Why Size Doesn’t Make A Super-Agency
“Holdings are the full service agencies of the new millennium.” That claim was made by Sir Martin Sorrell – in a 2004 Admap article with the title ‘Why you should appoint a global agency group?’ Almost 10 years later, with the announcement of the Publicis-Omnicom merger, the industry is again seeing another attempt to build the next super-agency. But is size really the important differentiator in an industry that should primarily be about producing creative solutions that work in their client’s interest?
Size alone doesn’t mean anything
I thought about that same question when I wrote my diploma thesis in 2005 with the somewhat clunky title ‘Global concentration of the communications industry – holding strategies and the resulting opportunities and threats for agency networks‘. It still is fascinating to see how the industry increasingly concentrates towards bigger and bigger holding conglomerates – almost to a point where the single agency brands and their core purpose seem to become meaningless.
Over the last years WPP became the biggest holding company (mainly through merger and acquisitions) with a market share of 22.8% (in terms of worldwide revenue of the top 50 largest agency companies). As Omnicom, Publicis, Interpublic Group and a few others did the same, the so called concentration rate CR-3 (combining the market shares of the three leading holdings) increased from 44.1% in 1996 to 54.3% in 2013. If the merger goes ahead as planned, this metric will jump to 63.9%. The top five holding companies will then combine 76% of the market. The concentration is a result of the market forces. As the holding companies represent the intermediaries in the industry, the concentration is mainly caused by the highly concentrated media ownership and client sides. Market pressures might be the reason for the big conglomerates but the holdings’ main problem is to make use of their size. They all lack meaning beyond just being big.
The super-agency illusion
There have been different attempts to infuse meaning beyond the holdings’ only purpose of being a financial aggregator to create value for shareholders. “Full service agencies of the new millenium” basically described the so-called ‘super-agency’ idea – the concept of a holding company combining resources from their different agency brands to form dedicated teams to serve their clients across discipline and country borders. This manifested itself in things like huge global holding pitches for companies like Samsung, building cross-agency teams or brand centres and in forming new agencies by merging existing ones. Latest example from the WPP world is the merger of former Grey agency G2, OgilvyAction and JWT Action to form shopper marketing agency Geometry.
Backed up by an argument based around efficiency and a multidisciplinary offering, this was used as a proposition for clients. It was also the major reasoning for the holding companies to justify every new acquisition over the last years. The approach might make sense from a financial point of view for the holdings but it completely ignores the reality of the most important asset every agency has – it’s people. People who actually – believe it or not – identify themselves with their agency and their work but not necessarily with some nebulous holding company above.
Is there an alternative approach?
The super-agency strategy introduced the holdings’ exercise of influence on their agencies on multiple levels – on a financial and client level. The financial influence is by definition the essence of what a holding company is all about. Holdings want to maximise their shareholder value and therefore increase the financial pressure on their agencies. This alone can already have a negative impact on motivation and the quality of the output. The moment the holding starts to move their agencies and people around, like if they are just some financial asset, is where the super-agency concept really fails. How the holding structure can actually be used as a benefit and career opportunities for their employees has never really been thought through across the organisations.
So far there seemed to be a contrasting philosophy, making the Big Four battle over market share a fight of two competing systems. The contrasting philosophy could be described as the ‘loose network’. In contrast to the super-agency, a ‘loose network’ holding doesn’t control their agencies beyond financial influence. The US based holdings Omnicom and Interpublic always seemed to follow the strategy of a rather loose network. The European competitors Publicis and especially Martin Sorrell’s WPP seemed to centre around the vision of the super-agency. The problem with the ‘loose-network’ approach: the financial pressure they put on their agencies is the same and they also didn’t create any meaning beyond just being a conglomeration of many competing agencies.
Big data doesn’t make a super agency either
The competing strategies make the merger between Omnicom and Publicis even more surprising. One might think that this actually might be the chance to create something new. Something that transcends the former philosophies into some sort of synthesis – a vision bigger than just size.
With the surprising announcement of the merger came the surprising and misleading reasoning behind it. Big data seems to be the new attempt to create meaning for the new super-agency. But “scale is no guarantor of success in a data-driven world.” Just because the Publicis Omnicom Group would have a combined market share of 31.5% and 130.000 employees, doesn’t automatically translate into a better offering. Big data is not about size but smart talent. This again misses the trick of creating meaning for the holdings. It is another very technical rationale for a very people driven business. Data itself is not enough, it’s about what you make with it.
Big talent makes an agency super
In order to create an attractive offering for clients, holding companies need to invest in their talent. I know, this is an obvious and often repeated statement. But the reality is that not much is happening in that area. An new merger and an even bigger holding does not inspire confidence that this will happen either. Agency networks are poor employers when it comes to developing their talent – and you can hardly blame them. The main reason are the financial pressures they face. While holdings are very effective at squeezing their agencies in terms of margin, they could do a much better job at reinvesting money into their most important asset and leveraging the network in favour of their employees.
All agencies, no matter if they are traditional advertising agencies, media agencies or digital agencies, are by definition so called professional service firms. Their business model is 99% dependent on people. Holding companies need to understand that they need to attract, retain and develop these people. Especially now, as the whole industry increasingly concentrates around a few big players, there is less and less difference between the general environment and working conditions. After the Publicis Omnicom announcement, the next round of mergers is definitely coming. As this process seems to be inevitable, there seems to be a huge chance for the holdings to come up with a vision for their existence that is bigger than just size.
For shareholders the holdings might still be the full service agencies of the new millennium, but at some point they might realise, that in this industry it is quite hard to do that without the talent of the new millennium.