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Clemenger BBDO chair Robert Morgan: Agency consolidation looms as holding groups retool for e-commerce

By Paul McIntyre - Executive Editor

18 May 2020 6min read

"Absolutely not. We won't do it that way. Putting it all into the one sausage machine isn't the answer," says Robert Morgan on WPP's centralised production unit

By Paul McIntyre - Executive Editor

18 May 2020 6min read

Significant consolidation is likely in the coming months as agency groups adapt to the post-COVID environment and scramble to integrate greater data and e-commerce capabilities into more traditional shops while cutting costs, says Clemenger BBDO Executive Chairman chair Robert Morgan. But Clemenger "will absolutely not" replicate WPP's centralised production model. 
Listen to the Robert Morgan podcast below:

You need to know this:

  • Clemenger BBDO chair Robert Morgan believes further consolidation of both media owners and ad agency groups is inevitable as Covid-19 picks off businesses with underlying financial health issues.
  • While it has the balance sheet to “weather the storm”, Morgan says the Clemenger group plans to pare its thirty-something companies operating in Australia back to more like twenty-something.
  • Although the intention is to make Clemenger “easier to buy” for clients, Morgan does not rule out further job cuts – or that some companies may disappear altogether.
  • But he sees significant opportunity for agencies in e-commerce as the retail market races to adapt to the new normal.
  • For those brands with money to spend, he says there are bargains to be had and momentum to be gained.
  • Morgan says ANZ market not as badly damaged as US and Europe, with clients expecting “some growth” potentially returning by Christmas.

 

“If you have a problem, it is better to act early. If you have to make cuts, you need to make them reasonably quickly - and you do your best to keep as many people as you can working.”

- Robert Morgan, chair, Clemenger BBDO

The quick and the dead

In any crisis, it is critical to take remedial action early, says Morgan. When everybody freezes, cash becomes king.

“Omnicom is a strong company. We have always been reasonably conservative in keeping enough cash in the business. We will weather the storm,” says Morgan.

But the impact has hit some business units hard.

“Inevitably some businesses have been more affected than others,” says Morgan. “We have a wide portfolio. But one overarching point is that if you have a problem, it is better to act early. If you have to make cuts, you need to make them reasonably quickly - and you do your best to keep as many people as you can working.”

 

“Nobody would want to foreshadow companies going broke. But clearly companies that are not capable of weathering this storm might have to merge or disappear.”

- Robert Morgan

Consolidation is coming

Morgan says several of Clemenger’s business units are likely to be rolled together in one way or another.

“I do think we will have more consolidation in terms of the smaller companies becoming more closely related to the bigger ones. Whether they are ‘divisionalised’ depends on a number of things,” says Morgan.

“But the overall aim is to have … more capability under the bigger brands, using the smaller companies to enhance that capability, and making it easier for clients to buy us.”

As Covid-19 accelerates most existing socioeconomic trends, Morgan says all holding groups will likely consolidate in the months ahead.

“Nobody would want to foreshadow companies going broke. But clearly companies that are not capable of weathering this storm might have to merge or disappear,” warns Morgan.

He uses cricket analogy.

“In any group, it is like a batting order. You know that once you get down to the bottom, the last two or three batsman, you’re not looking terribly good. In good times they don’t make many runs and in really bad times they go out very quickly.

“So it is important when you have as series of businesses… those that are struggling you deal with quickly.  So we will be consolidating businesses that are not capable of weathering the storm themselves. And I think that will apply across the spectrum” says Morgan.

 “I could imagine all of the holding companies doing exactly the same thing.”

 

THE PULSE

Quick question: Can creative-led agencies reinvent themselves to deliver the e-commerce capabilities clients are now scrambling for?

Choices
E-commerce, CHE Proximity and taking on consultants

As Covid-19 has accelerated the shift to e-commerce, so Clemenger is beefing up its ability to serve clients racing to optimise digital sales channels.

Chief among its changes will therefore be to “bring our e-commerce and web development capabilities much closer to our agencies, and the same with data and analytics,” says Morgan. “So we will be putting more capability into our traditional businesses, while at the same time, making it easy for clients to buy what will be more important to them going forward.

If such capabilities are in high demand, why was CHE Proximity, Clemenger’s flagship within those realms, reported to have axed as many as 70 jobs?

Morgan disputes those numbers.

“It’s not 70. I think the figure was 30,” he states. “[CHEP] have grown enormously over the last 12 months, won a lot of new business and then got hit with some significant cuts in March. So the team there acted proactively,” says Morgan.

“I am delighted to say that since then, there has been renewed activity within that area, so that side of the business is only going to grow,” he adds.

“As clients use their own media, their own databases, and we can get much more precise in terms of understanding what people want, and when they want it. We can predict when they are going to be ready [to buy] and then we can tailor communications to them knowing more about them. That in a sense, is the holy grail of the industry, of what we do,” says Morgan.

“And I believe we have a powerhouse in CHE Proximity that can operate with great depths of skill, particularly in technology, data and targeting.”

