The holding agency model is so last century
The modern CMO’s growth agenda threatens the very existence of the current agency holding model, according to the latest Forrester report (Agency Holding Companies Need a Brave New Business Model). And the message is quite clear: change or face extinction.
What is the future for the agency network model?
There is a lot of sense in the key findings of the report. The days of using in-house trading desks to prop-up profits while many holding company creative agencies’ lost their way are coming to an end, and their grip on marketing spend is rescinding on multiple fronts.
Above all, the issues identified around the rigid structures of holding companies and their mismatch with the new world of CMOs and marketing-led organisations stands out. It’s no longer enough to focus on building a brand on great creative; performance trumps awareness. Agencies need to align and drive the growth agenda and focus even more squarely on business results – such as sales and customer value.
This requires agencies to better blend lead generation (that delivers short term results) and brand building activity (that remains crucial to driving these results over the longer term).
Agencies need to be more flexible and innovative, and there are things they can learn from their new consultancy competitors. They need to staff clients and projects on a global basis, with the right people and skills in place at the right time (and not seek to lock clients into a rigid ‘Team HSBC’ style model). And they need to spend more time embedded with clients to build closer relationships and immerse themselves in the client’s business and marketing agenda (although this is not necessarily the same thing as trying to compete with in-house offerings which are highly commoditised).
The report makes suggestions on how the holding agencies can adapt, stating that the likes of Dentsu Aegis Network, Havas Group, and Publicis Groupe have the opportunity to build on a single global brand while WPP would be better served ‘dissolving’ its hundreds of agency brands into just dozens.
However, there is one major flaw, and that is the assumption around scale. Scale was a 20th Century concept, and in a tech-enabled, digitally-centric world, it is no longer relevant; there is no longer a need for boots on the ground in all major markets (in fact it can be an inhibitor of innovative, globally consistent creative).
Instead, creativity is key and allied with the ability to bring together multiple disciplines around a consistent strategy and creative framework in an agile and flexible manner.
Unfortunately for holding companies, as scale becomes an anachronism, they will fail in their attempts to deliver on the requirements of the new world. They are too bureaucratic and rigid, they lack in diversity and all of their structures, incentives and cultures have been set up to drive internal competition more than collaboration.
As an ex-network colleague of mine put it: “We could go after a multi-disciplinary brief as long as the client was happy to wait six weeks for us to get everyone’s diaries aligned so we could have a first meeting!”
They are essentially ‘oil tankers’ that cannot be changed or turned around quickly and, in line with the experience of other [industry] incumbents in a transforming, digital world, they will ultimately be marginalised by a new breed of more fit for purpose agency groups.
Moreover, some of the potential solutions prescribed won’t solve these problems. Having a global agency master brand such as Publicis won’t address the fact most of its creative assets are legacy agencies, poorly equipped for the digital world (nor does it make it easier to bring together disparate groups within it). Similarly, merging all of WPP’s media assets into Group M is a non-starter for conflict reasons; a better plan would be, for example, putting the newly-streamlined Ogilvy together with one of its media brands and seeking to build an agile client-centric model at this agency level.
Instead, I believe we will continue to see the rise of a new breed of more entrepreneurial, multi-disciplinary groups that were forged in the digital age and that can prove to clients that they can truly bring together the right mix of specialist capabilities, around a compelling strategy and creative framework, in a flexible and agile way and to drive business results.
MDC may well be able to achieve this (as might Dentsu if it can add creative firepower to its competence in performance marketing), but also groups such as Kyu (part of Hakahudo) among others may be better placed.
Such groups or agencies, such as Stein IAS in a B2B world, already have deep understanding of martech and analytics within their DNA and have been serving clients through a global staffing model for a number of years – and this feels like a better place to start than in the Board room of one of 'the big five'.
It leaves you asking: can there really be a brave new world for holding agencies when they are just so last century?
Peter Reid is the CEO of MSQ Partners
The Drum's Agency Business Awards are currently open for entry with extensions available through request.