It takes a village to boost profit at Grey

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Touring the fourth floor of 777 Third Ave., Grey Worldwide Exec VP Maureen Maldari stops before a folding butterfly chair covered in bright yellow canvas. "Crate and Barrel, under $20," she blurts out, referring to the object's origin and price. "We know the price of everything on the floor."

Few are the executives at agencies billing multimillion dollars today who are as familiar with such costs as Ms. Maldari. But she and her creative counterpart, Robert Skollar, exec VP-managing partner, are not at all unusual within Grey's New York office, the largest in Grey Global Group's ad agency network. Ms. Maldari and Mr. Skollar keep tabs on all costs, profits and losses generated from work handled within their so-called village, Buzz Grey, one of the agency's nine such entities, each led by a senior account and creative team. Since mid-2001, when Grey New York President Steven Blamer introduced this system, the agency has cut 25% of its costs, mostly in people and overhead. In 2002, a grim year for most agencies, "my people got bonuses across the board," said Mr. Blamer.

The secret to the agency's financial fortitude is containing costs and forecasting revenue and profits, much of which is done by village leaders rather than by Grey New York's senior management. "It is idiotic to sit at a desk and send e-mails saying `Don't go to fancy restaurants,"' said Mr. Blamer. "This puts people in control of their own destinies."

Each village has a stable of clients, and from their billings village chiefs manage a profit-and-loss statement. A key component in the process is a computer model-referred to as the "Farmer Model" for consultant Michael Farmer, who created it-used to determine the staff, and thus much of the costs, necessary to develop each client brief from inception to completion. "This doesn't seem very revolutionary," said Mr. Farmer, a former Bain & Co. director who opened his firm, Farmer & Co., in London in 1990. "But agencies as a rule don't measure their workload, their rework rates [the number of times creative teams redo a brief before it is approved by a client] and the number of teams assigned to each brief."

determining workload

In late 2000, soon after settling in at the New York office from London, where he served as CEO, Mr. Blamer, Mr. Farmer and a handful of agency executives set about determining the workload, in terms of creative briefs, demanded annually from each Grey New York client. For each brief, several variables-such as type of media required, complexity of the assignment, the number of creative teams assigned to the brief, and an estimated rework rate-were calculated and entered into the Farmer model. The model then yielded the number of staff required to make the brief.

Mr. Blamer's goal was to reduce the average rework rate per brief from 2.1 to 0.7 and lower the average number of creative teams per brief from 1.5 to close to 1.0. "It is a system that requires a confident manager, someone who is willing to give power and trust to village leaders," said Mr. Blamer, because those leaders must determine how to make their numbers.

The benefit of such a model, said Mike Walsh, CEO, Europe, Middle East and Africa for WPP Group's Ogilvy & Mather Worldwide, who has used the Farmer system at Ogilvy in the U.K., is that it provides the "ability to do more work with less people, and to cut out inefficiencies. It is also important to include clients in the process."

Mr. Blamer said that in 2002, Grey New York's gross revenue increased 21%. Its revenue rose 6.2%, more than all but one other agency ranked among the top 10 New York agencies in 2002 by Crain's New York Business.

The village system, said Ms. Maldari and Mr. Skollar, has helped Grey executives develop their financial acuity-"people are much sharper up front in building the creative brief," said Ms. Maldari.

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