Game on: Management consultancies muscle in on holding companies' turf

Management consultancies and technology services companies are acquiring creative and IT shops and are taking aim at the lucrative martech space. But what does it mean for PR firms?

Management consultancies are acquiring creative and IT shops to muscle in on the lucrative martech space. Chris Daniels finds out what it means for PR firms

The big four agency holding companies — WPP, Omnicom Group, Publicis Groupe, and Interpublic Group — that compete for the marcomms budgets of the world’s biggest brands have some well-heeled new rivals. Major management consultancies and technology services companies are poised to become serious challengers for those marketing dollars, especially after a recent spate of agency acquisitions.

Over the past 18 months, the likes of Accenture, Deloitte, KPMG, and PricewaterhouseCoopers have scored high-profile agency deals around the world. The shops they’ve snapped up are not just tech, mobile, or social specialists: Some are full-service creative firms.

However, consultancies aren’t sneaking up on ad land. Agency holding companies are keenly aware of the potential challenge.

Karen van Bergen, CEO of Omnicom Public Relations Group, says management consultancies are eyeing agencies with capabilities across marcomms disciplines.

"It’s no surprise to see management consultancies expressing an interest in acquisitions in the PR industry," she says. "They are no doubt seeing an opportunity to take on this type of work as an offshoot of their core business. However, it has not changed our primary competition, which continues to be the large, established PR firms."

But for how long is anyone’s guess.

According to Gartner’s CMO Spend Survey 2015-2016, marketing technology will become the largest expenditure in a chief marketing officer’s budget this year, overtaking such advertising expenses as creative and paid search for the first time. Technology is forecast to hit 33% of the marketing budget, just ahead of external marketing services, at 32%.

This shift explains why both consultancies and companies such as IBM are ramping up their acquisitions of creative and marcomms agencies. In guiding Fortune 1,000 companies through transformational and strategic shifts brought on by new technologies and a digitally driven marketplace, management consultancies typically worked with CEOs and chief information and technology officers.

Yet now they have their sights on the CMO, a job that has become more driven by rich customer data and intertwined with such other corporate functions as sales, e-commerce, and product development.

It’s no surprise to see management consultancies expressing an interest in acquisitions in the PR industry

Karen van Bergen, Omnicom PR Group

"We will see more pitches for agency services that feature entities from legacy holding companies and entities owned by the management consultancies," notes Brian Wieser, senior analyst for advertising, media, and internet at Pivotal Research Group.

Wieser argues several factors will limit their competition against one another to such areas as marketing IT integration, web experience, and user design.

"If the CTO or CIO is the primary or most influential decision-maker, chances are an Accenture, Deloitte, or IBM will win the assignment," he says. "But if the CMO is the most important influencer, then the agency holding company is more likely to win."

Hitting the target
Another factor? The "creative" arms of the likes of Accenture and IBM represent a relatively small portion of their overall revenue. Their entry into creative is meant to supplement their core business, so marketing units may not get the senior-level attention and investment needed for them to truly compete against agency holding companies.

WPP, whose roster of PR firms includes Burson-Marsteller, Hill+Knowlton Strategies, Ogilvy Public Relations, and Cohn & Wolfe, reported $19 billion in revenue for fiscal 2015. Interpublic Group, with Weber Shandwick, Golin, and Carmichael Lynch Relate under its umbrella, ended 2015 with $7.6 billion in revenue.

The picture is different at a management consultancy or technology player getting into the marketing services space.

"Even though IBM iX [its digital agency] has one of the largest P&Ls globally [at a reported $1.9 billion], it is tiny in the context of IBM," Wieser says. IBM’s revenue for fiscal 2015 topped $81 billion.

The other side of the coin is that the IBMs and Accentures of the world have very deep pockets. Accenture, for instance, had record revenue for 2016 of $32.9 billion.

"Accenture doesn’t have to worry about Interpublic, but Interpublic does have to worry about Accenture," says Wieser.

‘I’d be afraid’
Tim Dyson, CEO of Next Fifteen, whose agencies include Text100, M Booth, Bite, The OutCast Agency, and Beyond, puts it more bluntly: "If I were WPP, I’d be afraid. Very afraid."

