Advertising is a simple business. Financially speaking, that is. And it would be barking mad to suggest that agency seniors don't understand the basics.
A far more open question, though, is whether or not ad people make good businesspeople. Do they sit at the right hand of clients? How much in demand are they as non executive directors? Does the way they run their own business suggest they could succeed in the wider business world? The views of some of the most respected industry watchers don't give cause for optimism.
Take Professor Peter Doyle of Warwick Business School. "Agencies are production-orientated, they sell ads," he says. "They don't solve clients' business problems, they haven't the financial skills. They don't, therefore, contribute to generating shareholder value."
And if anyone is thinking "so what," it's as well to remember that client chief executives - on the top table that agencies so often seek to sit around - are more interested in shareholder value than advertising executions.
Simon Rhind-Tutt, a managing partner of Relationship Audits, says: "Not enough training goes on in agencies."
"Clients want to appoint agencies as much for understanding their business as for the creative product. It's the way to truly add value and achieve a position in the client's inner circle."
Meanwhile, headhunting companies such as Spencer Stuart, Egon Zender and Bird & Co International acknowledge that ad people are not over-popular as non-executive directors. Ashley Summerfield, a partner at Egon Zender, explains that they are just not perceived to have the broad experience or training.
"We rarely get asked for people who run agencies," he declares. "The only demand might be for creative gurus because it's the brand ideas that are being sought, not the business experience."
Of course, the litmus test for whether or not the ad industry can be successful on a broader business stage is how well it manages its own affairs.
When it comes to strategic advice, one of the products agencies offer, it seems an old adage applies - the cobbler's children are always the worst shod.
But let's start at the beginning. The first aspect of running a business is here-and-now financials. Outside experts agree agency bosses are perfectly adept at the numbers and display some outstanding management skills.
"Advertising management is generally good at business," Amanda Merron, a senior partner at the accountancy firm Willott Kingston Smith, says. "Culling people is not bad management. Twelve years ago people waited too long, trimmed back too slowly. It was death by a thousand cuts. This time they've acted swiftly that has helped maintain workforce motivation."
Tim Ambler, a senior fellow at the London Business School, is clear. "Prosperous agencies have good chief executives and it's a difficult area in which to manage because of the particular skill of managing creative people."
The only major costs in an agency are people and property so it does not take a genius to see why downturns equal job losses. Hamish Pringle, the director general of the IPA, points out that this recession has seen a loss of between 4 and 5 per cent of the workforce, which is drastically less than the 90s. But agencies are leaner now than they were then.
Does this view mask short-termism and a disturbing lack of business acumen? "Advertising showed an obsessive optimism in 2000 about the dotcom boom," William Eccleshare says. The former J. Walter Thompson senior executive and ex-chairman of Ammirati Puris Lintas is a partner at McKinsey & Co. He adds: "People overstaffed for that and got caught out. Even so, redundancies can be a kneejerk reaction and show short-term thinking. More experienced management takes a long view."
Garry Lace, the TBWA/London chief executive, agrees. "No company ever shrunk its way to greatness. We must think beyond the end of next week. We do it for our clients but fail to apply it to ourselves. I'd happily not make my numbers for one year if I was taking the right action to deliver my three-year plan."
The role of the agency financial director has changed significantly over the past 20 years. It symbolises a more businesslike attitude on the part of agencies. The best top teams include a financial director with vision right there in the inner sanctum. Robin Price at HHCL & Partners is more often cited but there are plenty of contemporary examples.
Matt Clark at Mother plays a key role. He has a shrewd business instinct and believes he's there to "use numbers to your advantage to make expansion and development plans". Mother doesn't sound too blown off course by the downturn. But Clark explains: "The numbers are the easy bit - increasing revenue and your costs to go with it. The difficult bit is taking a long-term strategic view."
And there's the rub. An agency such as Mother has a clear view of its future, but what about the industry as a whole? There are two aspects to business - the today and the future. Advertising is in danger of being left way behind its competitive set and not keeping up with the new "knowledge-based" currency of its clients. And that way leads to margin erosion, which in turn cuts into people.
