Changing the Nature of the Beast

NEW YORK In late January, at the World Economic Forum in Davos, Switzerland, the annual blue-chip meeting attended by a who’s who in global business and politics, Martin Sorrell huddled with Bill Gates, Paul Allen, Angelina Jolie and Bono. He passed along a package to Klaus Kleinfeld, the new CEO of Siemens, Europe’s largest electronics company.

Another day, another new networking opportunity for the indefatigable Sorrell, the WPP Group CEO, who is redefining the role of the advertising holding company in business development. His peers in the industry have often become involved with important clients: For a long time, Interpublic Group’s former top exec, Phil Geier, personally kept Coca-Cola business in the corporate family. Omnicom Group’s John Wren played a key role in DaimlerChrysler’s consolidation of business at BBDO in late 2000. But publicly, those situations were portrayed as more the exception than the rule and handled with discretion.

Headlines last year trumpeting Sorrell’s success in holding-company reviews like HSBC, Nestle media and Samsung, and his role in assembling the WPP teams to compete in them, have made him the personification of change in a divisive debate.

Unpredictably, the sober, pinstriped corridors of bottom-line Madison Avenue are being cast into an uncomfortable light: Should the holding company evolve and take a more active managerial role—and become something more than a financial mechanism and a corporate means of avoiding the client conflict issues that historically have uniquely plagued advertising?

“This is the most hated new development, but it’s the most actual, literal new development in the business,” says one WPP company source. “Nobody else in the industry wants to do it this way. Every single dynamic of this business gets disrupted if you ask us to sublimate ourselves in a larger mix of companies. How do we get paid? How do bonuses get paid? How do earn-outs get paid?”

Sorrell declined interview requests for this story. Most WPP executives did not want to comment on the record, nor did many of those at its operating units.

It is not clear yet if account consolidations at various holding-company units are a short-term trend that will ultimately prove flawed or a fundamental shift in the way marketers choose their communications partners. What is certain, though, is that the impetus for such solutions is real and increasingly urgent as marketers look for better ways to coordinate integrated communications.

Other big marketers who are choosing the holding-company route include Bank of America, with IPG; Schering Plough, with Omnicom and Publicis Groupe; and Nokia, with IPG. Intel and Jaguar are still in the process of conducting reviews in which they have asked for multiple agency resources, while pharmaceutical giant Pfizer is also said to be considering a consolidation of various marketing programs across multiple holding-company agencies.

On paper, the holding-company focus offers a compelling proposition for marketers who want to streamline the number of partners they work with: It allows them to work with a single point of contact in day-to-day coordination of marketing services. Clients stand to gain greater coherence in marketing voice, improved cost efficiencies and speed-dial access to the corporate CEO in case of difficulties in the working relationship.

In practice, it’s a thorny logistical challenge, given the need for global coordination of such complex virtual agency teams across geography, practice discipline and company affiliation. (The review process alone can be a huge undertaking.) In assembling teams of normally competitive entities, how do holding companies get beyond those agencies’ inherent rivalries? With the Jaguar review, Berlin Cameron/Red Cell, for instance, is pitching against JWT, its WPP partner in efforts for HSBC and Samsung.

Conflicts can occasionally become problematic as operating units are drawn into larger team efforts. In late January, Advanced Micro Devices split with McCann Erickson in part because of the agency’s involvement, as part of IPG’s efforts, in the current Intel review.

“The group concept is based on a multi-network approach,” argues Publicis CEO Maurice Levy. “Each network should be run with total autonomy in order to be able to work for conflicting accounts. The policy of the holding company should be, in my view, to support the networks, not to compete against them.”

For the industry’s major players, selling the holding-company concept helps rationalize the diverse assets acquired over the last two decades. But don’t expect to see marketers like Procter & Gamble or Unilever jumping into the holding-company fray anytime soon.

“The parent-company approach [thus far] is more obviously suited to global businesses with single brands rather than multi-brand marketers,” says Toby Hoare, the HSBC global client leader at WPP. Adds Bob Jeffrey, worldwide CEO of JWT: “It’s not right for every marketer, but you’ll see more and more of this approach from bigger clients working with multiple agencies.”

The approach is particularly well tailored to HSBC in coordinating the needs of its strong global image with local banking identity, says client general manager for marketing Peter Stringham. The bank had been working with “hundreds” of below-the-line shops, where it spends two-thirds of its budget, and one above-the-line agency, Lowe. Last May, after a review, it shifted HSBC’s $600 million of billings to WPP, where 600 staffers from 21 companies work on the business.

“We’ve found that this makes even more sense-whether by serendipity or by design-than we originally thought,” Stringham says. “We’re discovering ways where we can work with new WPP companies we hadn’t previously thought of. It really pays to spend time and ask around the group when we need help with new projects.”

