Managing Marketing: Putting the value back into agency remuneration

Managing Marketing is a podcast hosted by TrinityP3 Founder and Global CEO, Darren Woolley. Each podcast is a conversation with a thought-leader, professional or practitioner of marketing and communications on the issues, insights and opportunities in the marketing management category. Ideal for marketers, advertisers, media and commercial communications professionals.

Mike Duda, Managing Partner of Bullish, explores the role of agencies in creating business value for their clients and yet the business model of the majority of agencies is cost recovery centric and not value based. They discuss the role of performance based models and incentives and the need for agencies to transform their compensation models to thrive.

Mike Duda

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Transcription:

Darren:

Welcome back to Managing Marketing. We’re here in Florida for the ANA Advertising Financial Management Conference and I have great pleasure at the moment to sit here with Michael Duda who’s Managing Partner at Bullish.

It’s an opportunity for me to catch up with someone I first met about three years ago in New York and has been doing some really interesting things. So thanks Mike for making the time.

Mike:

It’s great to be here and it’s good to see you again Darren.

Darren:

Look, one of the reasons that I was really wanting to catch up with you is because I read in the news that you’ve started a new business, you had Consigliere which was sort of the trusted advisor for marketers and you’ve started this new business called Bullish and it has a consumer investment fund. Give me the concept.

Mike:

Yeah, you know, forgive the fore score and seven years ago, this might be ramble. But what I realised back at the end of the 2000 crash is that clients aren’t really the clients. It’s the CEO and the CEO’s clients are Wall Street and if you don’t make your numbers, heads roll.

And it’s not just the CMO as we talk about in our world but it’s the CEOs as well too and things go kind of downhill. I saw something amazing at a 2003 conference with Goldman Sachs.

Walmart went up there and they said they saved 15% in global procurement in 2002 by doing cost-cutting. That was the first time I saw the word procurement. And then if you look, at least in the States, like over the next ten years, procurement people became the new rock stars.

What Bernbach and Ogilvy were in the sixties, procurement was in the advertising industry and I wish that was funnier than it sounds but that’s the God honest truth as you might say.

Darren:

Especially when we’re here surrounded by about 700 of them.

Mike:

Isn’t that amazing?

Darren:

And agency people.

Mike:

Isn’t it amazing? And quite frankly, I got a little bit ticked off that these bloody people on Wall Street looked at my breed as an expense.

Darren:

Yep.

Mike:

Advertising has done well, we’ve seen the stats if you’re listening to this podcast that if you invest in times of downturn, you will reap unbelievable benefits in terms of ROI.

Tough to do. Because you can control the causes but you can’t necessarily fire a plant that makes Pepsi on there but it’s like, you can cut the marketing back.

As you know, the agency model’s predicated on getting paid for the time it takes to create stuff and something just seemed really wrong to me in that we have such an unbelievable talent to combine the left and right side of the brain.

Identify business problems and how brand can do it and then some of the best creative minds in this business to solve business problems and we get paid for the time it takes to solve them, not for the outcomes.

A principle is only a principle when it costs you money

Darren:

I absolutely agree with you because the other problem I have with the industry is we define creativity as the ability to write an ad sometimes when in actual fact, there are so many great creative minds that actually solve problems creatively and there’s a big difference there.

Like, there is one skill to write an ad or come up with a concept, but there’s a totally different, and it’s still a creative skill, to solve a problem.

Mike:

Absolutely! And so, Consigliere Brand Capital as you referenced was born in 2010 because the agency I was at just couldn’t do it. They couldn’t embrace it, it’s like fees for services and then they reset the button every year.

I was like, “You know what? I can either do something about it or just be a comugin” and I decided “you know what? I’m going to go invent my own corporation”, and the ideals were to put money and marketing on the same page so we made investments in companies and when we talk about putting skin in the game, we weren’t putting skin, we were putting money in the game which is much bigger than skin so we were investing dollars, not big dollars.

Darren:

Sorry, but you know Bill Bernbach famously said, “A principle is only a principle when it costs you money”, right?

Mike:

Yeah, and that’s well said.

Darren:

That’s why I think that when you sit at the table and you’re willing to put cash or money on the table, then you are speaking with an authority that you don’t have if you’re just sitting there going, “Oh, I’ve got this idea or I’ve got this opinion”, right?

Mike:

Yeah, it’s well said, I mean, one of my favourite campaigns of all times is Apple’s “Only the crazy ones” right, and they come back and they were just so amazing at a key point in time.

