How agencies should respond to the in-house invasion

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McClure and Simon: Adam & Eve/DDB's award-winning creatives opted to join the BBC rather than climb the agency tree
McClure and Simon: Adam & Eve/DDB's award-winning creatives opted to join the BBC rather than climb the agency tree

The proliferation of in-house operations is gobbling up new business and drawing more talent client-side. What's behind the trend and how can agencies respond to the threat of being sidelined by advertisers, John Tylee asks.

As star creatives at an agency renowned for its creative potency, Aidan McClure and Laurent Simon could probably have had their pick of the jobs when they quit Adam & Eve/DDB at the end of last year.

So it was something of an eyebrow-raiser when the winners of the Cannes Lions Grand Prix for "The bear and the hare," the much-applauded 2013 John Lewis Christmas commercial, opted not to join another agency but to become executive creative directors of a new in-house team being launched by the BBC.

A few years ago, adland would have received such news with a knowing smile and waited for the bored pair to slink back, older and wiser, as yet another client tried and failed at creative DIY.

Back then, in-house agencies such as Lintas (Unilever) and Cheil (Samsung) were the exception. Hardly anyone else apart from fine-fragrance houses produced their own creative work. But as one veteran creative chief points out: "When all you needed was a nicely shot film to push your product and no big idea, you might as well have done it all yourself."

For others trying something similar, saving money was the prime motive. In the late 1980s, Sir David English, then head of Associated Newspapers, flirted with the idea of plucking his Daily Mail team out of FCB London and taking it in-house.

Although the plan came to nothing, it did result in the account becoming fee- rather than commission-based. So it's no surprise that agencies have always been suspicious about clients threatening to pull work in-house, believing such initiatives to be mainly procurement-led.

"The problem with going in-house is that it underestimates the value advertising adds to your business," Paul Bainsfair, the IPA's director-general, argues. "The best agency creatives want to work with like-minded people. They don't want the limitations of having to work on one product all the time."

Whether this assertion will continue to be true is debatable. Grace Blue, the executive research company, says there is now a marked trend for talent who would previously have gone to agencies being drawn client-side.

"If I were starting out now, I’d much rather be client-side. It’s the future. Agencies have had their day. They are sweatshops." 
Gerry Moira, former chairman and UK director of creativity, Havas London

At the same time, Oliver Group, which has been setting up bespoke in-house agencies since 2004, has almost 1,000 staff globally and works with a range of companies from Google to Starbucks, is reporting a big upsurge in interest. "Things are changing at a tremendous pace," Simon Martin, Oliver's chief executive, says. "The old status quo can't survive."

Ian Priest, Grace Blue's global chief executive, founder of VCCP and former IPA president, believes in-house operations—as long as they have brand portfolios interesting enough to attract the best talent—now provide real challenges for bright young millennials wanting to be involved in the whole customer journey rather than being just a part of it.

Why is it happening? "Because so many companies are becoming more like media companies in that they are having to communicate 24/7 with their customers," Priest explains. 

"It's not just the responsibility of the marketing department anymore. The customer service and IT people are becoming equally involved. And you only have to look at 4Creative's 'Meet the superhumans' campaign, Red Bull's experiential work and Specsavers' advertising to see interesting work that's getting better."

Martin maintains that while some of what's taking place is for economic reasons, clients needing to work faster and leaner in the digital space with people who have an intimate understanding of their businesses is what's really fuelling the change.

The switch to in-house is already manifesting itself in the US. There, almost 60% of the member companies of the Association of National Advertisers have in-house agencies—an increase of 18% in seven years.

IBM, now the world's biggest digital agency network, has become a voracious recruiter of agency talent. "Account people, creatives and user-experience specialists are among those being hired," Peter Cowie, Oystercatchers' founding partner, reports. "And if you include what's on offer from Silicon Valley, it amounts to a real challenge for agencies."

To make matters worse, the days when agency salaries outstripped those client-side have long gone. "Senior marketers are now paid more than agency chief executives by a considerable margin," Cowie adds.

"If you get bored, you move on—and that’s equally true whether you’re working in-house or for an agency."
Debbie Morrison, ISBA’s director of consultancy and best practice

No data on the rise of in-house activity exists in the UK, although empirical evidence of clients doing more work themselves over the past six years has led ISBA to consider carrying out a detailed study to find out if its members are increasing their in-house capabilities and what kinds of people they are bringing in to do it.

Debbie Morrison, ISBA’s director of consultancy and best practice, suggests the trend reflects mounting numbers of aggrieved clients unable to get neutral strategies from their agencies. And she is scornful of the idea that in-house teams have no attraction for agency creatives. "It's a myth and always was," she declares. "If you get bored, you move on—and that's equally true whether you're working in-house or for an agency."