Hoare is employed by WPP, but works out of JWT in London, alongside that network’s global creative chief, Craig Davis, who heads up those duties on HSBC. JWT is WPP’s lead agency on the business, working with other corporate entities such as media concern MindShare; design company Fitch; interactive unit rmg:connect; and promotions house 141 Worldwide. (Berlin Cameron was part of the initial pitch, at Stringham’s request, but is no longer involved with the account.)

Stringham and Hoare have what the HSBC marketer describes as a “virtual daily dialogue” in which they and other executives discuss executional details as well as logistics.

Critics contend that marketers get a better shot at “best in class” when they don’t limit themselves to the offerings within a single holding company. Stringham disagrees: “Obviously it’s a concern: Why wouldn’t I go around the world and cherry-pick among the best agencies?” the former Young & Rubicam exec says. “The answer is, No. 1, I probably wouldn’t be allowed to get the best 30 people from each agency. But with WPP, you have more clout in one place than being spread out. Also, when you say best in class-does it mean one person or a team? For us, it means a team. Having a brilliant ad writer doesn’t mean much.”

HSBC is one example of a relationship in which potential client conflicts were finessed-American Express was said to have expressed concern over sharing MindShare with HSBC. (Citibank and Merrill Lynch are also WPP clients.) Still, some observers, like Merrill Lynch financial analyst Lauren Rich Fine, aren’t convinced that competitive tensions won’t arise. “I think this is a very scary development, an unhealthy trend,” she says. “If I were the first client to benefit from the best [holding-company resources], that’s good. But what if I’m the second category client? What does an existing client think when the holding company that their agency is owned by indicates it is committing its top resources to another client in their sectors?”

WPP’s response has been that it only commits resources that are available at the time of a review. As far as conflicts are concerned, Sorrell believes they are an issue to be resolved by operating units. He insists that WPP acts as a parent, overseeing the family of corporate resources, rather than the financial shell of a holding company.

After a win, Sorrell and his top aides remain in touch with clients in a way that’s similar to what goes on in the consulting industry. “McKinsey is a parallel example [to what we’re doing],” explains a WPP source. “You have very senior partners who oversee quality control, but they’re not the ones involved with the projects. You have people like Toby [Hoare], who’s fully in control of the day-to-day, while there are people at the holding company who are involved in any other issues that arise.”

Says Andy Berlin, CEO at Berlin Cameron: “Martin Sorrell has not been a strategic leader on HSBC or Samsung. This is about allocation of talent and his playing the role of a very aggressive salesman.”

Perhaps too aggressive, to some observers. Samsung review insiders say it was Sorrell’s personal lobbying last summer of the family behind the Korean conglomerate that overturned the company’s marketing execs, who had chosen Publicis.

Some critics say WPP is winning business by slashing fees. HSBC’s Stringham says streamlining marketing resources was the bank’s primary motivation, not driving cost efficiencies. WPP sources say HSBC didn’t even discuss fees until after the business was awarded to the holding-company team.

While WPP’s large networks reap more of the financial benefits than its smaller entities, the bigger team efforts provide opportunities that may otherwise be unavailable.

Says a source at a WPP shop: “With the number of people we have, we wouldn’t have even been able to win the pitch. So who’s complaining that we get a shot at a global marketer we never would have had and we only get a [percentage] of the revenue we never would have received in the first place?”

One critic, citing the now-defunct partnership of Young & Rubicam with Berlin Cameron in the Jaguar pitch, responds that therein lies the problem. “Martin Sorrell almost has to push this, because some of his individual brands aren’t so good,” says a source familiar with the Intel pitch. “Omnicom succeeds because of the strength of its brands, WPP because of the strength of one man’s personality. What happens in 10 years?”

For JWT’s Jeffrey, the collaboration with Berlin Cameron helped bolster creative resources in an HSBC review where rival Omnicom enjoyed a marketplace perception of high creativity. Jeffrey had just recruited Davis to JWT, and the new creative head was still figuring how to best leverage the network’s talent at the time of the review. Jeffrey credits Davis and JWT London executive creative director Nick Bell with cracking HSBC’s strategic brief, and JWT teams around the world have produced subsequent ads. After the HSBC win, Jeffrey says, Davis focused on the bank, while Berlin stepped in to lead the creative charge on Samsung.

One agency source acknowledges Omnicom’s creative advantage in these reviews, but sniffs: “Omnicom’s strengths are their weakness. They’ve got a very tribal group of companies who wouldn’t agree to collaborate.”

Perhaps more to the point, they don’t have to, in the view of Omnicom CEO John Wren. “I suspect there are substantial differences between Omnicom, WPP, IPG and Publicis on how we approach holding-company pitches,” Wren says. “At Omnicom, the new-business role is primarily the responsibility of our principal agencies. Supported by appropriate subsidiaries that they have selected, it is our agencies that tailor strategic, creative solutions to fit the prospective client’s requirements. There are no creative people employed at the holding company. Omnicom’s role is to support its agencies’ efforts and to intervene if the group requires resources.

