What Are We to Make of the Holding Companies in 2017?

In this business model acquired agencies and businesses are expected to improve their financial performance by growing revenues profits and profit margins The holding companies make additional acquisitions using their everincreasing stock market prices to buy more efficientlyThe holding companies become perpetual quotshare price growth machinesquot as long as their acquired businesses have quotunrealized performance potentialquot and as long as there are businesses left to acquire at reasonable prices Interpublic 1960 WPP 1985 Omnicom 1986 Publicis Groupe 1988 and Dentsu 1997 have had exceptional track records of success and the senior executives of the holding companies have been wellcompensatedLooking ahead though the holding company machine is unlikely to operate as in the past Too much has changedCreative agency quotunrealized performance potentialquot is drying up Creative agencies have gone to the wall annually to deliver improved margins to their holding company owners This has been done in the face of procurementled fee declines and marketingled SOW workload increases Creative agencies have few additional reserves to call on Their people are severely underpaid and stretched employee morale is at an alltime lowamp160and agency capabilities have been diminished through underinvestmentMedia agency contracts and fees are under increased scrutiny The furor over quotmedia transparencyquot is leading clients to pay closer attention to media agency contracts and remuneration Media agencies have been the cash cows of holding companies helping to plug the performance gaps of their sister companies This role for media companies may be harder to achieve in the futureReduced agency influence with clients The original ad agencies of the holding companies like McCann Erickson FCB JWT OampampM BBDO DDB TBWA Publicis Leo Burnett Saatchi ampamp Saatchi etc did not expand their advertising capabilities into direct digital or social marketing under their brand names during the early days of media fragmentation These capabilities were developed by sister or other agencies and clients who wanted integrated services had to work with many rather than with one single agency This killed the AOR concept and reduced the influence previously enjoyed by these lead agencies It also encouraged clients to bring work inhouseRelationship ambiguity In the face of AOR declines and in a desire to safeguard their revenues holding companies became proactive in seeking quotholding company relationshipsquot with clients They turned themselves into quotsuperagenciesquot that offered the full and exclusive capabilities of their diverse portfolios However this put their agencies in an ambivalent situation They had to be subordinated players in holding company relationships amp160providing the expert people that the relationships required amp160and as well fiercely competitive branded agencies that continued to win business and deliver growing profitsPublicis Groupe has gone the furthest in defining itself as a superagency using quotthe power of onequot as its battle cry Unquestionably Arthur Sadoun the CEO heirapparent will continue in this centralized and very French direction arguing that although Publicis Groupe39s quotsilosquot have been destroyed the branded agencies will still flourish It39s a complicated conceptWPP which under Sir Martin Sorrell has aggressively sought holding company relationships under his quothorizontalityquot concept takes a more pragmatic approach and encourages agency CEOs to take initiatives that strengthen their branded positions in the marketplaceOmnicom under John Wren maintains a low public profile but it celebrated loudly its recent holding company McDonald39s win Omnicom has formidable branded strength in BBDO DDB and TBWA and Mr Wren is not likely to take steps to compromise these assetsThe jury is out on Interpublic but Michael Roth has resolutely but tardily invested in holding company staff to strengthen Interpublic39s ability to pitch and win holding company relationships Its key agencies McCann and FCB are strongly led and remain very independentThe devil for the holding companies is in the detail in the balance between centralized initiatives and decentralized strengthening In the meantime though clients continue to weaken all branded agencies through fee reductions and workload growth This is a problem that does not go awayArthur Sadoun faces the greater and riskier challenge if he moves headlong to increase the strength of the center without fortifying his branded agencies Should he falter Publicis Groupe39s performance and share price will surely fallWith the benefit of hindsight holding company CEOs should have encouraged their agencies to invest in multidisciplinary capabilities rather than remain so narrowly focused However profit deliver was always their No 1 objective so the agency priorities were preordained by holding company performance needsHolding companies are now a mixed metaphor amp160decentralized financial holdings that squeeze out improved profit performance from their stretched branded agenciesamp160and operational superagencies that win new business and assemble the necessary resourcesWill these superagencies run themselves better and become more capable than their challenged agencies Or will they go down the same reducedfee path It39s early to know but this particular challenge is one that they clearly need to face todayCartoon Credit William Hamilton The New Yorker The Cartoon Bank With permissionClick the social buttons above or below to share this content with your friends and colleaguesThe opinions and points of view expressed in this article are exclusively the views of the author andor subjects and do not necessarily represent the views of MediaVillagecomMyersBizNet Inc management or associated bloggers

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What Are We to Make of the Holding Companies in 2017?

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Michael Farmer

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