Darren:

Yeah, I love it.

Mike:

But we were willing to put money into equations and that just changed the conversation.

So you go from being a supplier or someone who makes ads and marketing to helping that entrepreneur, that CEO actually with a super-house we have in brand marketing and the consumer.

We say it’s all about the consumer, that’s lip service, no one knows how to activate on it because we can’t get it our own way. We will make an informative business consultation based on what would be right for the company to do and the way we were making money at the time is we were advising high-level CEOs on how to write business strategies and brand strategies.

Business strategy is brand strategy

Darren:

Yep.

Mike:

Business strategy is brand strategy and quite frankly the more those are looped in together the more potent a business can be no matter what the business is.

I thought, well, we won’t do creative because think about this and the reviews you’ve been a part of or whatever. Agencies win a piece of business based on their great idea and the romanticism of what could be and they spend lots of money.

How do they get paid? Well then the client goes, “I’ll pay you. We need ten radio ads; we need this internet stuff so I’ll pay you a blended hourly rate to do this. So any agency that thinks that they can actually like ideas of the currency, ideas of the cost of doing business costs them a lot.

The time it takes to build off that idea is really how they make money and there’s something wrong about that.

Darren:

So Mike, I did a piece of analysis on the whole pool of our client spend and for all of their AMP budget across hundreds of clients. What do you think was the percentage of spend that actually went to creation of ideas?

Mike:

I’m going to say somewhere between zero and zero percent?

Darren:

Less than one percent so you’re very close. Our clients were shocked because they spend so much of their time talking about it, the agencies spend so much time talking about it but in actual fact – included in that was media and everything – the vast majority is the implementation of the idea.

That’s what they pay for is the manufacturing process, not the design process and it’s become to the point that if you don’t pay for something, it has no value.

Mike:

I completely agree to it and that’s exactly what’s happened but we go, who’s fault is that? Is it the client’s fault or the agency’s for not saying no?

I love the agency business, I cannot tell you the talent that’s in this business, it’s amazing. I don’t know if I know any other industry that has done a wonderful job of moaning about a problem and doing so little about it.

We had the commission system, that’s great, let’s long for those years but guess what? We’re the ones that introduced this system that we’ll talk about now in terms like hourly fee and all that stuff.

If agencies say the word, “No”, and podcast listeners, you’re going to hear the word ‘no’, it’s going to be a drinking game, it’s amazing how much the issues we’re going to talk about would be cured but we don’t.

Darren:

It’s the difference between account service and account management. And the vast majority of agencies and clients talk about account service because it’s an industry that is built on the concept of service.

It’s not built on the concept of management, value creation, you may as well be talking to a waiter, you know, “I want two drinks, bring me two drinks”. “No, I didn’t want two Martinis, I wanted two Old Fashions, go back and bring me two more. And I’m only going to pay you for the two drinks”. You know?

Mike:

It’s easier to quantify but that doesn’t make it right and somehow we just allowed it to happen because you know, there’s a lot of bad behaviour in clients. Payment terms are outrageous and some of the indemnification issues and everything.

But if agencies don’t fight back, and I get, “Well someone else will do it”, let that be someone else’s problems. We created the very problem that we’re wallowing in and like I said, it’s got to stop. The tide has to turn. If you don’t stand up for yourself, why should anyone else?

Darren:

Well, there’s a couple of agencies I know that say no in the pitch and we encourage people to say no in the pitch. If they don’t want to do something, just say, “No”. It’s interesting, I would say more times than not, when an agency says, “No, we don’t want to do that”, the client will be inclined to say, “Okay”, and accept the terms that the agency is standing for.

Mike:

Yeah.

Darren:

But the fact that the vast majority of agencies are just saying, “Yes”, in fact, I used to joke that I could phone an agency CEO and when he took my call, before I’d even describe it he’d go, “Yeah, we’re in the pitch”.

He didn’t know who it was for or how big the project was or what the process was. They were so obsessed with winning business and then delivering service. But very little of it is ever about value.

They talk about value as a glib term and they usually talk about it in the concepts of creativity, which is the one area that clients are not paying for.

It’s up to the agencies to really define their own value

Mike:

No. If you look at the agency role, some of the best agencies or some of the best talent if led the wrong way, can wind up being the starving artists doing the wonderful work that is celebrated at Cannes and everything but how are you being paid?

