Under Review: Agency Models

CHICAGO Mergers, restructurings and realignments may seem to blend together in a sea of sameness, but there are just as many distinct business models cropping up these days as there are agency groups.

As shops look to 2007 and beyond, many are still working to determine the best course of action in a rapidly changing industry that makes traditional practices and structures less relevant with every advancing day. While some, like IPG’s Draft and FCB Worldwide, have moved toward full-on mergers, others are looking to break down internal barriers and realign resources.

“A lot of this is being driven by the fact that everything is so measurable now, [traditional agencies] can’t hide anymore,” said Dave Beals, president and CEO of consultancy Jones Lundin Beals in Chicago. “That whole dynamic is driving some agencies [to think] along those lines.”

The latest agencies to rethink their offerings are Publicis Groupe’s Leo Burnett and IPG’s Lowe. At Burnett, worldwide CEO Tom Bernardin is seeking “a more aligned place” between general shop Burnett and its direct promotions sibling Arc. While Bernardin denied an outright merger is in the cards, he acknowledged he is looking to increase efficiency and reduce redundancies. And, recognizing traditional TV ads are not the end all and be all, he confirmed that Burnett and Arc are considering combining their production departments.

While Bernardin admitted all the pieces of the realignment have not been worked out, he said he “is striving to make it more collaborative. … I particularly like the track record of success when they work closer together.”

Toward that end, he has tasked 11 committees (organized by department) to look at their business models to work out ways to bring the agencies closer together, according to sources. In part, the intention is to create more cohesive teams centered on some of the larger shared clients, and offer a more integrated package for new business, said sources.

The initiative was sparked by Bernardin’s displeasure with Burnett’s revenue growth, which is projected to once again be in the low single digits, sources said. He also feels the agency could afford to be more nimble and “better deployed,” said one source.

Though Arc and Burnett in the U.S. share a host of clients (nearly 70 percent), including Kellogg Co., Procter & Gamble and McDonald’s, insiders admit they don’t work as closely together as they could. “Arc and Burnett have never figured out how to work together,” said one source. “The Burnett guys get territorial and the Arc guys feel shut out.”

One source said the move could be similar to Ogilvy & Mather’s combination last year of its various units—including Ogilvy, OgilvyOne, OgilvyInteractive and Ogilvy Public Relations—into a single profit and loss center. (Like Burnett and Arc, the units had worked closely on common clients, such as IBM and American Express.) The move also is reflected in the WPP agency’s leadership. Ogilvy’s North American operations are run by co-CEOs Blll Gray, who had been Ogilvy New York’s president, and Carla Hendra, who remains president of OgilvyOne North America.

Bernardin said he already views Burnett and Arc in the U.S. as a single P&L, although others within the organization—including the top managers of both—perceive them as separate entities. Some client issues (including conflicts like Capital One at Arc and Washington Mutual at Burnett) could prevent a merger of P&L’s. There are some areas, such as production, where the shops could work closer together or even share one department, Bernardin said.

The notion of streamlining production is also taking hold at Lowe, where the agency has bundled all forms of production into a single integrated production department. Moreover, the shop has created a new project management function that will track and facilitate workflow from brief to execution. The moves are designed to increase efficiency and erase lines of demarcation among disciplines, said North American CEO Nancy Hill.

The new project management department will be led by Robert Hannan, who has shifted from director of operations to director of project management. Former director of broadcast production Dominic Ferro will helm the integrated production department.

In all, the moves are meant to make the agency think “more holistically about a client’s business,” Hill said. And because clients such as Johnson & Johnson, General Motors and Nokia increasingly want more than TV spots, the agency will no longer maintain a separate broadcast production department. “The only way to break that vicious cycle is to say, ‘We’re no longer set up that way,'” said Mark Wnek, Lowe’s chairman and chief creative officer.

When IPG explained its merger of FCB Draft in June, CEO Michael Roth said the move reflected clients’ changing needs. At Omnicom, CEO John Wren has been aligning his three main agency brands, BBDO, TBWA and DDB, with marketing services firms for “increased coordination and collaboration” to better service clients [Adweek, May 23, 2005].

One such case may be Mercedes-Benz. Sources say Omnicom is looking at “aligning” Mercedes agency Merkley + Partners with BBDO, whose Paris office landed lead global strategic duties on Mercedes’ C-Class in June. Under one scenario, Merkley could end up reporting into BBDO CEO Andrew Robertson, whose agency also handles Mercedes’ SmartCar and DaimlerChrysler brands Chrysler and Mitsubishi. BBDO, Omnicom and Merkley could not be reached for comment.

A Mercedes USA rep declined to comment on a possible alignment, but acknowledged that the two shops are working closely on next year’s C-Class effort. “Every resource we have right now is going to be directed to this launch because it’s very important to us,” the rep said. “So I would expect Merkley and BBDO to work very closely together.”