Over the last few years, we have seen management consultancies move aggressively into core parts of the advertising business. Most recently Exane BNP Paribas downgraded WPP and Publicis forecasts as they were not seen to be transforming their business fast enough - in their words "Accenture is becoming a WPP more quickly than WPP is becoming an Accenture."
A clash of cultures is often touted as the reason why consultants can't just buy creative agencies - Sir Martin Sorrell recently talked about this in Campaign citing differences in 'left-brained' and 'right-brained' thinking.
But beyond the fact that neuroscientists have shown the left-brain/ right-brain metaphor is a myth is culture really so much of an issue - or is it just a convenient excuse for slow growth?
I caught up with Ben Tolley from Clarity Partners who most recently advised The Monkeys on their sale to Accenture Interactive. We discussed consultants, consolidation and the importance of culture.
What do you think is driving M&A activity in advertising particularly the acquisition of Creative agencies by Consultancies?
I think there are a number of drivers. The Monkeys/ Accenture transaction is one of the most prominent threads in terms of what is going on. This is an acceleration of what people have been talking about for some time; consultancies getting into marketing services.
But calling Accenture a management consultancy is a bit of a misnomer. It is more a tech and systems integrator – a builder and operator. It does management consultancy, even if that is not its main thing, and Accenture Interactive is their bridgehead into the marketing services world.
The drivers of this move is there has been a convergence between IT and Marketing and an increased digitisation of marketing. This encompasses things like e-commerce and IT infrastructure. As a result more and more of IT budget now comes under the influence of the CMO. So now companies need to engage with the CMO and participate in discussions around brand, brand strategy, creative strategy and content strategy.
Media is currently not on the cards for them… at this stage. They are coming at this from a customer experience angle and they see advertising and paid media as just one aspect of the brand. It’s more about the service delivery of brands.
How difficult do you think it is to merge the different cultures of Consultants and Creative Agencies?
I think the culture thing is overdone. I don’t think it is an issue – in a good way. If you look at the agency groups WPP, Publicis etc. they don’t have a homogenous culture. They have several autonomous business units. Sometimes they work together and sometimes not. Look at the businesses they have: you have colleagues in advertising, data, CRM, digital production - there are all sorts of different people.
Any smart company acquiring people-focused businesses is going to want to give them room to breathe and grow. But I do think values are important – this is particularly visible in making transactions – in the case of Accenture and Karmarama and The Monkeys there was a real feeling that the whole organisation valued people. They showed they care about the business and what people brought to the business. This was apparent in the way they talked about it in the transaction context and the value they ascribed to the people and culture.
The day after the deal, those businesses are still in the business of creating big impactful ideas. And for those businesses, there is a desire to join a company that creates end to end solutions and that has broad relationships across a client’s business.
If we look at the Monkeys and Karmarama transactions, and a diagram of the adjacencies and skills sets, then the Monkeys acquisition is at the far end of the spectrum. They are pure creative and not so much about optimisation and targeting - but about the big idea. Accenture’s acquisition of Fjord sits slightly more in the middle and you can soon see how they are creating a slightly more joined up world.
There is a lot of activity going on amongst the Big Four – especially in Australia where it is more developed and where they are really looking at the marketing domain. Are we going to see the Big Four buy creative agencies? There are certainly big moves there.
The culture of the Big Four is different– while they say they have different business units – the centre of gravity of these organisations is accountancy and tax. That is quite a long way from the DNA of marketing and creative - so for me, that is more of a cultural challenge.
Accountancy firms care about the growth outlook for auditing and tax services. For them it’s a hedge moving into marketing services. Extending their services is strategically sound but not a core part of what they do. For management consultancies it a sensible extension of their consulting and digital activity that don’t currently have scale.
For the Big Four their main challenge is an organisational one. They are global brands but local businesses... and clients are looking for genuine global businesses. Accounting firms would be better off organisationally with one P&L and one central structure vs today's ‘franchise’ model.
We are beginning to see consolidation in the ad tech space who do you think the big winners and losers will be?
It is difficult question and area. What we will see is a simplification of the landscape as we have seen large amounts of innovation but not much has reached real scale. There is too much friction in the system and there is a need to bring things together. In this respect consolidation will happen to drive efficiencies.
Consolidation of Adtech within the Martech stack might happen but consolidation of tech within the platform is more likely and the biggest concern.
The real question for the tech landscape, around Adtech compared to Martech, is to what extent the tech get swallowed up in Facebook and Google and then offered as part of the platform vs it existing independently. It is difficult to look beyond that – Facebook and Google swallowing it up.
For me, another question is whether Facebook and Google maintain their massive concentration of power and can governments introduce competition. Currently, Facebook and Google can make moves that have massive consequences for brands and agencies. The option at the moment to manage this is using the regulatory system as we have seen recently with Google but this takes time and there is a cost. And increasingly for these companies, this is seen as a cost of doing business – a big cost – but not relative to the size of these organisations.
So there is an enormous concentration of power – data, online and financial – this needs looking at for both commercial and political reasons.
I remember doing a deal 15 years ago for a Radio company. The regulators were concerned about a decrease in competition in local advertising markets in Bristol and Cardiff. It seemed a bit technical and uncommercial at the time… but now we are seeing this argument played out on a global scale. We will soon see this bleed into the last bastion of advertising - TV – that will soon be swallowed up in the ecosystem.
How do you think that management consultancies have managed conflict better than media agencies i.e. they can advise multiple clients in the same industry?
A good question and I don’t fully understand why they can manage things differently. The main reason is that there are fewer businesses that can build technology services at scale so the buyers of those businesses can’t be as prescriptive about what they buy from whom. So they will inevitably have conflict. That is how Accenture sees it.
The media agencies haven’t convinced clients of their ability to do this and how much they can offer scale, expertise and a proven track record. But also I’m sure that some of this is just how these industries have evolved!
Paul is Global Head of Strategy at Vizeum. He is a Global Strategist with experience that spans a variety of sectors (CPG, Tech, Pharma and Finance) and disciplines (Media, Advertising, CRM and Sales Promotion). He is responsible for European Strategy across all Starcom Global Network Clients including Samsung, P&G, Coke, Airbnb, Novartis, Etihad, Mars. Paul holds a Bachelor in Biological Sciences, Zoology from the University of Oxford.