“Well if we win awards then we’ll attract more business and we’ll do better”, well if you win more awards and you attract business and use the same economic sliding scale you’re doing for everything else, you’re not going to build a profitable business.

This shouldn’t be a hard business. I mean, the business model’s predicated, you have people you pay, then there’s the benefits, then there’s real estate, you keep the rest. It’s a pretty simple model and so that’s why it should be a very attractive business.

If a Draga5 for instance is better than a Clown and Partners agency, they should be able to charge more. You have clients saying, “An art director in New York should be charged this, an art director in Sydney should be this”.

But it’s up to the agencies to really define their own value in terms of economics and I think we have more excuses as an industry than we do solutions. No one forces us to grow.

Darren:

No.

Mike:

And yet it’s like, “Well Darren Woolley is writing a review and we have to do it because x, y, z.”

Darren:

I’ve got to win business the only way I’m going to grow.

Mike:

Look I have a lot of empathy. If you have a client and they’re not doing well and all of a sudden they say, “We have to cut your fee”, that happens and those are very serious conversations.

Fee cuts, as long as they come with some scope reductions too can make sense because it might be hard to replace that business. And new business, when you have an infinite amount of agencies potentially chasing the same thing, there’s your chance to shape policy.

If you say, “No, guess what it might be a great brand and everything but that’s literally so much money and so much resources”, not spending something that is not going to make your agency economically better.

You’ve got to do some stuff for the marketing part so great work and all that stuff but if agencies sat down and thought about their business as a business, it’s amazing how some of the behaviour changes would take place.

Darren:

Well Mike, you’re clearly a business person. I mean, you work in advertising and you understand ideas and strategies but you clearly have a business focus.

The interesting thing that I’ve seen is that I think a perfect storm hit the industry and there wasn’t enough business people in the industry in senior leadership roles to actually cope with the storm and here’s my storm scenario, by the mid 2000s, procurement was absolutely as you say, they were becoming the rock stars, right?

They were crawling all over marketing and advertising, they were looking for the addressable spend that they could squeeze on and then along came, we call it the financial crisis but you know, in 2007/8/9, marketers were suddenly hit with major cuts to their budget.

They were often going to the agency and saying, “Guys, you know, I’ve got this major cut but I’ve got all this work I want to do”, and the agencies, for fear of losing any revenue, were happy to secure less revenue and do more work.

What that set up in the agency’s mind, is they were doing it because they thought this was a relationship. It was one that, “I’ll help you out now and when things come good, you’ll help me out by paying me again”, but it didn’t work that way because what it actually set up in the marketers mind is, “Well if you can do all that extra work for 30% less money, or the same amount of work for 30% less money, you must’ve been making a lot of money before”.

So when things have come good, the economy is starting to, it’s got good signs of sustained growth, the marketers are not coming back and throwing a lot of money to the agencies, are they?

Mike:

No they’re not and it’s like, if I’m a marketer, they shouldn’t throw a lot of money to the agencies, the agencies should earn it and so it’s amazing. When you’re faced with tough business problems, how innovative minds that have to work smart and fast can adapt.

When you go back to the 1950s and the 1960s and I hesitate to bring up Mad Men, but in the days of Bernbach and Ogilvy where you would get a Masters or Post Graduate Degree and start in the mail room, the respect levels between the CEOs of brands and CEOs of agencies were immense and things were much less complicated.

Don’t you think if things get much more complicated, agencies should be able to have more value? When you look at Steve Jobs’ videos, which are now just surfacing on YouTube, he spent a lot of time on brand, both in the proposition that he wanted customers to pay for, but in advertising and with Lee Clow.

Agencies have such a remarkable ability to transform businesses. We don’t think about our own business and it’s the shoemaker’s children have holes in their feet. It sounds perhaps overly romantic and overly naive, but there’s really been a lack of thinking in this area, it’s like we have to just grin and bear it and that is absolutely not the case.

Consulting firms in the agency arena

Darren:

Well there’s not a lot of places in business today where creativity is actually fostered and encouraged in a commercial sense. In fact, just earlier this week I heard someone say that they’re not challenged by the consulting firms coming into the agency area.

Oh, it was Michael Roth, “Oh we’re not concerned about that because they won’t be able to hold talent”, and it certainly will be a cultural issue for a consulting model to be able to hold and foster the sort of creative talent that you’ll find at the best agencies, you know?

