How Adland Lost Its Way (And How Some Agencies Are Finding Their Way Back)

At a highly-attended agency conference this summer, a well-aged agency founder next to me lamented, “I’m old enough to remember back when it was about the magic, the creative, not the money like it is today. This business just isn’t the same. Now it’s all about finance.” 

Our industry has plenty of headline-grabbing woes these days. Neanderthal executive behaviors, the ANA transparency investigation and ongoing brouhaha, dizzyingly frequent agency reviews, aggressive procurement organizations squeezing the last dollar, and the flight of talent to other industries – all talked about over and over. 

But this grizzled agency vet mentioned our real problem, the one that nobody is talking about – how and why our business lost its way. What he’s talking about is a seismic shift several decades ago – quite possibly before you were part of advertising – that turned many agencies into de facto financial instruments.  



As the surge in TV ad spending pumped billions of dollars into the advertising business in the Sixties and Seventies, many agencies went public. Suddenly they faced shareholder demands for higher valuations, which meant laser focus on margins. When shares soared, it triggered the acquisition binge that created today’s holding companies. When publicly traded agencies were acquired it was often at high multiples that required keen cost-cutting and sales focus. Likewise, when privately held agencies were purchased, it often included aggressive “earn-out” clauses that also emphasized increasing free cash flow and other key financial metrics. 

To maintain top-line revenue and bottom line margin growth, agencies added oversight. Extra management became layers, at one point reaching a mind-numbing manager to talent ratio greater than 1:1 – that’s at least one manager-type per talent-employee. 

That ratio has diminished slightly with time, but still hovers around 1:2 for big agencies. Stacked with managers, large-agency organizations resemble financial services companies more than creative enterprises.  

Having finance as a focus can have an insidious effect on behavior. The “non-transparency” and “rebate” scandal sounds a lot like Wall Street, with its history of highly motivated people crossing the lines to engineer financial results.  

Finance-oriented companies also strive for predictable results, like maintaining revenue with incremental margin gains. In advertising, that’s a recipe for mediocrity. Roger Enrico, former CEO of PepsiCo, once pointed out that our enemy is the “tyranny of incrementalism” – the belief that somehow dramatic results will come about from undramatic actions. Advertising was built on greatness that comes from inspiring talent to bust the norms, not managing it to make a number.  

Advertisers recognize this instinctively. Three of the top five things that matter to them in an agency, according to a recent study by Advertiser Perceptions, are talent-based: ability to execute, quality of talent, and attention to needs. 

Now smaller agencies without financial engineering legacies are changing the landscape by focusing on the fundamentals.  

For example,  LaneTerralever, Starr Conspiracy and Elite SEM keep their management ranks lean, with a manager-to-employee ratio between 1:5 and 1:8. With fewer managers, nearly everyone does the work rather than manage the money. Teams have to talk and work with clients directly. 

And amazing things happen. These agencies’ client and employee satisfaction ratings (50+ client and 80+ employee Net Promoter Scores) eclipse industry averages. Not surprisingly, happy teams and clients generate better financials as well. Much better. 

The shift requires a change of focus, one that that old agency exec would applaud, I expect. Do great work, make sure your people love doing it, and you will improve people’s lives and your bottom line.  

Let go of the account-centric model where managers craft narratives to excuse failures and keep the romance (read: revenue stream) alive. Our increasingly-savvy clients bridle at these saccharine stories and the here-and-then-gone pitch teams. Enduring success comes from empowered and engaged teams working directly with clients to create the unexpected. 

In advertising, inspired work creates money in ways money can never inspire. The real way for agencies to resolve their client and finance problems is to return their focus to what really makes a difference – the creative teamwork that generates breakthrough advertising results.


5 comments about "How Adland Lost Its Way (And How Some Agencies Are Finding Their Way Back)".
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  1. Ed Papazian from Media Dynamics Inc, October 13, 2016 at 9:47 a.m.

    The "grizzled agency vet" raises some very valid points, however, let's not forget that the merging and purging of marketing companies into ever growing monoliths preceeded the agencies taking the same path or, at the very least, paralled it. As a result, advertisers also began to cater more to "the bottom line" to satisfy their investors, which led them to squeeze the agencies to the bone on fees. The old saying---"you get what you pay for"----applies to both sides. It's not just an "agencies lost their way" problem.

  2. Mark Scott from Sage Projections, October 13, 2016 at 11:38 a.m.

    This article has described part of the problem with agencies today. There have been other factors at play. The income model for agencies changed.  For example, many of the production items such as color seperations and type were marked up and helped defer costs. They were revenue sources. Instead agencies needed to shift to computer design. This improved the production process but replaces a revenue  source with an overhead item for agencies. In addition, client expectations on the type of services they wanted  changed and demanded the agencies provide add-on services as part of the overall agreement. This required agencies to merge or acquire other organizations. Lastly, as many of the agency principles got up in age, and they were looking for an exit strategy, they relied less on creative types and more on lawyers and bean counters to maintain the agencies revenue stream. Look at the head of the major holding groups. How many of them  got their start in creative, planning or even account manageament? Not many. 
    That being said, I think the author is right that id clients a re still interested in breakthrough  creative, they should start at the smaller  indepentent  shops.

  3. William Crandall from Steadman Crandall Business Development LLC , October 13, 2016 at 10:55 p.m.

    Good article.  But its emphasis on “managing the money” versus “doing the work”, and management-to- employee ratios, is only part of the story. The real issue, factor, and story for breakthrough success, however measured, is who’s “doing the THINKING?”

    The old 1:1 ratio (depending on the definition of “management”) may have been a bit top heavy, but the work got done, and clients knew that their agency execs and middle managers were thinking about Brand strategies as well as money.  Now, with a reported 1:5 or 1:8 ratio, one has to wonder, who’s minding the strategic store?  Because if the one (1) “manager” is preoccupied with the money; and the 5-8 “workers” are just grinding out the widgets, who’s around to do the “Thinking?”

    I only raise this question because I think most of the Creative work we see today is just so mindless.  Execution, execution, execution seems to be the new least-cost, highest margin mantra.  Whether the Brand is actually saying or showing anything to differentiate itself beyond mere digital or traditional consumer entertainment is today’s $64,000 question.  And with the obvious “Brain Drain” in our senior management ranks, there is no answer if there isn’t enough experienced thinking going on.

    Bill Crandall, Founding Partner & CMO, Steadman Crandall Business Development LLC               

  4. Andy Parnell from LaneTerralever, October 28, 2016 at 12:02 a.m.

    Right as always an executive for one of the companies Jack mentions (LaneTerralever), I can honestly say he's 100% right and our agency is now best-in-class, in part having worked with him and Agency Agile. The 1:1 model doesn't ensure work gets done, it ensures execs stroke their own egos. The "team" knows how to get the work done best, so "strategists (my least favorite word) and people like me don't add that much value. Planners can certainly help provide the glue, but other than that I would rather my clients be served directly by our team.

    I promise Jack didn't pay me ;-)

    Andy Parnell
    Chief Client Officer, LaneTerralever

  5. Catherine Nassa from na, November 1, 2016 at 10:39 a.m.

    Kudos Beau Lane and everyone at Lane Terralever.

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