Ad Giants Are Under Pressure to Streamline Complex Structures

Around this time last year, WPP Chief Executive Martin Sorrell addressed more than 100 top executives from his company's ad agencies at a senior leadership meeting. He pointed to a screen that displayed the logos of McDonald's, AT&T, Procter & Gamble and Volkswagen.

What do these companies have in common, he asked. The answer: Those were all accounts WPP had lost. He said WPP, home to agencies like J. Walter Thompson, Grey Advertising and Mindshare, would need to simplify its unwieldy structure for clients that want more integration of functions like media planning, data analytics and creative advertising, according to agency executives in attendance.

When WPP last week reported a steeper-than-expected slowdown in revenue growth in its latest quarter and reduced its forecast for 2017, fueling a stock selloff, a big point of focus were the cutbacks in spending by consumer products and packaged goods companies and the business headwinds those firms are facing.

But agency holding companies are also under pressure to revamp an organizational structure that has gone out of style.

On the company's earnings call, Mr. Sorrell said, "Ensuring our people work seamlessly together through client teams and country and subregional managers to provide integrated benefits for clients is absolutely essential."

WPP for years has been pulling resources from individual shops to create dedicated agencies for specific clients. Mr. Sorrell uses the term "horizontality" to describe the approach.

Big ad firms likes WPP, Publicis Groupe and Omnicom Group have spent the past decade acquiring assets to help them adapt to the online ad business. But at the same time, their existing roster of agencies, assembled over many years, have developed their own digital skills out of survival instinct. That has blurred the lines, creating overlap and confusion for clients who are coming to the agencies for clarity about the digital ad world.

The holding companies' complex structures have also impeded their ability to move quickly at a time when clients are demanding more real-time digital marketing responses to daily events, particularly on social media.

Typically, marketers have separate contracts with various agencies that offer many of the same types of services. (Media and digital marketing agencies both claim to be able to create and buy videos for social platforms, for example.) What they want is to have a single business relationship that gives them access to creative, technology and media expertise without having to potentially pay for overlapping services.

Ad executives will find it challenging to transform their cultures. Clients want the flexibility to pull in resources from various agency groups, but agencies, many of which house big egos, have been incentivized to generate revenue for their specific shops and have fiercely competed with sister agencies for decades.

Still, after Mr. Sorrell's remarks at the leadership event last year, the remit was clear: get past your differences and work together. Clients want integration and simplicity. Turns out, simplicity isn't so easy either.

Mr. Sorrell was later followed on stage by a handful of executives talking about the WPP Data Alliance -- a group of people devoted to helping WPP's agencies figure out how best to find and use the data resources that already exist within the company. At the end of that session, one executive openly complained about how confusing the presentation had been, according to executives at the event.

Following Mr. Sorrell's speech about simplicity, "that moment was particularly a---backwards," said one executive in the room.

The next holding company leadership meeting will take place after Labor Day, at Google's Palo Alto campus.

The reshuffling is also likely to give data and analytics specialists more influence, potentially giving media-buying agencies a leg up over creative shops, another source of tension.

For example, Omnicom recently created Hearts & Science -- a media buying agency peppered with shopper marketing and data and analytics -- to service its new P&G media account. Publicis, which revamped its entire structure to create more collaboration among its agency disciplines, also placed a former media executive atop its storied creative agency Leo Burnett.

"I think the future model is going to be a reconstituted agency a la the days of 'Mad Men.' The difference is Don Draper will report to Harry Crane, not the other way around," said Lou Paskalis, a media executive at Bank of America.

Agencies are trying to streamline their structures even as they face new competition from consulting firms and media companies and deal with strains on relationships with their marketing clients over transparency in the business.

This year alone, WPP said it would be moving large digital shop Possible into its CRM agency Wunderman; combining media agency Maxus and MEC; consolidating its four large health-care agencies into one group called WPP Health & Wellness; and reorganizing Ogilvy & Mather. The company also acquired a consulting firm that helps brands develop their Amazon marketing and e-commerce strategies.

Mr. Sorrell also has been hosting calls with agency heads from different types of shops, such as media, digital and creative, to discuss ways to better collaborate on shared accounts, according to people familiar with the matter. Executives involved have become part of the effort, dubbed "SIG," which stands for strategic implementation group.

Among the questions industry insiders are asking is, "Are the current models for agencies still working?" said Wenda Harris Millard, vice chairman at media and marketing consultancy MediaLink. "With the emergence of many different kinds of competitors, that raises even more questions for the brands."

As agencies grapple with client budget cuts, they must invest in new resources to help clients reach people online, where they're increasingly blocking and skipping distracting ads. The effort requires investments in new analytics and measurement tools to suss out fraud and other new issues plaguing digital advertising.

"Marketing is about to go through this incredible renaissance," Mr. Paskalis said.

Write to Alexandra Bruell at

(END) Dow Jones Newswires

August 28, 2017 14:24 ET (18:24 GMT)