“Clearly, credit for our new-business success goes to our agencies,” Wren continues. “When not successful, the assumption of responsibility and subsequent analysis of a pitch is a matter for the entire family in order to determine what could have been done better.”

Indeed, while recent reviews are portrayed in the media as holding-company feeding frenzies, the reality is more variable and pragmatic. Martin Sorrell certainly isn’t the only industry CEO to show up at pitches. His peers are there, too, but typically offering a different interpretation of the client’s request.

In the current $400 million Intel review, for example, the brief is consistent in asking for a holding-company approach. But it also asks what the holding-company role would be-whether it’s a case of simply identifying resources or actively managing the relationship-and what added value it could deliver. For Intel, Omnicom put forward an effort led primarily by DDB, while IPG offered a similar one centered on McCann WorldGroup.

“Business is business. My role and the holding-company role is to find the best ways to provide the resources and the results clients are looking for,” says IPG’s new CEO, Michael Roth. “You don’t get into these holding-company pitches unless you have strong brands, strong networks. McCann, on their own, is a very strong offering.”

IPG has already proven flexible in meeting client needs with its experience on BofA. It has been almost three years since BofA consolidated at the holding company after a marketing services review that pitted a team of IPG shops against an Omnicom team led by BBDO. Sixteen IPG companies work on BofA’s $600 million account, which is led by Draft and Flag, a group that project manages and coordinates the work of IPG units on behalf of BofA. Some 8,000 pieces of work have been produced.

BofA chief marketing officer Catherine Bessant says she is “even more committed” to this approach now than when she started the consolidation process. Like HSBC’s Stringham, Bessant had faced the daunting task of working with 500 below-the-line communications agencies. “It was clear we didn’t speak as one Bank of America, it was more like which Bank of America are we today?” she recalls. “Unlike a consumer products company with multiple brands, we sell one brand, and the reason people do business with us is because of the perception and power of that brand. It necessitates a truly integrated approach. We needed a marketing partner as accountable in getting out that integrated approach as we are. This is not for the faint of heart-this is revolutionizing the industry.”

IPG set up a separate company, at BofA’s request, which is headed up by Bruce Nelson, IPG evp and chief marketing officer. “We’ve built a infrastructure around the stewardship of the brand,” says Nelson. “Other places have coordinators looking after the business; here we run it as a full network. I have my own CFO, COO, single bottom line-all of which works well in coordinating our efforts.”

The result has created a deeper working bond, says Bessant: “IPG has produced a strategic focus rather than a transactional focus. It enables us to get the very best work from our agencies. Agencies thrive in an environment where they have to be strategically challenged. We’re out of the dynamic where agency pleases client or client fires agency.”

That new way of working was tested when IPG unit Deutsch didn’t meet expectations, according to Nelson and Bessant, and was taken off the business as a creative partner last September, and as a media resource just two weeks ago.

“It’s up to the holding company to manage the relationship of the operating companies with the client,” says Nelson. “When our companies don’t perform, the holding company has to make changes and find alternatives within the broader network.”

Deutsch’s creative duties were transferred to Draft and Flag, while Initiative picked up media. Deutsch COO Linda Sawyer declined interview requests.

WPP has also experienced difficulties with clients, albeit with different results. U.K. chemist Boots left JWT and MindShare in December 2003 for a consortium led by London independent Mother. A Boots representative said it would be inappropriate to comment on the split “because the relationship has ended and also because the chief decision makers who agreed to the deal are no longer with the [company].”

WPP faces another test in the Intel review, where a decision is expected shortly. Sorrell enjoys a close relationship with new Intel director of sales and marketing Eric Kim that was forged while Kim was an evp at Samsung, where he supported WPP’s selection. That’s been thought to give Sorrell the inside track in Intel’s review, but even review insiders not affiliated with IPG concede that McCann appears to be favored in the pitch.

“Martin Sorrell doesn’t have ideas, he has resources,” says one source. “In this case, McCann Erickson has a great idea. Eric Kim made his debut [at Intel] by showing McCann’s idea to 500 [Intel] people and [chairman] Andy Grove. They loved it.”

Ultimately, it will be marketers, then, who have the final say in the debate about the pros and cons of corporate parents’ involvement in the business development at their operating units. Whether client companies adopt the holding-company model won’t be decided just on the basis of sheer convenience in management of integrated communications.

“This holding-company notion is built upon a flawed image of scale,” says another source familiar with the Intel pitch. “This is not a manufacturing business; clients are looking for the best ideas in an idea business, wherever they can be found.”