding of who can do what versus the hyperbole of promise and less of the promises made on PowerPoint and more substance of delivery of business results. Everyone relaxes a bit when they know it's working." "Assessing the goal and then clarifying roles and responsibilities of teams within the marketer's organization and the agency's ... and ensuring that team members have the proper skills and experience to get the job done according to regional market needs as well as global ones are crucial. Finally, budgets must be aligned, and leaders must sign off on the new model of working together." "It's all the normal issues ... great clients are ones that bring you in and make you a partner rather than a vendor. The No. 1 thing to make things better is, as long as you are at the table they make you a full partner. The second an agency accepts a lesser status or a client imposes a lesser status on them is the second the relationship goes into a downward spiral." "Efficient and effective creative solutions are more likely to come from marketers and agencies who work together seamlessly. Great creativity starts with great teamwork founded on mutual understanding and open minds."

Five pain points in the marketer-agency bond

Tony Palmer

Kimberly-Clark CMO Tony Palmer said he's got a healthy rapport with his shops -- something both sides work hard to maintain. But as he looks across the industry, he sees several spots where strains can arise. Some of the problem areas he sees:

1. CREATIVITY HAS BECOME AN END VERSUS A MEANS TO AN END. In doing so, agencies and marketers have fallen into what I think is a destructive and binary debate -- "creativity vs. business" vs. "creativity as a means to driving business." Both must return to this thinking. Agencies need to rearticulate their value equation in terms of ideas -- ideas that are designed to build business and are commercially driven -- and then deploy their creativity against the delivery of those ideas.

2. AGENCIES AND MARKETERS HAVE NOT FOUND A MEANINGFUL WAY TO USE MEASUREMENT TO ELEVATE AND EMPOWER CREATIVITY AND COMMERCIAL IDEAS. Measurement, instead of being a powerful enabler, is becoming a source of tension, particularly when viewed through the lens of the false construct above. If agencies embrace, lead, drive, integrate and make measurement an intrinsic part of their product, they will immediately change their value perception to marketers. However, today it seems that research and analytics (most notably in creative agencies) is seen as the enemy designed to kill the opportunity for creativity.

3. AS AGENCY SPECIALIZATION CONTINUES, THE HOLDING COMPANIES HAVE NOT WORKED TO FORCE AND ENABLE COORDINATION, DE-DUPLICATION AND VALUE CREATION. Instead they have allowed creative agencies to be marginalized. In my view they have enabled massive inefficiency driven by duplication and, sadly, have enabled open strife and conflict in full view of marketers, which only serves to diminish the value of all agency parties in the eye of marketers. The holding companies need to confront this issue fast or they risk being marginalized. Agencies need to collaborate amongst themselves to create client-focused value vs. playing out strife in public view of their clients. This, in my view, is killing agency credibility and value among marketers.

4. THE ECONOMIC MODEL OF AGENCIES IS BROKEN. They are not set up to make a respectable margin and as such, instead of rethinking their model, they make short-term, superficial cuts that only serve to exacerbate the declining sense of value they offer marketers. It is easy to make client procurement the villain. To be fair, there are many cases where client procurement is executed in a destructive way -- yielding no value to either the client or the marketer. Agencies need to seriously re-examine their model. They are becoming transactional with clients, which can destroy any chance of a long-term business partnership, and they are not able to attract and retain top talent, which helps in driving a destructive cycle.

5. THE INDUSTRY IS OUTSTANDING AT PUBLIC PRONOUNCEMENTS AND DEBATES ABOUT TRENDS AND THE IMPENDING NEED FOR CHANGE. Yet, they are unable to take action against this in a way marketers would expect a creative agency to. There are looming issues on the table now that agencies appear to be ignoring. Take, for instance, the expansion of production costs, driven by expansion of media and only to be compounded by real-time data. With this issue on the minds of marketers, there has been no material move by agencies to find ways to drive down production costs and improve cycle time. In my mind, this is either going to be an opportunity to lead or a basis for value erosion.

In the simplest of terms, agencies need to look deep within and ask themselves who their customer is, what their value equation is, how they are going to stay relevant and how they are going to ensure margin expansion, revenue realization and growth on behalf of their clients. These are the issues marketers are focusing on every day.

Agencies must stop being inward-focused and insular. They have to look at themselves, their models, their measure of success through the eyes of their clients. However, I will also say clients are part of the problem, as they (we) enable agencies to act this way. We as marketers need to place the pressure on agencies. We need to be clear with them and ourselves what we value. We need to make it clear we want change and will enable this change, as well as reward this change. If we don't, the cycle will continue and we as marketers will get what we deserve.

ABOUT THE AUTHOR

Tony Palmer is chief marketing officer, Kimberly-Clark Corp.