ITL #198 International agency structures: is there a perfect solution?

2 years, 9 months ago

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Settling on the right PR agency network solution can be a big headache for clients. What should be borne in mind when making a decision? By Lyle Closs.



The client went quiet. It had been a good meeting to that point, but it was clear something was on his mind. He looked out the window at a glum London day and sighed.

 

“Look, the strategy is fine. The creative is brilliant. I love your team. What worries me is what happens when it leaves here. The network…” Silence. I was about to ask what he meant, though I knew already, when he said: “Why can’t we get the network right? What is the ideal agency network structure – and why aren’t we using it?”

 

It’s the wrong question of course. It should be: “What is the best agency structure for my organisation?”

 

There are many different network solutions and they are often wrong for the client’s requirements. Too often I have heard in-house PR leaders complain that the country organisations are not sticking to the corporate message, when the company’s PR budgets are controlled by the countries. As an Ogilvy PR colleague said to me many years ago: “Who holds the budgets holds the power.”

 

Typical PR agency network structures are:

  • multiple agencies from a single holding company
  • single brand global agency
  • single brand agency in lead and major countries, supplemented by different agencies in smaller markets
  • lead agency and ‘best of breed’ agencies doing implementation in each country
  • client provides the lead and manages separate agencies in every country

 

Within the above there are also multiple variants of who holds the budgets and how they are allocated.

 

Single holding company

 

Single holding company arrangements work for big consumer brands so they can pick and choose from a range of agencies to deliver programmes, but still call Martin Sorrell, John Wren or Maurice Lévy when they have a big problem to solve. These networks may also have client-specific teams coordinating the many agencies to ensure brand consistency and to give the impression that the client has a measure of control over the vast complexity it is dealing with. In my experience, the further you get from the centre, the less that control applies. It works though because the network matches the client in terms of scale, complexity and CEO scale/reputation. It’s hard for the CEO of a $20m turnover business to get a holding company CEO’s attention, so this approach is really only for the very big boys whose budgets match their needs and ambitions.

 

Watch out though that you are really getting best value as there is the potential for the agencies within one holding company to share pricing so the owner gets the best margin. In my experience this doesn’t happen and I have been undercut on price by other agencies within the same holding company a number of times, but it is certainly in the holding company’s interests to keep profits high for all the agencies concerned and not just to get revenue at any cost.

 

It will be interesting to see though how far this single holding company model moves down through client sizes in coming years. When all the biggest brands are handled this way, expect the holding companies to offer the single holding company solution to the next level client. This ensures that the client’s spend stays within the holding company P&L, and they don’t care which of their agencies get the business.

 

Single agency v. mixed model

 

Companies with a less complicated range of brands, products or services often have to decide if they will get the best result from a single global agency, or from a less centralised model involving different agencies in different countries.

 

It is common for clients to pendulum every few years between centralised and decentralised agency models as the challenges of each model cause new managers to opt for change rather than improvement, continually proving that corporate memory is a rare attribute. My recommendation to CEOs whose new CMO or PR Director proposes a change of agency model is to reply: “Make the existing model work better first and then we can discuss making changes that may or may not have a positive impact on the business.”

 

Beware the new manager wanting to change agencies because the agency they worked with at their previous company was good at covering their weaknesses, or kept the business by always paying for lunch.

 

But which agency network model is best? Well (sorry) it depends – on where budgets are held and controlled, where control of the company’s messaging and activities lies, and on the company structure.

 

Single global agency

 

For a company where worldwide marketing budgets are held by the global HQ, a single global agency might be ideal. The CMO will have a single contact at the agency who can make things happen or fix issues quickly. The agency may simplify the CMO’s life by invoicing centrally and distributing payments to the network. The lure of ‘one contact, one invoice’ is very strong for the time-harassed CMO. This model is preferred by many consumer product companies who need central control of messages and core content but also the ability to turn projects on and off as and when required while still keeping the network management simple.

 

The challenge with single global agencies though is that the quality of delivery may not be the same in every country. This can especially be the case in sectors requiring specialist industry knowledge such as healthcare or technology. A local manager constantly complaining about the poor standard of their local agency will be an ongoing irritation for any regional/global comms leader.

