Brands are right to give agency holding groups a firm kick up the backside

It’s not what he said, it’s the way that he said it. And Sir Martin Sorrell is clearly feeling the heat.

During a feisty interview with the Guardian’s Jane Martinson at the publisher’s annual Changing Media Summit last month, Sorrell was on the defence. Which shouldn’t come as a surprise.

It has been an eventful start to the year for the CEO of the world’s largest advertising group. WPP reported its worst year for financial growth since 2009, and on Tuesday (3 April) Sorrell was forced to deny allegations of “personal misconduct” relating to the use of company funds.

Procter & Gamble – one of the company’s biggest clients – is also demanding agencies change by cutting out excess levels of management and bringing media and creative closer together.

Talking ahead of the latest furore, an uncharacteristically tense Sorrell tried to claim those comments had been taken out of context and misreported. “I’ve spoken to Pritchard about it,” he said. “The FT [Financial Times] was wrong and all the comment that emanated from that article is inaccurate.”

But Pritchard gave the same talk at ISBA’s annual conference in the UK a few days later. And he was clear that things need to change in agency land.

“It’s time to disrupt the archaic ‘Mad Men’ model, eliminating the siloes between creatives, clients and consumers, and stripping away anything that doesn’t add to creative output,” Pritchard said. “If 2017 was the year of the wake-up call, 2018 is the year we take back control to transform the industry through mass disruption.”

Something needs to change

Pritchard is right that something needs to change. The advertising sector has slowed to its lowest pace of growth since the financial crisis, as the industry struggles to keep up with rapidly evolving technology and changing consumer behaviours.

There has been a backdrop of dwindling trust between advertisers and media agencies since the US rebate scandal back in the summer of 2016, when a bombshell report from the ANA revealed a number of non-transparent practices across the media industry. Clients like P&G and Unilever are now tightening marketing budgets, spending more wisely, reducing the number of agencies they work with and looking to do more in-house. This is in turn putting pressure on the margins of the holding groups.

There is an apparent disconnect within agencies too over their understanding of society and even some aspects of media. Agencies – who should be at the forefront of culture, or at least the barometer of it – are looking increasingly out of touch. Like most businesses – and indeed marketers – they didn’t see Brexit coming and they still don’t seem to understand the effectiveness of the media they use, as evidenced by Radiocentre’s recent ‘Re-evaluating Media’ report.

READ MORE: Marketers undervalue the impact of traditional media channels

Meanwhile, brands have been complacent. Many were slow to understand things like programmatic trading and agency deals with the big online players, and too many have been inattentive to the contents of their contracts with agencies – many of which are not fit-for-purpose in a digital-first age.

In short, the advertising industry is in a rut with no clear path out. But is what Pritchard’s suggesting the answer?

Experiment with new models

Advertising as a discipline is always changing and looking to embrace the new, so it is surely at least worth experimenting with different structures or ways of doing business – because if it does allow for better creativity and improved advertising, that can only be a good thing.

However, according to media consultant Brian Jacobs, Pritchard’s suggestion that layers of excess account people should be scrapped was tried in the past by Wight Collins Rutherford Scott (now WCRS) and deemed a failure – largely because good account people in creative agencies actually help drive creativity. So, based on historical evidence, it could be rash to think this is the answer.

Advertisers looking for change might alternatively find inspiration from Johnson & Johnson, which is pushing its agencies to evolve with the creation of dedicated agency groups within each holding company, with the work divided up by consumer brand.

As online media continues to put new pressures and demands on the advertising sector, it’s a new way of thinking about structures that work better in the digital age.

Perhaps this is why there has been a spate of recent wins by independent agencies, which by all accounts are now flourishing.

Clients want things fast and they want them now. If advertisers feel the network agency model is outdated – that the likes of WPP, Publicis and Omnicom aren’t nimble enough, or can’t offer them the transparency levels they now seek – there is a chance more business will start going to the independent agencies, which have less of a vested interest in which media advertising money is spent on and are, by their nature, more agile and flexible.

Having said that, the holding groups still offer a number of things the indies can’t, such as scale and decades of expertise. And while the indies might be appealing to smaller brands, they won’t necessarily be able to serve the needs of the bigger global clients. Not yet, anyway.

So yes, the holding groups might feel threatened, but advertising is about innovation, transformation, embracing the new and inventing the new. If anyone can find innovative and better ways of working, it’s these businesses. They just need a firm kick to do so – and 2018 appears to have delivered the right-sized boot.