Raising agencies from the dead By Andrew Jaff

Two speeches from two, 40+ "young turks." Both saying essentially the same thing, but from different points of the compass: This industry is killing itself.

Euthanasia, agency-suicide, mass dumbness, call it what you like. People who worry about the state of the industry believe their colleagues are walking lockstep a la Pink Floyd the Wall into the abyss.
As Andy Berlin put it to a Harvard Business School alumni breakfast at New York’s Harvard Club: “The ad agency (as we know it) is dead. I’m saying that the traditional agency that J. Walter Thompson represented over a century ago in 10 years will be as dead as last year’s Thanksgiving turkey.”
Berlin is fighting to take his experience building–with two able partners–a wonderful West Coast, creatively-driven shop and apply it to the rebuilding of giant DDB Needham New York. It’s been a bumpy ride–most recently forcing Berlin to take over DDB’s Detroit team fighting to hold onto Volkswagen–but he’s still trying to answer the question: Suppose we keep all our clients and get some new ones–where do we want to be in five years?
His answer, in shorthand, is that agencies have to re-invent themselves and become Intellectual Capital Companies rather than businesses that take commissions for brokering space in media. Media prices, for one, have raised the cost of entry for new products so high (to roughly $150 million, Berlin estimates, for the launch of a major new product) that advertisers are wary of doing anything braver than a line extension. Meanwhile, agencies have seen their commissions whittled to the bone.
Were they to recast themselves as risk-partners with clients, agencies might have some hope of (a) seeing their views on how to package and market products respected; (b) seeing their efforts once again be properly rewarded– should they result in success for the client; and (c) not being so easily fired or forced to submit to a humiliating review at the drop of a minor management change.
It’s a wonderful vision for tomorrow–but it requires a fair amount of rethinking by agency chiefs on how to rejigger the economics of their business and the protocols they use to attract new business. Berlin believes agencies can actually salvage some equity in the ideas they produce, providing they are willing to forgo earnings until their campaigns pay off. In this scenario, clients would have a harder time decreeing dumb campaigns–or even launching what agencies consider dumb, parity products. The agency would have some say in how products are marketed and how budgets are spent–but the costs of marketing would be shared by agency and client. Berlin can’t explain how clients could be persuaded to cede the now awesome power they command over agencies–other than to say, that when he once went into business with a client, he found the client viewing him in a totally different way: “After all, I put in some of my own money. He didn’t look on me as a supplier, but rather as a partner. So we both decided together what should be done.”
In Philadelphia last week, Boston’s Jim Mullen approached the problem of agency arteriosclerosis from a different point of view. Speaking before the Philadelphia 4A’s, Mullen argued that agencies don’t properly enfranchise people to do their job correctly and don’t share profitability with employees when they get results. For the last decade, he says he’s been diluting his original 100% stake by more than 50%, granting some employees outright equity, assigning shares to an agency ESOP and allowing officers to purchase other shares on a discounted basis. In addition, each year, after securing an undisclosed sum as retained earnings, he puts the agency’s profits into a pool and divvies them up–according to a hierarchical scale adjusted by merit–so that everyone, down to maintenance people and receptionists, participates in success. And the Mullen agency has had more than its share, growing by double digits in the last decade, until today, after winning the BMW account, it is now reckoned to bill $150 million.
Mullen says the secret is enfranchising everyone in working toward a common goal: making good ads that ultimately make money for the client and the agency. There are only two ways for a business to become profitable: increase earnings or cut costs. Mullen says he has never laid off staff when he lost business, so paring back staff is unacceptable. But he hopes that his process of erffranchisement makes employees partners with him in cutting waste. Other than that, the agency, he says, remains focussed on keeping clients happy and growth. And that process has blessed the agency with profitability, even in the midst of the terrible recession which has hammered New England–and the recent margin paring that has sweated Madison Avenue of its health. “If we can’t do more to motivate our employees,” says Mullen, “then Mike Ovitz deserves to take over our business.”
Copyright Adweek L.P. (1993)