Grace Blue, which has been researching the trend among marketers to take matters into their own hands, blames what is happening on clients' frustration at the inflexibility of agencies and their inability to react to a relentlessly changing, socially oriented world. 

Moreover, with big data all the rage, companies are not eager to hand over large amounts of prized statistical information for outside specialists to manage. "More brands want to 'own' the customer relationship—and that means 'owning' the data," Priest says.

But it isn't just digital specialists who companies want inside the tent, he adds: "They're looking for designers, media people and programmatic experts. Outstanding copywriters are particularly in demand by the financial services sector."

Some believe marketers building in-house operations are profiting from the disenchantment, low morale and poor pay bedeviling many agencies.

Gerry Moira stepped down as chairman and UK director of creativity of Havas London earlier this year, ending a 46-year agency career. He says: "If I were starting out now, I'd much rather be client-side. It's the future."

Moira believes it is brands that offer the creative challenges agencies no longer can. "Agencies have had their day," he claims. "They are sweatshops whose output has become so much more prosaic because of social media."

But while reports of the agency's death may be greatly exaggerated—"There will always be areas of expertise only agencies can provide," Morrison says—Priest warns that agencies' ability to adapt will ultimately determine how much work they keep.

Meanwhile, he adds, they may have to follow Omnicom's lead in adopting a more accommodating attitude to clients. The group is setting up a bespoke agency to handle the McDonald’s US creative account, with any profits coming from performance-related pay. 

How different this scenario is from the holding company "dream team" arrangement is debatable. However, it highlights the question of how far marketers will want to travel down the in-house route. 

Grace Blue believes most have not yet been able to balance their desire for more in-house resources with their concerns about raising their headcounts too high. 

And with some skeptics forecasting that any future economic downturn will halt the growth of in-house, Morrison suggests it is Oliver-type offerings that will ultimately prove the most attractive option for clients because they will be easiest to manage, with staffing scaled up or down to match the prevailing climate.

Martin is adamant there's no turning back. "You can't call what's happening a fad because that assumes the world isn't changing," he says. "What we offer is one solution, but it may not be the ultimate one."

Doin' it for themselves: two in-house operations that made the grade 


Spark44

Spark44, set up five years ago as Jaguar's in-house agency, was a ruthless attempt to regenerate a much-troubled brand.

Not only did Jaguar have a reputation for poor quality, its sales were terrible as drivers shunned gas-guzzlers for more economical cars. What's more, the creative work from its global agency, Euro RSCG (now Havas Worldwide), wasn't cutting it.

With heavy financial backing from Indian parent company Tata Motors, Dr. Ralph Speth, Jaguar Land Rover's chief executive, and Hans Riedel, his marketing right-hand man, opted for drastic measures.

In February 2011, they fired Euro RSCG and established Spark44 as a 50/50 joint venture with the new agency's senior management. They were merciless with internal naysayers and marketing executives who complained of having had no say in the decision. All were shown the door.

Employing some 800 people working out of 18 offices around the world, Spark44, which also took over Land Rover's creative account from WPP's Y&R last year, has not been without its inner tensions. 

But with Jaguar Land Rover having posted record half-yearly sales in the UK and Europe, backed by a strong performance in North America, it can be argued that Spark44 has achieved the objectives set for it. This has fuelled speculation that the agency will be sold.

Sir Martin Sorrell was rumored to have attempted to buy Spark44 to retain WPP's grip on Land Rover when it left Y&R. Will he try again?

Lego

Seizing total control of branded content has been a prime motivation for a number of large advertisers establishing in-house operations. And no company has been better at it than Lego.

Indeed, there are those who suggest Lego more closely resembles a top media company—in the way it can move so quickly and flexibly—than the world's biggest toy manufacturer.

It is a strategy that begets commercial success. Last year saw another storming performance by Lego, whose revenues increased by a quarter to $5.2 billion. Much of it resulted from branded tie-ins, which even challenged toys as Lego's main revenue generator.

While the company has worked with a number of agencies, including Rainey Kelly Campbell Roalfe/Y&R, McCann, Mother and Iris in recent years, it is Lego's internally developed integrated marketing approach that has transformed it into a power brand that competes successfully against growing numbers of plastic building-block imitators.

The approach has allowed Lego to use branded entertainment as a way of creating products and tapping into trends. So there have been "Lego Star Wars" computer games and "The Simpsons Lego" toys, all of which link products with packaging and promotion across multiple platforms to create a cohesive brand experience.

The strategy arguably reached its climax with "The Lego Movie," which was the highest-grossing film of 2014 at the UK box office.

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