5 Ways to Save Agency Holding Companies From Becoming Irrelevant

The business model is broken, but the right mindset can fix it

Holding companies should remember that strategy trumps tactics.
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I recently got a call from an influential player in the advertising business. She had a simple question: “Are advertising holding companies relevant today? Should they even exist?”

At the time I didn’t have an answer. I love advertising and agencies. The industry holds some of the smartest, most thoughtful and creative people I’ve ever met. Yet, the agency business model is horribly broken.

Thinking about it over the last few weeks, I recalled many other industries that have faced the same existential crisis. The poster child, Kodak, introduced the Brownie camera in 1900. That year people bought 150,000 Brownies and took, on average, five photos or 750,000 total pictures. In 2017 there were 1.2 trillion digital pictures taken. Kodak created the idea of sharing images, but it started to focus on the tactic of putting chemicals on film instead of the strategy of making images.

Much like Kodak, the agency holding company business has lost its way substituting the strategy of changing culture for a brand (most still say they do that) to the tactic of maximizing the ROT (return on talent). Shifting from strategy to tactics always creates higher shareholder value in the short run, but always leads to a crash in the end.

Back to the question: Can the agency holding company be saved? Yes, but to do this a new ambidextrous strategy must be followed. This dual effort must focus on maximizing the ROI on the core business while exploring new business models. Here are five ways to create a new innovation mindset that could usher holding companies into the future.

Who are you for?

Most holding companies put their agencies and talent at the core of their businesses. Witness the number of self-congratulatory awards shows. They’re never ending. Everyone—agencies and clients—agrees it’s a broken system.

Yet, the whole industry still makes its way to the South of France for a massive party every year. This signal, and others, shows how narcissistic the industry is. Instead of agencies and talent at the core of holding companies, customers and brands must hold that position. Certainly there have been some attempts, but other factors get in the way. Consulting firms are good at this. They know how to solve problems for clients and make them the stars.

Superstars don’t scale

About 10 years ago I had the good fortune of working with Alex Bogusky, Andrew Keller, Rob Reilly, Winston Binch and the rest of the talented community at CP+B, growing 10x over the course of just a couple of years. I’ve never been around a group of such creative, smart and thoughtful people. It was awesome. Yet, it was a flash in the pan. Systems were created to get the most out of these folks, but no one tried to create a scalable process that built on the creativity of this team of real superstars. It doesn’t matter what business you’re in, superstars, by themselves, don’t scale.

You are what you count

When WPP separated the media business from the creative agencies, the fundamental way things were counted shifted. While media agencies still took a commission, creative shops had to figure out a new remuneration strategy. They landed on charging between 2-3x salaries instead of being paid on projects or outcomes. This meant that agencies were incentivized to take as long as they could and put as many people on a project to maximize revenue. This has destroyed agency-client relationships and trust, and it’s a paradigm that consulting businesses must face as well.

Great creativity can come from anywhere

When I sold Victors & Spoils to Havas and became the chief innovation officer, former CEO David Jones had a brilliant idea: “Let’s take the strategy and technology that V&S created and spread it throughout the whole of Havas.” We pondered, what if instead of telling clients they would get a couple of teams of strategists and creatives from a Havas office that we’d bring all 20,000 talented people together on a digital platform to work on their business. Great strategy. Yet it was the 350 local CEOs that, with jealousy, held on to their own talent and wouldn’t share it that killed the idea.

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This story first appeared in the March 12, 2018, issue of Adweek magazine. Click here to subscribe.

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