Clients have moved the whole strategic advice game on. They now seek evidence-based input with which to devise their macro strategies.
Pringle is arguably the right man in the right place because he is well aware of these broad trends that impact on advertising and marketing communication's future. He fears agencies' "loss of the key relationship with clients" and is keenly aware of competition from brand consultancies such as Woolf Olins, IG Enterprise and Accenture, let alone the McKinseys and Bains.
"The high value-added work has gone to consultancies at treble the profit margin," Doyle observes. Related to this is the fact that over the past ten years there has been a skill revolution in fields around, and competing with, advertising. People have been trained. A survey by Relationship Audits has revealed that the average client receives five times the training of his agency counterpart.
But training is much improved in agencies and is high on the IPA's agenda. As Bruce Haines, the IPA president, puts it: "Agencies have to raise the game and improve standards constantly if they are to claim professional status."
London agencies have doubled their spend on external training since 1995. Over the same period the number of delegates on IPA courses has risen by 250 percent. The Continuous Professional Development accreditation scheme is a development that sees advertising up to speed with the legal profession and 16 of the top 20 companies are committed.
It's pertinent stuff. But even so, Michael Finn, the chief executive of DFGW, observes: "The proportion of income reinvested in training is infinitesimal compared with accountants or consultants." So can the industry catch up?
"Advertising still attracts outstanding and gifted people, " Doyle says. "But they are not trained as rigorously as they are by the KPMGs or PricewaterhouseCoopers. There are no advertising qualifications with real clout or respectability." After three to four years in a consultancy, a trainee has a significant skill base with which to tackle the problems thrown at them by clients.
Advertising's form of training is more experiential and variable, which reflects its self-styled role of selling product versus dispensing value-added advice. Ann Murray Chatteton, the IPA's training director, is on the case. "The Excellence in CPD awards are launched this year and we will develop these into case studies that lead the way," she promises.
She is also aware of advertising's need to compete for the best graduates who "demand to know what skills they are going to be trained in that are portable because they are aware they will not stay in the same role for ever". She is encouraging of the trend for agencies to recruit from a more varied degree base. In 2001/02 only 48 per cent of graduates had the traditional arts degrees with some 38 per cent holding business or communications qualifications. Some 14 per cent even had a science degree.
And there is undoubtedly a trend for more agency bosses to have an MBA. Lace will take time out next year for his. Many well-known names have post graduate business qualifications - Finn has an AMP from Wharton which he did to broaden his idea horizons. Some other names are Stephen Gatfield, the worldwide chief executive of Leo Burnett, Tim Lindsay, the president of Lowe, and, unsurprisingly, WPP's group chief executive, Sir Martin Sorrell.
Isobel Bird, Bird & Co's chief executive, agrees companies are not taking advantage of a rising pool of business talent within agencies. But she makes the point that they may be missing out on the rich seam of talent and flair in the advertising sector. "The industry has broad marketers, strategists, futurists and consumerists and businesses need this big time. They are just not looked upon as broad business advisers."
So there's a perception and reality gap of the kind that advertising has a genius for closing. The question is can it do this for itself? Headhunters believe that advertising people are less portable into other sectors. There are high-flying examples from Adam Crozier, the former joint chief executive of Saatchi & Saatchi now running the Football Association, to Stephen Carter, who quit as JWT's chief executive to become chief operating officer of the cable operator ntl. But those who trade in recruitment believe they are the exceptions.
Advertising can, of course, run itself as a business. There are plenty of excellent businesses out there to prove this. The question is; is it looking after its own future? It really does matter what kind of margin advertising can command competitively. Historically, commentators agree just what extraordinary talent advertising has always been able to attract. And to do this advertising needs to offer salaries that compete. Pringle reports that an advertising trainee will start on £7,000 - that's £9,000 less than someone going into consulting. The Financial Times sets the average post-MBA starting salary as £70,000.