Mike:

He’s not fully right on that because there’s game-changing talent. Look, if you have 60,000 employees, they’re not all game-changing talent. We need plumbers to do some stuff. And so if you see Deloitte and IBM and Accenture buying some of these agencies, guess what?

They have the relationships coming from further up the food chain looking to go downstream. So they make recommendations and, “Oh, we have an agency that’s able to do that”. So that’s a very romantic version of it but at the same time, who’s taking some of the agency talent?

It’s Apple, it’s Facebook, it’s Google so we’ve got to make this as coveted a sport as possible in the agency business and part of that means economics we have to pay. So that’s Michael’s, that’s a nice media relations answer but in all honesty, that’s short term.

Darren:

It’s interesting what you said though because the romantic view about Steve Jobs working with Lee Clow, that’s a time when advertising was actually influencing the CEO, right? And now it’s the marketer. Now, what you’re saying there is, I made the link that because these consulting firms are working with the CEO, they can connect these agencies back up at that level.

Mike:

Well, we’re also seeing a new generation to start a company these days because we have rapport, we work with start-up brands you’ve never heard of and then 80-year-old companies.

What Proctor and Gamble was 50 years ago may not be what it is 50 years from now. Luxottica has had a monopoly in the U.S., Warby Parker has grabbed a lot of market share. You know, Nike is only 50 years old. Under Armour is barely 20 years old and they’re 5 billion top line.

So brands reinvent themselves and if you look at a lot of brands now, they’re doing a lot of stuff in-house, a lot of in-house agencies which is what I would do in a world of content and speed and all that.

So this is a wonderful time to be in business. It’s not easy and if we’re relying on legacy ways of doing business, both the models themselves that the agencies introduced and the percentages or terms, we’re going to have a problem and the great thing about agencies, we’re a portfolio and collection of the clients that we serve and help build.

So why don’t we go to other areas and test these things? Some are, some aren’t.

Darren:

So one of the great things about Bullish from my perspective is that you’re able to start the business and define your own operating model and beyond the operating model, the actual philosophy that drives it which is, you know, putting your money where your mouth is, okay?

Mike:

That’s it, that’s well said.

Darren:

Even you would acknowledge the huge challenge for a quite substantial business like a traditional agency that has been living on a cost recovery model, i.e. “For every dollar in salary, I need to earn 2.4 dollars because that’s the way my business works”, to then turn around and actually become value based because they are all cost driven.

I mean, everything about the agency reporting, the agency remuneration, compensation, the agency way of working is about cost recovery and yet, we live in a world that rewards value creation.

Re-inventing traditional agencies

Mike:

Yeah, and listen, depending on what business you’re in and what size you are and how you make money, you need to have a different plan. I will pick on J Walter Thompson. J Walter Thompson has been around since 1864, I think it is the oldest agency known to mankind.

Taking aside their current situation which I won’t address, but they have offices in a hundred places around the globe. For them to do something with a shiny new toy with Warby Parker they almost have to lose money like it’s pro-bono.

So maybe the plan for them to grow is, “Let’s look at the Fortune 500 or the Fortune 1000 and really target where do we do excellent in and go after those companies and become their global solutions for marketing across the board”.

And, because we need to have offices in a hundred countries, let’s look at the future Harrods or the Ikeas in Sweden from 30 years ago, find those aspiring ones where we don’t have complex and take those on.

It’s like, let’s come up with a concerted plan versus what goes in review, “Darren’s got this review, let’s go be nice and take Darren out to dinner”, so how you source business versus if you’re Droga5 who’s leaner on a jet ski and is somewhat global.

Darren:

So Mike I’ve got a different view. I think if I was J Walter Thompson, I would turn it into a global ad factory. I would get people in there and work on efficiency and think of their production as a production line and make that quality, fast, and low price, right?

I would cherry-pick all the best people out of there and I would take them and start a new entity because I don’t believe any of the traditional agencies can actually reinvent themselves. There is too much legacy attitude, too much infrastructure, too much cost-base that has to be transformed for them to do that.

When clients talk about talent, they’re not even thinking about companies anymore, they’re actually thinking about individuals.

Mike:

I don’t think we’re saying two different things, what you’re saying is have them become more like Tag which has built a nice business but if you commit all the way that you do have some game-changers and talent within some major offices at JWT that if that were to happen, they’re going to leave and they’re going to lose volumes of revenue because relationships do matter so one doesn’t have to beget the other.

