The agencies of enlightenment

The recent publication of Advertising Age’s agency income league table (1993 to 1994) provides a telling picture of the effects of Europe-wide recession on the performance of the region’s advertising networks.

Aggregate gross income for the top 16 multinationals showed a year-on-year decline of 3.6 per cent during the period. Only six of these leading networks registered any real increase in income.

Difficult economic conditions in a number of European countries continue to have an impact on agency performance. France saw an average income decline of 9.2 per cent across its top 15 agencies. In Italy, the figure was even worse. Income was down by an average of almost 17 per cent in the same period.

Despite more recent signs of economic recovery in some markets, continued pressure on agencies and clients to achieve business growth, in far from ideal conditions, has highlighted a number of key trends and developments that will increasingly affect the way their working relationships evolve.

Agencies are being forced to adapt organisational and working procedures to meet changing client demands and remain competitive. Broadly speaking, this means a diminishing interest in individual country resources and a sharper focus on their ability to deliver centrally-managed, multi-disciplined, multinational teams operating cohesively on a pan-European basis.

Parallel with this, we are also seeing an increase in the incidence of multinational pitches and alignments of business across agency networks. These generally involve greater centralisation in planning and client control, coupled with a regional or global approach to strategy and (where practical) execution.

Together, these trends mean that the international advertising community faces three major challenges in the future. Firstly, the increasing internationalisation of client operations and agency assignments is leading to growing account conflict constraints on new business development.

Secondly, traditional country-based career development and the lack of international training and assignments among many networks has led to a scarcity of high-calibre, mobile agency staff with international operating credentials and experience.

Finally, international advertising may generate economies for clients and include some degree of volume-related reductions in agency compensation, but for the agency it inevitably entails a significant increase in servicing costs and heightened pressure on operating margins.

The growing incidence of category and brand management is forcing a fundamental shift in agency network organisation and operating procedure. This has been aggravated by the recessionary pressures of the last few years. Resilience, adaptability and a clear understanding of the new dynamics will be the key determinants of success – possibly even of survival.

John Shannon is president of Grey International.