Advertising has a stark choice before it. Will it accept leaner staffing levels, meaner, less thrilling client service, second-rate graduates in the future and the increasing commoditisation of its creative product? Or will it build its business credentials and go for protection of decent margins by reinventing its value-added offering to clients? Carol Reay, Campaign, 29 March 2002
A far more open question, though, is whether or not ad people make good businesspeople. Do they sit at the right hand of clients? How much in demand are they as non executive directors? Does the way they run their own business suggest they could succeed in the wider business world? The views of some of the most respected industry watchers don't give cause for optimism.
Take Professor Peter Doyle of Warwick Business School. "Agencies are production-orientated, they sell ads," he says. "They don't solve clients' business problems, they haven't the financial skills. They don't, therefore, contribute to generating shareholder value."
And if anyone is thinking "so what," it's as well to remember that client chief executives - on the top table that agencies so often seek to sit around - are more interested in shareholder value than advertising executions.
Simon Rhind-Tutt, a managing partner of Relationship Audits, says: "Not enough training goes on in agencies."
"Clients want to appoint agencies as much for understanding their business as for the creative product. It's the way to truly add value and achieve a position in the client's inner circle."
Meanwhile, headhunting companies such as Spencer Stuart, Egon Zender and Bird & Co International acknowledge that ad people are not over-popular as non-executive directors. Ashley Summerfield, a partner at Egon Zender, explains that they are just not perceived to have the broad experience or training.
"We rarely get asked for people who run agencies," he declares. "The only demand might be for creative gurus because it's the brand ideas that are being sought, not the business experience."
Of course, the litmus test for whether or not the ad industry can be successful on a broader business stage is how well it manages its own affairs.
When it comes to strategic advice, one of the products agencies offer, it seems an old adage applies - the cobbler's children are always the worst shod.
But let's start at the beginning. The first aspect of running a business is here-and-now financials. Outside experts agree agency bosses are perfectly adept at the numbers and display some outstanding management skills.
"Advertising management is generally good at business," Amanda Merron, a senior partner at the accountancy firm Willott Kingston Smith, says. "Culling people is not bad management. Twelve years ago people waited too long, trimmed back too slowly. It was death by a thousand cuts. This time they've acted swiftly that has helped maintain workforce motivation."
Tim Ambler, a senior fellow at the London Business School, is clear. "Prosperous agencies have good chief executives and it's a difficult area in which to manage because of the particular skill of managing creative people."
The only major costs in an agency are people and property so it does not take a genius to see why downturns equal job losses. Hamish Pringle, the director general of the IPA, points out that this recession has seen a loss of between 4 and 5 per cent of the workforce, which is drastically less than the 90s. But agencies are leaner now than they were then.
Does this view mask short-termism and a disturbing lack of business acumen? "Advertising showed an obsessive optimism in 2000 about the dotcom boom," William Eccleshare says. The former J. Walter Thompson senior executive and ex-chairman of Ammirati Puris Lintas is a partner at McKinsey & Co. He adds: "People overstaffed for that and got caught out. Even so, redundancies can be a kneejerk reaction and show short-term thinking. More experienced management takes a long view."
Garry Lace, the TBWA/London chief executive, agrees. "No company ever shrunk its way to greatness. We must think beyond the end of next week. We do it for our clients but fail to apply it to ourselves. I'd happily not make my numbers for one year if I was taking the right action to deliver my three-year plan."
The role of the agency financial director has changed significantly over the past 20 years. It symbolises a more businesslike attitude on the part of agencies. The best top teams include a financial director with vision right there in the inner sanctum. Robin Price at HHCL & Partners is more often cited but there are plenty of contemporary examples.
Matt Clark at Mother plays a key role. He has a shrewd business instinct and believes he's there to "use numbers to your advantage to make expansion and development plans". Mother doesn't sound too blown off course by the downturn. But Clark explains: "The numbers are the easy bit - increasing revenue and your costs to go with it. The difficult bit is taking a long-term strategic view."
And there's the rub. An agency such as Mother has a clear view of its future, but what about the industry as a whole? There are two aspects to business - the today and the future. Advertising is in danger of being left way behind its competitive set and not keeping up with the new "knowledge-based" currency of its clients. And that way leads to margin erosion, which in turn cuts into people.
Clients have moved the whole strategic advice game on. They now seek evidence-based input with which to devise their macro strategies.
