A buddy of mine was general manager at an agency that was selling itself to one of the holding companies. One evening over drinks he said “Frankly, my biggest concern has to do with maintaining the great culture we have here once the buyout happens. How do I do that?” I said “You can’t” and then explained to him what was going to happen to his agency. How he would find the holding company squeezing them for profits on a schedule that would ignore the monthly fluctuations in client payments that had become second-nature to their agency, forcing them into cost-cutting measures that would damage the quality of the work and the relationships with those clients, to say nothing of the morale in the agency as they reduced perks, benefits and staff. All of which, in turn, would reduce revenue from those very same (and increasingly dis-satisfied) clients, making it harder still for his agency to generate the 15% the holding company was demanding, necessitating further cost-cutting. Until ultimately they realized that the holding company’s CFO was the one really calling the shots at their agency, not them, and certainly not whatever creative or marketing superstars they’d dangled in front of them to entice them to sign in the first place.
This was not the answer he was looking for. And the fact that it played out pretty much as I’d told him it would didn’t make him feel any better either.
What I did not understand at the time was that this was only part of the story. Michael Farmer connects the rest of the dots brilliantly in Madison Avenue Manslaughter – a terrifically depressing and detailed analysis of what ails the advertising industry, how it got that way, and what it must do now.
The part of the story I did not know, had to do with the client side of the business. I did not understand the evolving role of the procurement department. How while the choice of which agency to use may still be the purview of the Marketing department, the actual decisions about compensation and workload had fallen from the CMOs to the number crunchers. Number crunchers who, in Farmer’s estimation, never got over the amount of money they believed agencies were swimming in. Money that enabled agencies to make the big purchases of other agencies that grabbed headlines around the world. Farmer points to the initial purchase in 1986 by the Brothers Saatchi of Ted Bates as a sort of tipping point:
“Marketers were flabbergasted. They did not realize that their agency partners were able to monetize their relationships for so much money. Clearly, they concluded, agency profits were much higher than agencies were letting on.”
This, combined with the ostentation of events like Cannes, the mythology promoted by Mad Men, the rise of “shareholder value” among clients (not coincidentally along with the rise of “management consultancies”), magnified by some impressively tone-deaf moments when agencies responded to the challenges their clients were facing during various recessions by, um, raising rates – all contributed to a level of dysfunction, distrust and dis-affection between agencies and clients that have bankrupted the former and destroyed the value of the work the latter were paying for.
As a result, workloads have increased while compensation has decreased, driving fewer hours to do more work that agencies are paid less for. At least, that’s all according to a formula that Farmer has developed. And while we concede that the legitimacy of that formula was something our poor math-anxious minds were incapable of validating, we believe it is reasonably accurate and certainly applaud Mr. Farmer’s efforts to quantify what has been a fairly unmeasurable problem.
A problem which Mr. Farmer lays largely at the feet of agency senior management. He believes they have been largely asleep at the wheel, incapable of making the kinds of difficult business decisions that their counterparts – often at their own clients – were making. With the resulting damaging effect not only to their own companies, but to the entire advertising industry.
And he should know. A strategy consultant at the Boston Consulting Group and a Director at Bain before starting his own consultancy, Mr. Farmer not only has the specific industry experience necessary to make such a claim but also has the current client list to prove he knows what he’s talking about.
And yet, despite all this doom and gloom, Mr. Farmer has figured out a way for agencies to escape the hell they’re in:
“Agencies must re-establish themselves on the strategic playing field and add an upgraded ‘strategic brand and performance consulting’ capability to the front end of their resource offerings. Advertisers will always seek and find solutions for their problems. Agencies will be part of the solution only if they offer capabilities that are valued and competitive when compared to the alternatives that their clients may consider.”
And how do they do this? By instituting a level of accountability – internally and externally – that has been absent from advertising agencies literally for decades. An expanding economy in the 1950s masked it at first, then a cultural mania for television distracted everyone from its absence, then a merger and holding company mania that allowed many to ignore the cooling of the economy and the shortcomings of television. Until we wound up where we are today. Agencies didn’t have to be accountable for much of the past fifty years because they really were, as procurement people suspected, sloshing around in oceans of cash. The problem is, they aren’t any more. And haven’t been since Ogilvy, Bernbach and Gossage roamed the earth. Despite everyone acting like they still are.
Agencies are born free, but everywhere are in chains, Farmer proclaims, and then shows agencies a way out of their servitude. The jury’s still out, however, on whether they will have eyes to see.
Madison Avenue Manslaughter (2nd ed.) by Richard Farmer was published by LID Publishing on 02/21/2017 – order it from Amazon here or Barnes & Noble here – or pick it up at your local bookseller (find one here).