What I would advise on a compensation is, not every piece of service you do should be the same and then there’s big talk about cost plus. What if you charge more of a premium for the thinking and the business problem solving, but if you’re going to bring that across fifty different countries, that’s where costs plus comes in from the deploying element of it.

Or maybe say, “We’re going to shut down in forty counties and use Tag because it’s not just scale, we want to give margins”, so there’s no one right way, but it’s basically committing to, “What are we good at? What do we have that others don’t and what can we be?”

Because in your way which isn’t wrong, you would lose a lot of talented people that they do have in there.

Darren:

No, no, I’m saying, take those talented people out and create this new entity because if JWT suddenly turns around to their clients and starts saying, “Here’s a premium group of you know, game-changers but we want to charge for that”, the client will go, “But it’s JWT.

I never had to pay for it in the past”, that’s a big transition in mindset for a client. If you took them away and said, “Here’s new you know, bloggo company or whatever and it is the game-changer”, right? Now, when you get to implementation, we’ll just be putting it through JWT but it’s actually up here and you know what, you’re not buying Bloggo, it’s full of these individuals.

It becomes almost like the talent management companies in Los Angeles where you can say, “Hey I want the best digital strategist, I want the best CRM strategist, I want the best creative tech person”, and “Here they are here and we’ll bring them to your project.

When you’ve solved the project, then we’ll funnel it into our manufacturing arm to actually create it”. But I look at Ogilvy, JWT, BVDO, TBWA, they’ve got such legacy infrastructure processes and attitudes that just can’t transform to a value-based model because it is so locked into cost recovery.

Every time you have a conversation around value, they want cost recovered and a bonus. They don’t get to the point of what does value mean?

Mike:

Yeah and so a couple of things happen. One BBDO had GE, General Electric since 1920 so it’s hard to change when you’ve literally had a client for over 90 years. They’ve had FedEx since 1989. I mean, Grey and Saatchi with PNG, it’s older than us combined.

So sometimes it’s hard so you do a couple of things. You can test the proposition on new clients and do it that way so if nothing else, you can show your legacy clients that we have this too, or you can buy things, you can buy revenue.

Friends at WPP or Inner Public, they don’t have the ability right now to go, “Okay, I’m Martin Sorrell, I’m going to take Grey and this is going to be my agency in the structure. Ogilvy is going to be this Y&R and if you’re Y&R right now, relevance is pretty tough right now.

But they have Wunderman underneath they have a great VML interactive agency, but it’s hard to reinvent because you’d have to break so many bones and what we’re talking about would probably be akin to what J C Penney tried a couple of years ago when they tried so hard.

Darren:

Yeah true and that failed.

Mike:

They fired customers and were bleeding revenue so it’s not easy. But a funny regeneration happens, they buy revenue, you have a Droga5 come up and then William Morris takes a stake. You have Mullen come up and they get a stake. So part of it is portfolio management and defence by offence.

Darren:

Which the holding companies have never been good at. I think Martin Sorrell has even been on the record as saying largely their conflict management opportunities having multiple brands rather than having them specifically positioned in the market as being you know, separate brands with strong identities and strong cultures.

Mike:

Well, even that went out the window when Martin basically invented the holding company as agency. I mean, Ford, WPP is Ford’s agency and BB Omnicom was foreign in the mid-eighties for that very reason and it’s like Nissan is well aware if they went outside that.

So it becomes tough, and I hate the word, ‘conflict’, I think the word ‘conflict’ is just poor explanations on that side of it and I would love there to be more sincere conflicts rather than emotional but we don’t get the nuclear launch codes of business trajectories as we once did.

So they’re emotional on that side of it but again, there’s no one right or wrong way. I said earlier today at the conference, UPS works a certain way and FedEx a different way. They’re mortal enemies in business, completely different cultures, FedEx being entrepreneurial and UPS being the subset of the government and so you need completely different forms of life.

We’re seeing studies that clients are hiring multiple agencies and then you see others that for efficiencies there’s consolidations in the holding companies’ reviews. So to be honest with you, for an agency have a point of view, have a good sense of self, what you’re good at, maybe what you’re not, but God’s green earth is not a target prospect.

That’s the problem we have as agencies and then we have to say, “What economics do we need or portfolio management where we make money? But maybe there’s one trophy account where we get to do great work to attract others.” It’s not easy, but it’s clear some things have to change because no one’s happy about it.