But Morgan insists Clemenger’s technological capabilities already go beyond one shop, and that the company can keep up with the big consulting groups that appear to have cornered the market in business transformation services.

He cites the 2018 acquisition of marketing services and technology business Levo Digital by way of example.

“They are experts in that area and they are becoming more aligned with Clemenger BBDO and Colenso BBDO – and more involved across our group,” says Morgan. “They are building out transactional e-commerce sites – Australia’s Wool Exchange now operates on a platform we have built.

“So we believe we can mix it with just about anybody in that area.”

 

“Many people have tried to centralise production over the years. I haven’t ever seen it work. Putting it all into the one sausage machine ain’t the answer in our view.”

- Robert Morgan

Creativity, cost pressure, but no centralised “sausage factory”

Despite doubling own on tech and digital architecture, Morgan says creativity is more important than ever.

“We have a mantra: Creativity is always the answer,” says Morgan. “We can target brilliantly, we can identify people brilliantly, and we can do that very efficiently. But the difference between efficiency and effectiveness, in our view, is creativity.”

Agencies may be able to reach people through more channels then ever before, says Morgan, but if brands can’t engage with audiences, “they are going to get flicked faster than they have ever done before. So we see creativity as being more important than ever.”

However, clients always want it cheaper – and Covid-19 compounds that challenge.  Morgan says that means delivering the “high velocity” production work faster and cheaper, “and certainly we have built capabilities on that front”.

Will those production efficiencies increasingly required by clients during the coronavirus crisis become ‘the new normal’? Morgan thinks not.

“In any discipline it has to be horses for courses. High velocity work has to be done economically, because it has a high amount of disposability. You can’t justify a high level of spend if it is only going to be used for short periods of time,” he says.

“Alternatively, investing in sustainable or long-term brand platforms requires work to be of a standard that can attract and motivate people. So I don’t think everything will be cheap [post-Covid],” suggest Morgan.

“Certainly there is downward cost pressure. We accept that and we have vehicles that can deliver that,” says Morgan, adding that while there is much talk about clients in-housing production to save money, “I would argue we can do it better and in a financially equivalent way.”

Other holding groups are also feeling cost pressures, with WPP AUNZ working on a centralised creative production unit in a bid to unlock efficiency. Is that on Omnicom’s roadmap?

“Absolutely not. We won’t do it that way,” says Morgan. “We have dedicated units in our business that are built for faster and cheaper [work] and we are very keen to develop those, no question.

“But we still believe every job is different, and each job requires different skills. Putting it all into the one sausage machine ain’t the answer in our view.”

Moreover, Morgan says a single centralised production unit would be a cultural disaster for Clemenger Group.

“If you are a creatively-led organisation, you have to have the ability for the creative leadership to make the work they way they want it to be made ... using the right people,” he suggests.

“Many people have tried to centralise production over the years. I haven’t ever seen it work.”

 

“I think we work best when we are all together, and out business is largely a social industry. Creativity is often a collaborative thing. Sitting at home it’s a little harder to do that.”

- Robert Morgan

Home working the new normal?

Much of the country – and many parts of the world – has had a couple of months working from home. By the time lockdown restrictions fully ease, it could be longer still. Will it become a permanent shift across the workforce? Morgan suggests not.

“I think we work best when we are all together, and out business is largely a social industry. Creativity is often a collaborative thing. Sitting at home it’s a little harder to do that,” he says.

But Morgan accepts it is by no means black and white – and that there is “no argument that certain functions can be done just as well” from home.

That may ultimately require “different premises strategies”, and different approaches for parts of the business will be decided by their leadership, he says, But for now, “we are focused on getting through this thing and making sure our people are safe.”

 

“Often the temptation is to hibernate, to go to ground. But there is a wealth of empirical evidence that shows companies that keep investing during these times do better coming out of it.”

- Rob Morgan

Local impact and Christmas cheer?

Morgan thinks one outcome of the Covid-19 crisis may be less international travel, and a greater local focus.

For now, however, he is focused squarely on the immediate future and making sure the group is in the best possible shape to whether the storm.

But despite the economic damage wreaked by the virus and measures to limit its spread, Morgan says there are always opportunities for brands to take a proactive approach.

“Often the temptation is to hibernate, to go to ground. But there is a wealth of empirical evidence that shows companies that keep investing during these times do better coming out of it,” says Morgan.

“So with the opportunities that we have in media out there at the moment, there are some brilliant ways that you can actually get some momentum.” 

While the global economic picture is grim, Morgan is optimistic that in Australia and New Zealand at least, the worst may be over by Christmas.

“It is very easy for the doom and gloom from the US and Europe to pervade here. But I think that we are going to struggle through maybe until the fourth quarter, where we might see a bit more growth,” says Morgan. “And that is probably the view of most of our clients.”

 

Let’s go. What do you think?

By Paul McIntyre - Executive Editor

18 May 2020 6min read

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