This Study Shows Holding Companies Will Lose Market Share Until They Become More 'Client-Centric'

Forrester Research last week released a new report, "Agency Holding Companies Need A Brave New Business Model," which concludes that agencies and holding companies need to adapt to meet the evolving demands of chief marketing officers. As CMOs expand their purview beyond communications strategy, agency relationships are threatened, particularly by the rise of in-house teams. Sixty-four percent of survey respondents use in-house agencies for at least some services, and 70 percent of those handle programmatic strategy and direction in-house. Such moves have led to cost benefits for clients, such as Unilever, which claims to have saved 30 percent by moving certain production duties in-house. "We believe the trend of clients taking more work in-house will continue, particularly with digital marketing, ecommerce and CRM," Forrester principal analyst Jay Pattisall told Adweek. "It is a strategic asset for companies to own and control their customer experience and marketing. In-sourcing digital marketing is a means to that end." [kickout id="2"] "That said, I do believe then pendulum will swing back the other way, particularly for creative and media," Pattisall said. "Both are highly specialized, and agencies have proven time and time again that they are very adept at creative and media. We are already seeing anecdotal evidence of former agency people going client side only to go back agency side." Consultancies also present a particularly potent threat to agencies as they introduce expanded services and cut into agencies' market share. For example, Accenture reported over 50 percent growth and $4.4 billion in agency service revenues for fiscal year 2016. "Consultancies will continue to steal share because they have client-centric structures that allow them to execute, especially large technology implementations for digital experiences, quickly and at scale," Pattisall said. "The tide will turn when agencies combine their powerful creative abilities with these additional services and organize in a client-centric manner." CMOs are facing a variety of cost challenges as they aim to reach a broadening global audience. [kickout id="1"] Agencies have responded by finding ways to cut costs, trimming margins via reduced scope or discounted labor while CMOs cut agency budgets and launch reviews in search of new partners who are able to deliver work for less. "CMOs should welcome the changes we’ve seen so far," Pattisall said, "including consolidating agency P&Ls as WPP did with SuperUnion or IPG did with Reprise, installing new leaders with digital, innovation and creative backgrounds ... and the establishment of new services like data analytics." He added: "But they should demand more service lines, like consulting, performance marketing and technology implementation. … In short, global CMOs under pressure to deliver their companies top line growth should look to hire the holding company resources first, then select the agency with the right cultural fit." CMOs also need to end overly aggressive cost management, address their own structural and organizational problems and provide their agencies "room to transform," Pattinsall said. "That means ending conflict and exclusivity in project and AOR relationships. CMOs need access to the best talent and expertise. Conflicts and exclusivity deny that expertise". To address industry trends and CMO demands, holding companies need to adapt a more client-centric business model, Forrester concluded, including providing more agile teams and increasing brand coherence. "Hundreds of agency brands, sub-brands, bespoke client teams and agency groups under different names are too complex for CMOs and marketers to deal with," Pattisall said. "Holding companies need to speed up simplifying their businesses." Pattisall told Adweek he was surprised by "the degree to which egos and agency cultural impulses get in their own way." As an example he cited a holding company executive who told Forrester "how after winning a new global assignment the CEO of the winning agency insisted upon hiring team members rather than standing up a team with resources inside the holding company." "It took three months to hire the team, as opposed to two weeks to pull together players from agencies inside the holding companies," he said.