Difficulties moving to performance models

Darren:

Yeah, that’s right. And if they don’t change then it’s going to chain force them because the change will happen.

One of the areas of real frustration for me, because for a while I thought that changing the cost model of remuneration with performance would actually start moving us towards a value model.

But most of the ways I’ve seen performance based compensation interpreted is the agency gives up a bit of their revenue for the chance to earn a little bit more than that based on some KPIs set by the client and of course, it ended up just being a cost reduction model, it had nothing to do with performance.

Mike:

Or a pay me later model, yeah.

Darren:

“And by the way I’ll pay you on 90 days and your bonus will only be done annually so effectively, you’ll be getting it in the next financial year.” Have you seen any models where value has been at the core of the remuneration or the compensation?

Mike:

At the core, no, but it depends how you define value. There’s some direct response media agencies who are in the ultimate pay for performance business in that they’re giving a certain threshold of you can acquire customers at $90 and anything below that, you get to keep, anything above that, you have to pay for and to me, that’s almost boiler room like but that’s what’s going on.

What I’d love to see evolve over the years through our model and through other people is incentive based compensation and I hate the term ‘incentive’ because we have an incentive to help your business grow from the day we’re in there but that’s used.

Performance could be on advertising performance like getting under a certain cost per-acquisition. Business based performance is something we want to be held by and you know, we were here yesterday, Jeff Jones from Target was talking about it that he doesn’t believe in it because one of his agencies has done a great job and yet the business isn’t doing well.

Well, if I’m an agency, why should I do okay and be protected if the client’s business isn’t? Everyone doesn’t have to believe in that, that’s our point of view and even if you can’t do that, at least a secondary conversation is still at a higher level where we want business to be performing.

Darren:

How many times have you heard agencies talk to their clients about, “We’re your partner”, right?

Mike:

900% of the time.

Darren:

Now I have partners in my business and when we’re down, we’re all down and when we’re up, we’re all up but you know, they talk about being partners but when the client’s down, they still get their fee and when the client’s up, they complain they don’t get a bigger bonus, you know?

It’s not a partnership, they are vendors in the way that they may talk about partnership but the way they structure their business and the way they do business, engage in business, they are vendors, they are suppliers of services because you know, this is the risk associated with linking your success to your client’s success.

Now the old compensation model, the old commission system, in some ways was a success model because if a company was successful, you would think they’d invest more money in to advertising and therefore, the agency would get more in it but it wasn’t true.

Mike:

Which is by the way what Warren Buffett preaches when he talks about Geico. Geico spends over a billion dollars a year, has changed how all the insurance companies market themselves and Warren will say, “I love writing those cheques because we get a return on investment”, and that’s wonderful!

This is Warren Buffett, the most revered financial person on the planet. Sorry Mr. Sorrell or Sir Martin, Warren Buffett is and so why can’t we take some lessons? Yet you hear, “Well we’re a package-goods company, we couldn’t do that”.

People find excuses, why not versus how could we? And that is the thing. There’s not a lot of Mensa or rocket science stuff in terms of the things that we could do to explore, it’s just a willingness to when you’re a culture of 20,000 people and you have a certain pay grade and you don’t want to be fired or made redundant by doing something different and that’s the time we’re in.

The illusion of control

Darren:

So that review point that Jeff Jones said about the agency doesn’t have full control, I’ve hit that many times where I’m talking about a business performance model for remuneration and here’s what I usually say to people, “You know the number one business driver of soft drinks in the world is the weather. When it’s hot you sell more (and beer) you sell more drinks. When it’s not hot, you sell less”.

Now, I say to the agency, you show me the person in this room that can control that and I’ll introduce you to God. You know, even the CMO sitting there, the next big driver is distribution and in most cases, the CMO doesn’t have direct influence over distribution, that goes with the sales team.

So the number one and number two drivers of business performance in beverages is something that no one in marketing or the agency can control. But what we all do is, we make a contribution and if we’re recognising contribution to business success, then that’s an easy model because we’re all in this together.

It’s actually relying on being partners and sharing in the results that are created.

Mike:

Yeah and let’s play this out because there’s companies of various sizes and scale so there’s Coca Cola and this is where the holding company could come in and say:

“Dear CEO of Coca Cola, we want to go into business with you and we can’t control the weather, we can’t control this or attorney general taxes but our media companies have great technology so if we know it’s going to rain or snow or awful weather on Memorial Day in the U.S. and Labour Day and the 4th of July, let’s pull back the advertising for those days.”

