News Analysis: Outsiders Are Advertising's New Power Brokers

Necessity is the mother of intention. Because agencies need to be indispensable to clients, shops are courting and hiring top executive talent outside their ranks. In recent weeks, Young & Rubicam's appointment of public relations chief Tom Bell to run Y&R Advertising and Ammirati Puris Lintas' selection of former management consultant Richard "Rick" Hadala were salvos in the battle to keep client dollars from flowing to the rising tide of management consultants, marketing strategists and brand identity experts clamoring for them. Last week, Tom Bell, 48, head of Y&R's sister company, Burson-Marsteller public relations, moved into his offices as worldwide chairman and chief executive of the Y&R advertising network. This week, former McKinsey & Co. consultant Hadala, 41, will settle into his new digs as chairman and chief executive of APL's North American operations. Be they large or small, ad agencies sometimes pick their top-level managers from the elite ranks of their clients. These two new appointments, however, are distinct: Neither man has any experience in the kind of major consumer advertising for which their New York-based agencies are famous. Clearly, the moves "illustrate the blurring of the lines between marketing consultants and ad agencies," said Greg Smith, managing director of Ad Media Partners, New York-based investment bankers and strategic advisors. "Agencies are trying to add capabilities so they can be viewed as a value-added service that will be compensated at a higher rate." Smith and other industry observers predict that more top hires at large agencies will come from nonadvertising circles. For Y&R Inc., parent of its namesake agency, Bell's appointment was a sign that Peter Georgescu, its chairman and chief executive, is serious about bringing integrated thinking and strategic insights to clients--not only at the holding-company level but inside the unit devoted to traditional advertising. Bell succeeds Ed Vick, 54, who remains chief operating officer of Y&R Inc. "Tom will help us provide our advertising clients with a multiplicity of skill sets," said Georgescu. "He'll bring a freshness of perspective to agency problem-solving. It's also [important] for our company to have someone as good as Tom be fluent in advertising. Advertising is still the most powerful brand-building device known to man." In fact, Bell insists he will bring a "different slant and mind-set when the agency tackles client problems and opportunities." Take note: Part of that mind-set is his belief that agencies, including Y&R, are too reactive toward their clients. "Y&R is seeking to improve, to be solution-oriented and pro-active," he said. In addition to the PR unit, Bell is in charge of Y&R's diversified communications group, consisting of Burson, corporate identity firm Landor Associates and healthcare agency Sudler & Hennessey; together, they comprise about one-third of Y&R Inc. revenue. Thanks to his influence, Bell expects the ad agency will share clients more frequently with the diversified group. To date, the finest example of integration between the two sides is the $800 million Citicorp integrated marketing account, which the agency landed handily last year. Helping Y&R Advertising court Citibank was a relationship already established with the client by Bell and Burson, through Burson's work on Citibank's corporate communications. Y&R Advertising has continued to grow, aided by Y&R Inc.'s initial public offering in May. Its U.S. billings of $3.9 billion in 1997 are expected to grow 8 percent to 9 percent this year, said Georgescu. Bell confirmed that in spite of his strategic strengths, he will be following the lead established by Vick when it comes to creative. "Ed is always saying it is the work that matters. There are few things Ed has done that I want to change," he said. For his part, Martin Puris, chairman and chief executive of Ammirati Puris Lintas, said the appointment of Hadala as chairman and chief executive of both North American and the New York office is the culmination of the agency's longtime goal: to expand beyond traditional advertising. "The future of communications is a lot broader than traditional advertising," Puris said. Consider: About one-third of the agency's revenues now come from nonadvertising services, such as interactive, direct response and other marketing work, according to agency officials. Still, North America billings have slumped this year, with the loss of the $250 million Compaq computer account; plus, the shop faces a review of the $80 million Sara Lee media account. "We see our job as finding clients the best ways of reaching consumers with the best strategic thinking, said Puris, who stressed that Hadala's appointment is only one step in a series. "Bringing in Rick is one manifestation of that philosophy." Hadala declined to comment about his goals and outlook, referring such questions to Puris. Hadala is charged with looking at overall brand-building concepts for clients, beginning with product strategy, then a marketing plan and finally a communications strategy, Puris explained. The agency needs to be involved every step of the way, he added. The upshot? The ad industry may find itself adding strategists to top-level management out of necessity. A key reason is that client chief executives with limited marketing capabilities are forced to depend more on outsiders for marketing and strategic planning. "Since the late '80s, operations and financial executives have risen to the top of corporations because their skills in inventory control, reorganization and cost-cutting drove earnings," explained Bell. "Now these CEOs find themselves in an environment of oversupply where they need to grow their market to keep earnings up. This is the role that marketing plays, but it is not their core capability." Clients need marketing strategists who can speak their language to serve as partners--a role management and branding consultants are eager to fill. Agency executives who handle large technology accounts say the pattern is similar at high-tech companies, except that tech CEOs generally rely on product innovation rather than cost-cutting. All CEOs, however, face the same quandary. Is there a solution? Puris believes agencies need to create a new kind of product to satisfy clients, which he calls an "extended agency service" encompassing both strategy and communications. "I think agencies need to add a mix of talent in order to really provide that product," Puris said. In describing how Y&R tries to outshine management consultants and outside marketing specialists, Bell points to a September new business pitch to an undisclosed client that opened with a simple statement: "'You could get this same research and advice from McKinsey & Co.,' we told them, 'but it would cost you $3 million. So it may take three hours, but don't worry. You are saving $1 million an hour."' Bell added that Y&R's "integrated thinking" means the company considers "all the persuasive disciplines" when it prepares a strategic plan. Sometimes we are asked to execute the elements of our strategy, sometimes not. But [clients understand] we do not frame our strategic advice around what services we provide." More to the point, strong agencies can do what consultants can't, claim agency chiefs, which is to execute seamlessly. For instance, Visa's "It's everywhere you want to be" campaign from BBDO, New York, is an example of what Puris calls "the perfect, pure example of very insightful strategy brilliantly executed." When the campaign began in 1986, Visa was concerned with MasterCard, which was eating away at Visa's market share. BBDO, however, proposed a different strategy: attack American Express. That put Visa into the upper echelon of credit cards, while giving the agency the opportunity to tout Visa's selling point: widespread acceptance. The campaign used--and continues to rely upon--aspirational situations, which invests the brand with a level of prestige it previously lacked. According to BBDO's New York chairman Phil Dusenberry, the campaign combines strategic positioning with strong creative and brand imagery. Y&R and APL, meanwhile, have made it clear that agencies intend to add top people who possess backgrounds beyond the traditional agency talent pool. But critics question how much impact such nonadvertising hires, despite the fanfare and hoopla, will have on their respective agencies. "It depends on the person, said Ad Media's Smith." But generally, a top-level person is bound to have an impact on the strategic direction of an agency. Puris puts it more bluntly: "I would tell [the skeptics] to continue to sit there with their thumbs in their mouths and wait and see. Agencies don't sit at the CEOs table [if] they aren't offering what the clients want and need." --with Andrew McMains

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News Analysis: Outsiders Are Advertising's New Power Brokers

Joan Voight

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