Analyst Brian Wieser’s musings for Pivotal Research are exhaustively followed in the ad and media businesses and he came out with a winner the other day, on agency holding companies’ ability to evolve and reinvent themselves.
“They are more like cockroaches than dinosaurs,” he said.
Cockroaches have been defined as resilient pests. Resilience is a fine quality in business though although a couple of people I mentioned the analogy too weren’t that impressed: Sir John Hegarty, no less, observed patiently that dinosaurs actually had a pretty good innings – millions of years which is more than can be said for humans, so far anyway.
So can agency holding companies, whose margins and growth prospects are, arguably, under more pressure than ever, carry on reinventing themselves in best cockroach style?
Any service business has a problem when it becomes so big that much of its revenue goes into running the organisation – including paying the bosses vast sums – rather than serving its clients. WPP, for example, is bigger than most of its clients and boss Sir Martin Sorrell certainly earns more than most of his clients do. Nobody seems quite sure how much is creamed off the top but My friend George Parker, of Adscam fame, reckons Big Dumb Holding Companies (as he calls them) take 30 per cent from their Big Dumb Agencies.
Might clients, therefore, be better off with independents? You can certainly argue that of creative agencies. Media agencies are a bit trickier as, for now anyway, there’s a lot of heavy digital lifting to do and scale certainly helps there.
The logical consequence for agency holding companies is to cut their take from their agencies, slim down their own operations and return more value to clients. But how, then, do they keep driving their return to shareholders?
No-one, so far as I know, has come up with a credible way of doing this.
So come on Mr Cockroach, let’s have a bit more evolutionary thinking.