“We have the technology to predict the weather patterns and what people will do and maybe we pull back and spend less money on advertising because we’ll go into business with you. But redeploy that in maybe an area of the world where it’s going to be hotter so all of a sudden if you pulled money out of New York City because crickets are coming or snow is coming and let’s put that into Paris because that’s going up.”

We could do that on a global level from a holding company whereas little Mike Duda and his Bullish with his 14-30 people based on our model could do this for Brand X on a smaller level that thinks about their business. Why can’t that happen? As silly as that sounds, why is it?

Darren:

Because it requires people to think differently and also give up control and the fact is, they don’t have control. I think the CMO from Deloitte today said after having three children, she realises that control is a myth.

But people cling to control within organisations, the myth of control within organisations when in actual fact, the lip service that’s been spread the last two days about collaboration, I don’t think most people that use the word actually know what’s required to collaborate.

Mike:

It sounds good and the word ‘trust’ that I use a lot is another thing but you know, I learned being at Deutsch for thirteen years, the more power you give up, the more you get back in return.

If you have a Steve Jobs, if you have a Kevin Plank of Under Armor or if you have a warlord CEO, Mark Zuckerberg for that matter, that happens, that’s fine. But quite frankly there’s so much stuff going on, there’s got to be more of a fluid way of doing business in that stuff.

I won’t even get into the 80 million millennials where it’s just, I think I work for them. So how can I make the most of that stuff, you can have control but the Chief Procurement Officer of Coca Cola got up there today and said, “Here’s how we changed your organisation”.

So she put the marketing part underneath the marketing organisation and she changed her KPIs of how she’s bonuses to be on performance versus cost savings and listen, we’ve seen companies at this event whether it’s Beekman or Morgan Anderson that like, “Look we can save you money, those agencies are screwing you”.

Well, you know what? Good, you have a business model fee, I don’t have to agree with it, but there’s different points of view and perspectives to go after.

Darren:

Well, all of those approaches assume that it’s a cost of business and they can get away with it because many times, marketers and even the agencies have not been actively calculating and sharing what the value is that they’ve created.

Once you do that, because people say agencies complain about procurement all the time and I go, “Here’s what happens, procurement goes to the marketer, says to the marketer, “You spent 40 million dollars last year, what did you buy?” Most marketers go, “Oh 20 million in media and some agency stuff”, they can’t even define what they bought.

Could you imagine if you got your credit card statement and it said, “Yes, you owe us a hundred thousand dollars” but it didn’t list anything that you bought. You just spent a hundred thousand dollars and then it was up to you.

This is the way that most people in the category think about budgets. They think about it as a cost and not even an accountable cost. This is why the conversation has to be with the CEO, this is why the CFO, this is why the connection for many marketers and agencies to those people is procurement these days because they’ve slipped so far away.

Unless you can leap frog up there, it is about value creation. Start putting exactly what you’ve done, put your money on the table, put your remuneration and what you’re meant to get there and say, “We’ll get paid when we contribute, we can’t control it, but we’ll contribute to moving that needle, to raising that point”.

Mike:

So what you’re speaking about is two things; one, we have to change the conversation, two, we have to change who we’re having the conversation with.

Darren:

Absolutely.

Mike:

If procurement is leading the charge, nothing against procurement, but if you look at the food chain, the further away you are from the C-Suite, the less important you are to the organisation.

Darren:

That’s right.

Mike:

What we’ve seen is the erosion of the CEO to the CMO. But that’s not true for every single organisation. The Chief Brand Officer really is the CEO in founder led companies companies, that’s absolutely the case. But that’s the very thing right there and now that the mood which is unfortunate when we talk about trust is ruined because of transparency.

Agencies and with trading desks, which you are far more fluent than I am ,are not being told that less than one year ago we had someone who was a CEO of a media agency and quite frankly had much more relevance a decade ago than he does now, they said, “Oh there’s kickbacks happening all the time” and you had an unprecedented period of time of feuding between the governing bodies of the ANA and the four A’s.

So it’s kind of a tough time to do it because clients want to know, “Well, what are you doing? You’re not telling me the truth!” If they don’t think they’re being told the truth, good luck trying to talk about the value word because of that.

Darren:

But Mike, this is exactly what I said before. I don’t think agencies can transform themselves. I think to do what you did is the way to do it, you know, to start from scratch. Look, we can agree to disagree because…

Mike:

It’s hard.

