Ad Agency Cost Cutting Insanity

insanity

Over a decade ago on May 25, 1999, Tom Peters published his book titled “The Circle of innovation”. Two particular concepts he wrote about still have tremendous relevance to the broader advertising agency community. “You can’t shrink your way to greatness” and “Talent Based Enterprise”.

Every time I read the trade press I am blown away by the amount of commentary and news about ongoing ad agency retrenchments and cost cutting activities. Omnicom proudly announced recently that it had done an excellent job adjusting cost structures with year to date one time severance costs of $70 million. Publicis claims that “strict cost controls” (worldwide staff cuts) to some extent mitigated the impact of the ongoing economic malaise.  IPG reported that it had incurred a staggering $120 million in severance expenses related to 4100 employees, or 9% of its workforce.

What is noticeably missing from all the articles is any mention whatsoever about:

  • What the agencies are doing to improve client/agency value and strengthen existing client relationships.
  • Strengthening the talent on their teams to make them even more competitive, innovative and subsequently more successful.

I am fully aware that this is a time when all agencies could and should look for opportunities to cut out those excess resources that no longer contribute any value. This is also the time to make sure that you have the best talent on your team and that it is properly activated and inspired for competitive advantage. In essence, building what all agencies are supposed to be – “a talent based enterprise.”

Many years ago David Oglivy was quoted as saying, Our business needs a massive transfusion of talent, and talent, I believe, is most likely to be found among non-conformists, dissenters and rebels.” My guess is that most of these people were most recently let go as part of the “strict cost controls.”

In a recent blog posting, Seth Godin refers to it as the “Death Spiral” and suggests to readers, “Right this minute, if you still have some cash, some customers, some momentum… Instead of squandering it in a long, slow, death spiral, do something else. Buy a new platform. Move. Find new products for the customers that still trust you. Change is a bear, but it’s better than death.”

So which approach is your agency taking right now?

 

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