Pringle is arguably the right man in the right place because he is well aware of these broad trends that impact on advertising and marketing communication's future. He fears agencies' "loss of the key relationship with clients" and is keenly aware of competition from brand consultancies such as Woolf Olins, IG Enterprise and Accenture, let alone the McKinseys and Bains.
"The high value-added work has gone to consultancies at treble the profit margin," Doyle observes. Related to this is the fact that over the past ten years there has been a skill revolution in fields around, and competing with, advertising. People have been trained. A survey by Relationship Audits has revealed that the average client receives five times the training of his agency counterpart.
But training is much improved in agencies and is high on the IPA's agenda. As Bruce Haines, the IPA president, puts it: "Agencies have to raise the game and improve standards constantly if they are to claim professional status."
London agencies have doubled their spend on external training since 1995. Over the same period the number of delegates on IPA courses has risen by 250 percent. The Continuous Professional Development accreditation scheme is a development that sees advertising up to speed with the legal profession and 16 of the top 20 companies are committed.
It's pertinent stuff. But even so, Michael Finn, the chief executive of DFGW, observes: "The proportion of income reinvested in training is infinitesimal compared with accountants or consultants." So can the industry catch up?
"Advertising still attracts outstanding and gifted people, " Doyle says. "But they are not trained as rigorously as they are by the KPMGs or PricewaterhouseCoopers. There are no advertising qualifications with real clout or respectability." After three to four years in a consultancy, a trainee has a significant skill base with which to tackle the problems thrown at them by clients.
Advertising's form of training is more experiential and variable, which reflects its self-styled role of selling product versus dispensing value-added advice. Ann Murray Chatteton, the IPA's training director, is on the case. "The Excellence in CPD awards are launched this year and we will develop these into case studies that lead the way," she promises.
She is also aware of advertising's need to compete for the best graduates who "demand to know what skills they are going to be trained in that are portable because they are aware they will not stay in the same role for ever". She is encouraging of the trend for agencies to recruit from a more varied degree base. In 2001/02 only 48 per cent of graduates had the traditional arts degrees with some 38 per cent holding business or communications qualifications. Some 14 per cent even had a science degree.
And there is undoubtedly a trend for more agency bosses to have an MBA. Lace will take time out next year for his. Many well-known names have post graduate business qualifications - Finn has an AMP from Wharton which he did to broaden his idea horizons. Some other names are Stephen Gatfield, the worldwide chief executive of Leo Burnett, Tim Lindsay, the president of Lowe, and, unsurprisingly, WPP's group chief executive, Sir Martin Sorrell.
Isobel Bird, Bird & Co's chief executive, agrees companies are not taking advantage of a rising pool of business talent within agencies. But she makes the point that they may be missing out on the rich seam of talent and flair in the advertising sector. "The industry has broad marketers, strategists, futurists and consumerists and businesses need this big time. They are just not looked upon as broad business advisers."
So there's a perception and reality gap of the kind that advertising has a genius for closing. The question is can it do this for itself? Headhunters believe that advertising people are less portable into other sectors. There are high-flying examples from Adam Crozier, the former joint chief executive of Saatchi & Saatchi now running the Football Association, to Stephen Carter, who quit as JWT's chief executive to become chief operating officer of the cable operator ntl. But those who trade in recruitment believe they are the exceptions.
Advertising can, of course, run itself as a business. There are plenty of excellent businesses out there to prove this. The question is; is it looking after its own future? It really does matter what kind of margin advertising can command competitively. Historically, commentators agree just what extraordinary talent advertising has always been able to attract. And to do this advertising needs to offer salaries that compete. Pringle reports that an advertising trainee will start on £7,000 - that's £9,000 less than someone going into consulting. The Financial Times sets the average post-MBA starting salary as £70,000.
Advertising has a stark choice before it. Will it accept leaner staffing levels, meaner, less thrilling client service, second-rate graduates in the future and the increasing commoditisation of its creative product? Or will it build its business credentials and go for protection of decent margins by reinventing its value-added offering to clients? Carol Reay, Campaign, 29 March 2002