For starters, he says the traditional holding companies haven’t been as successful as hoped with their one-stop solution. "This is partly down to the ‘weakest link’ problem — where one service undermines all the others — and partly because holding companies tend to focus on the areas where clients spend the most."

Next Fifteen's Tim Dyson says holding companies have not been successful with their 'one-stop solution'

Now, he says, "the management consultants are looking to offer a new type of one-stop shop. Instead of purely focusing on the client’s go-to-market strategy, they are linking go-to-market with the fundamental business model and strategy."

However, Dyson predicts management consultancies will face cultural challenges by bringing creative shops into their fold.

"Execution risk remains high, as does the cultural challenge of getting analytically based businesses to collaborate with creative-driven agencies," he explains.

Scott Kauffman, CEO of MDC Partners, the parent company of PR firms Allison+Partners, Kwittken, and Sloane & Co., contends it is unlikely these new rivals will be able to turn themselves into creative powerhouses.

"The creative process requires a kind of DNA that isn’t present in a traditional business environment, which is why these management companies have gathered these agencies under company umbrellas that foster creativity and innovation," he says. "I understand why the consulting companies are trying to acquire creative talent, but they will have a difficult time thriving because they are captive to a different kind of DNA."

Kauffman says he welcomes their entry into the marketplace, saying the disruption could be a good thing for MDC as the eighth-largest marketing services holding company.

"It is a fluid marketplace, and the chaos is causing CMOs to re-evaluate everything," he says. "You see it not just in the expanding scope of the work they do, but also in the budgets they increasingly have sway over. There used to be separate budgets for the CIO and CTO, but we’re seeing an ever-expanding dominance of those budgets by the CMO."

A trend working both ways
Agency holding companies have evolved their own offerings, as well, in recent years. In 2013, WPP acquired a 20% stake in Buenos Aires–based Globant, a hybrid technology service provider, to help marketers with digital marketing campaigns.

A year later, Publicis acquired Boston-based digital and technology firm Sapient and, in 2016, restructured its business around four hubs focused on creative, media, digital/technology, and healthcare.

"We’re seeing lines start to blur both ways, with PR agencies taking on management-consultancy work. For instance, we recently announced the merger of Ketchum Change and Daggerwing to focus specifically on management consulting," says van Bergen.

The two Omnicom shops will merge at the start of the new year under the Daggerwing Group name.

Analysts say as marketing, technology, and strategic direction become even more intertwined — and agencies become more like consultancies and consultancies add creative and comms capabilities — more consolidation between the two groups is likely in the next three to five years.

However, for a management consultancy to become a real threat to a holding company, a ground-shaking acquisition would have to take place, and that’s not out of the question.

"It is not impossible to imagine Accenture or another firm acquiring an Interpublic or WPP because they are smaller in comparison," says Wieser. "If Accenture wants to keep pushing on the path it is going, its choices are to either build or buy. And the track record of building is sketchy, to say the least."

"Holding companies shouldn’t be relaxing," Wieser concludes. "This is about the very future of agency services."


Can money buy creative success?

In November 2016, Accenture acquired the U.K.’s largest branding agency, Karmarama, whose clients include the BBC, Honda, and Unilever. Last year, Deloitte purchased full-service creative agency Heat, based in San Francisco, and rolled it into Deloitte Digital, which the company touts as the world’s first creative digital consultancy.

Heat brought with it a client roster that includes Electronic Arts, Hotwire, and the NFL Network. PwC, meanwhile, closed a deal that brought 30-person Hong Kong creative agency Fluid — The Wall Street Journal and Estée Lauder are clients — into its fold.

Technology services companies are also in the fray, most notably IBM. It, too, closed a deal in 2016 for Resource/Ammirati in its first acquisition of a digital marketing creative agency.

Microsoft and Nestlé number among Resource/Ammirati’s wide-ranging roster of clients. The firm adds to IBM’s iX arm focused on design and interactive customer experiences.

"We think bigger than an agency," reads the IBM iX website, "and more creatively than a consultancy."

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