Paris, London: If there were a single illustration of the upheavals the digital era has forced on advertising, it may have appeared as Publicis told the world that it was going to turn its organisational structure “upside down”.
The Paris-based advertising group, which started life in 1926 and counts heavyweight names such as Saatchi & Saatchi and Leo Burnett among its brands, said that it would regroup its companies into four units: communications, media, digital and consulting, and health care.
The biggest shake-up in more than a decade will also see the appointment of “chief client officers” to present leading advertisers with a single face to access all the group’s services.
“Instead of looking at our organisation through the brands, we decided to look at it through client satisfaction,” says Maurice Levy, chief executive. “We’ve put our organisation upside down to best serve our clients.”
The plan also contained a hint about a central issue hanging over the group: who will eventually replace Levy. The makeover will give enhanced responsibilities to four of the group leading executives — Laura Desmond, Alan Herrick, Steve King and Arthur Sadoun, all members of Publicis’ expanded executive board — creating a potential shortlist of contenders to replace the 73-year-old after he steps aside in 2017.
Few would doubt that Publicis needs a jolt. Poor organic revenue growth over the past year has left many with the feeling that the company did not have a “Plan B” after its much-touted $35 billion (Dh128 billion) mega-merger with US rival Omnicom broke down in May last year.
In October, the share price suffered its worst one-day fall in seven years, as Publicis slashed its growth target following flat sales in September. It said that revenue in the third quarter was 2.3 billion euros, just 0.7 per cent higher than a year earlier and well below the 2.4 per cent that investors and analysts had expected.
At the same time, Publicis and its competitors — all of which reported better numbers — are battling their way through constantly shifting terrain, as the lurch to digital transforms advertising’s traditional business models.
Paramount among their concerns is that digital advertising, which promises greater efficiency in targeting consumers, may spell a secular and downward shift in spending by the groups’ biggest clients.
“The latest buzzword is ‘zero-based budgeting’,” says Thomas Singlehurst, a media analyst at Citi Research, referring to the idea that managers must justify budgets from scratch every year. “Suddenly, there are a big set of challenges for people who used to sit there acting as intermediaries, taking a chunk of spend that was always growing.”
Most analysts have reacted positively to Publicis’s latest plans, pointing out that it follows a wider industry trend to implement a more “client-centric” model.
Bank of America Merrill Lynch said: “Other agencies, such as WPP or Omnicom, are already operating under a similar structure and we believe the move will enable Publicis to be more competitive in the media buying space.”
One of the most important parts of the overhaul is that the group’s media agencies, such as ZenithOptimedia and Starcom Mediavest, will be united under a single business division.
Publicis’s media agencies together rank as the second largest in the world with $79 billion in global billings for 2014 according to Recma, the research company, behind WPP’s GroupM at $106 billion. While WPP negotiates deals with media owners from a central unit, Publicis’s agencies have historically operated with a much lower degree of coordination.
Brian Wieser, analyst at Pivotal Research, says the former structure meant that Publicis’s units “punched below weight in the media marketplace”. The move towards greater centralisation “should lead to an improved relative position versus competitors”.
Publicis is also making a significant strategic change by appointing a number of so-called chief client officers to streamline the way it deals with the biggest clients.
But the company is lagging far behind its rivals. The strategy of giving clients a single point of contact to coordinate activities is well established at WPP, whose chief executive Sir Martin Sorrell refers to the concept as “horizontality”.
Sir Martin says of Publicis’s plans that “imitation is the sincerest form of flattery”. But he adds that a reorganisation is likely not sufficient.
“Strategy is not just about strategy, it’s about execution. This is just shuffling the deck chairs on the Titanic.”
Publicis’s move a year ago to acquire Boston-based digital consultancy Sapient in a $3.7 billion all-cash deal, added yet another layer of complexity to the group’s portfolio.
“Publicis’s acquisitions have been quite ‘out-there’ conceptually,” Singlehurst says. “It’s, ‘Let’s look beyond the media age to where the money coming out of media is going’.”
All of that leaves important questions about how quickly the company can get the new structure to start producing better growth.
As for succession, Claudio Aspesi, senior media analyst at Bernstein Research, believes that announcing a shortlist just 18 months before Levy is supposed to step down could bring its own problems.
“One has to wonder whether there is enough time to effectively appraise the qualities and potential of each candidate,” he says.
He also points out that asking people to compete for the top job while implementing a structure designed to make them work more closely may prove an impossible task. “When human beings see a finish line, they tend to start using their elbows.”
— Financial Times
