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The pros and cons of consolidating books

The pros and cons of consolidating books
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First Published: Tue, Jul 29 2008. 11 22 PM IST

Updated: Tue, Jul 29 2008. 11 22 PM IST
Advertising and media agencies are looking to restructure operations. True media integration is their objective and, consequently, traditional silos are making way for multidisciplinary teams built around brands.
To offer clients genuinely integrated media solutions, however, agencies need to unite the profit and loss statements (P&Ls) of the various disciplines into one. That way, specialists will no longer push for the profits of their own disciplines’ (be it advertising, public relations, direct marketing, events or digital) over others.
Rather, they will the offer unbiased media solutions best for the brand. Media agencies may find it easier to integrate disciplines and profit and loss accounts than others—their history goes back a mere decade, compared with the hundred-plus for advertising agencies. GroupM’s MindShare Worldwide is restructuring across markets and Ashutosh Srivastava, CEO, MindShare Asia Pacific, says it will have a single P&L by client and company.
Many advertising agencies have several specialized capabilities and divisions on paper which compete with each other since they have separate profit and loss accounts. That’s the first thing to jettison. Or, in the words of Patrick Stahle, CEO of Aegis Media Asia-Pacific, it’s vital to integrate the various services within the network in a manner that prevents the possible cannibalization of the respective P&Ls.
Ad agency Bates Asia recently aligned its “above the line” (focused on mass media) and “below the line” (focused on direct communications) units to form fully integrated agency Bates141. Subhash Kamath, its India CEO, however, says their divisional P&Ls continue, and that people are mistaking integration for a common P&L. What’s critical is how you integrate thinking at the table, he says. The different skill sets structured around the client is what’s important, he adds— not having an integrated P&L.
Don Schultz, the father of integrated marketing communications, tells me that while the issue of media—or even discipline-neutrality—has been around for years, agencies have been focused on functional silos. “Quite honestly, it continues to be difficult to get agency types, whose primary interest is making 30-second commercials, to start focusing on in-store banners or posters, even if this is best for the client,” he says. “There is an intellectual pecking order in agencies that goes back to the ‘above and below the line’ categorization.”
Schultz agrees that the problem is all about compensation. As long as agency managers and employees are compensated by the success of their silo, they will focus on what they do, not what is best for the client.
Creating a single P&L is a step in the right direction, but fraught with problems. Why? Well, some media forms or agency silos are simply more efficient in terms of creating programmes and thus, more profitable than others. Schultz envisages internecine battles within agencies about who contributed the maximum profits in such an environment.
This would result in more emphasis on which silos are the most profitable, or who (read people) manages expenses best. So, this wouldn’t really solve the problem, he reckons.
The success of the single P&L for integrated marketing communications ultimately depends on the maturity of the people inside the agency, and the way egos and payment systems play out. But, that doesn’t mean that agencies shouldn’t look at consolidating their books.
Marion Arathoon is Mint’s advertising editor. Your comments are welcome at advalue@livemint.com
To read all of Marion Arathoon’s earlier columns, go to www.livemint.com/advalue-
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First Published: Tue, Jul 29 2008. 11 22 PM IST