Is Agency Consolidation The Wrong Way To Fix The HoCos?
Over the past few years the agency Holding Companies have suffered from narrowing profits and declining share prices. This has created a squeezing of the middle via staff reductions and all-out agency consolidations. We saw this last year when Publicis reorged into just four major agency divisions, and now WPP is going through its own version of consolidation by merging VML/YR and Wunderman/JWT. The goal of these mergers is to cut costs and grow profitability, despite flattish revenue.
However, is it possible that agency consolidation is the wrong medicine for what ails the HoCos? According to veteran agency consultant Michael Farmer, agencies are addressing “price problems” when they should really be solving their “cost problems”. Specifically, they need to eliminate the fee-based Scope of Work billing model agencies started adopting 10-15 years ago. Over the past decade SoW has trained clients on an all-you-can-eat-buffet of marketing services for one price and buried agencies with incremental work they can’t bill for along the way.
What’s the solution? One decidedly old fashioned idea is to bill clients by the hour for work being done for them. Yes, tracking billable hours is painstaking. And yes, agencies will need to reorganize their staffs into client-specific working groups – because you can’t bill two clients for the same hour of work done by the same team. But if agencies commit to tracking and billing for the work they do, the industry could have a more fair and balanced way to compensate their marketing partners.
Just a thought.