 

HQ management needs to be strong in the single agency model – strong enough to stomp on complaints from local managers and ensure they stay with the programme and work with the agency, while at the same time working with the agency’s global team leader to find ways to improve the problem team. The more important the client is for the local agency office, the more effective this can be. It’s hard to get any agency to hire a more effective healthcare director if your budget only covers one day’s work a week for an account executive.  

 

I have often recommended to clients that they allocate good budgets to the most important countries and keep the balance for projects in the less important countries. Trying to have retainers in every country can mean your budgets are too low everywhere to make a difference. Both in terms of what your communications can achieve, and of how seriously the country agencies take your business.

 

Mixed model

 

A mixed network could have, say, a US-based lead agency and a mixture of that agency’s offices in key countries, and additional agencies in some countries. This is trying to have the best of both worlds – keeping central control while allowing country managers some leeway in less important countries. In this model in particular, the location of the budgets will impact how effective the network can be as a purveyor of global strategic messages.

 

In this structure it is essential that the ‘other’ agencies are contracted to, and paid by, the lead agency rather than the country client offices. Having the agencies contracted to the local office means they see the local office as their client, and the lead agency, often, as an annoyance that doesn’t understand the local market.

 

Watch out for tightly bonded local MD/agency CEO relationships. Conflicts between the country and the centre in that situation can sometimes only be resolved by senior global management.

 

The best practice model

 

In this model a lead agency works with the client to develop strategy, messaging and programmes, with agencies in each country selected in competitive pitches by the client’s country PR management in agreement with the lead agency. This model ensures that each country’s PR team fully supports the agency they are working with, because they were involved in selecting them.

 

The best practice approach requires an agency that has experience of managing the model because it will require all agencies to be contracted to the lead agency and ideally also to be paid by them. Ensure the lead agency has a strong financial organisation that can handle the inevitable complexity. Review their agency network contracts – and if your network is substantial, ensure the contracts between the lead agency and the country agency match what you require from direct contracts.

 

In this model, the lead agency can direct and manage the network, ensuring consistency of messaging and direction, while also keeping local managers happy.

 

An effective way to budget for this structure is to have a global programme budget driving corporate stories, globally relevant case studies, issues and CSR programmes (for example). Local funding in each country can then be used for more locally-specific activities such as supporting local sales drives and internal and partner communications.  

 

The problem with this approach for larger and more complex companies is that they can never really know how much they are spending on communications and so cannot effectively judge the value and effectiveness of the overall communications programme.

 

This is especially the case when local managers are using other marketing budgets for PR spend to support local sales targets, with the intention of evading the communications and messaging ‘police’.  

 

Hardly a network at all

 

A model where each country decides on and appoints its own agency and pays them from country budgets is, operationally, an easy option for a global PR leader, but it is fraught with strategic and reputational danger. Local/country managers tend to be much more driven and bonused by sales targets, and these do not always match global strategy.

 

If the contract and budget are local, there is little incentive for the local management to listen to the global PR person. I worked for an IT brand where globally the company cancelled a product line which no longer matched the company’s strategic direction. The company’s German office however was still making money from services supporting the cancelled product and ensured the PR team continued to promote it, confusing the global business’s move to the new strategy. They could do this because they owned the local PR budget and the agency had no choice but to do as they were told if they wanted to keep the business.

 

Most importantly the network needs to reflect the company’s business structure and global strategy and messaging. Often this comes down to the importance with which communications is viewed by the CEO. A strong focus on global brand consistency is likely to demand central budget control. A strong focus on local sales goals might mean the global PR leader has a tough time driving message consistency.

 

There is no perfect solution, just like there is no perfect client or perfect agency. It’s what keeps us busy, and awake at night in a complex, imperfect world.


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The Author

Lyle Closs

Lyle Closs consults with PR agencies to review and improve their efficiency and profitability, and train managers and teams on the business aspects of PR agency life. His experience covers agency and in-house communications leadership across Europe and Asia with Ogilvy PR and Cohn & Wolfe, and with clients like IBM, Dell, Nokia and ZTE. He has worked with agencies in EMEA and Asia both pre- and post-acquisition to prepare for and manage their integration into major conglomerates and maximise earn-out success.

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