The psyche of the holding company

Darren:

I think maybe some of the independence but if you’re part of a holding company, it has become so ingrained in the psyche that the only purpose as a holding company agency is to make profits to report up to the holding company so they can do their quarterly reporting.

I mean, I love quarterly reporting because every time they come out and say, “We’ve made 7%, we’ve made 15%”, clients phone me up and go, “Am I paying too much? Is that why they made that much?”, and I have to explain to them that actually most of that profit has not come from your agency, it’s come from your media agency, it’s come from the other services you know, research and consulting but most of you creative agencies are not contributing that significantly to the overall profits.

Mike:

Yeah, no disagreement I would say we might interpret it in different ways because when I see what advertising or an agency can do, I’m talking holistically about the talent, not what a holding company agency can do.

I kind of don’t care if in the future of the holding company agencies do well or not. I voted with my feet to leave that kind of stuff. You have a lot of talented freelancers who are freelancers now that want to work for themselves and roam and they might go to BBDO one day, they can come to Bullish the next day.

So the holding company’s not going to die, it’s the craft of what we can do to serve a higher purpose and more economic value and guess what? If Publicis and WPP and Inner Public and God knows what’s going on with MDC can’t get it right, that’s not my problem and marketers, it’s Darwinism.

Darren:

I’ve just seen the light. I’ve just had a business idea. You and I are going to set up the equivalent of the William Morris of advertising talent. We’re going to represent them just the same way as William Morris represent actors and screenwriters and directors and we’re going to say to clients, “You really want to invest in ideas, you really want to invest in strategy, you really want to buy creative business solutions, here’s the pool of individuals”.

Mike:

And it’s happening because William Morris went out and bought Droga5 and you have a popular company that’s service working not working in the States where you can go online and see all the freelance talent out there, it’s amazing and you can book, whether you’re a client, an agency, the Catholic Church, anybody can land on that site.

So it’s so funny that we talk about transparency because the Internet and all the things are provided for, it provides such massive transparency and yet the industry we talk about probably suffers from having the biggest opaqueness.

Darren:

Yeah.

Mike:

That’s the most interesting, fundamental thing and so you are going to see a new wave of holding companies. Their names are IBM and Deloitte and Accenture to some degree and then there’s like these four holding companies of worldwide partners that’s a collective in that so there’s no one right way and so if you’re a marketer, how are you supposed to figure all this stuff out?

Darren:

That’s where TrinityP3…

Mike:

Thank God for Darren Woolley, thank God! Paid for by Darren Woolley. You see some of the best work doesn’t come out, Australia has some amazing independent agencies and David Droga was in New Zealand doing some amazing work for low budgets before he became the king of advertising and that stuff so there’s no one right way.

I think that’s what we have a tough time with. There is no one right way but it’s also, when agencies figure out what business are they in individually and that can be the holding companies, that could be an RGA in a holding company or what not. We’re okay.

But we’re trying to boil the ocean trying to come up with solutions and it’s so funny what we keep coming back to.

Darren:

As you say, there’s not one solution that fits all but they have to find the place in the market that is of value proposition.

Mike:

But it’s an industry, what we’re struggling with are the most fundamental of things, trust, transparency, collaboration. It’s like those basic things and we can’t get those basic things right, good luck trying to get the harder stuff right like how do we value the business impact we made on your business because of this or that?

Or you cut the budget back so our bonus is going to compromised. All I know is this, the more alignment you have, the better off everyone is.

Darren:

Well Mike that’s been fantastic.

Mike:

This is fun though Darren, isn’t it? This is fun.

Darren:

This is a fantastic conversation, absolutely.

Mike:

This is fun.

Darren:

It’s terrific to catch up and you know, we’ve covered a huge amount just then but thank you for your time.

Mike:

Anytime!

Darren:

I really appreciate it; we’ll do it again soon.

Mike:

Oh it’s fun!

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About Darren Woolley

Darren is considered a thought leader on all aspects of marketing management. A Problem Solver, Negotiator, Founder & Global CEO of TrinityP3 - Marketing Management Consultants, founding member of the Marketing FIRST Forum and Author. He is also a Past-Chair of the Australian Marketing Institute, Ex-Medical Scientist and Ex-Creative Director. And in his spare time he sleeps. Darren's Bio Here Email: darren@trinityp3.com

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