Credit David Bell with trying hard to set the right tone as he embarks on what has to be the toughest job in advertising. Even as he works furiously to raise cash for his debt-burdened ad agency conglomerate and to keep clients from fleeing, the new chairman and CEO of Interpublic Group (IPG
) has found time to visit his far-flung operations and to issue a stream of memos reassuring the troops that theirs is not a lost cause. "Again and again, I've been asked, 'Does the holding company model make sense any more?"' Bell writes in one memo. "I emphatically believe that it does."
In Bell's view, IPG has never really had a chance to demonstrate how its many advertising and marketing properties could work together. A late-'90s buying binge left the conglomerate struggling with massive debt and lingering accounting problems -- issues that have sapped resources.
But in fact, the IPG parts are unlikely ever to mesh the way Bell envisions. The idea that clients would embrace "one-stop shopping" for advertising, packaging, and promotions has turned out to be a pipe dream. Although it sounds simple enough to have sister companies working in concert for clients, in reality IPG's units have fought the idea tooth and nail. Indeed, opposition to the strategy is widespread among IPG execs. Meanwhile, the other supposed benefit, that nonadvertising marketing outfits would provide a hedge against the notorious down cycles in the ad business, has also proved elusive. During the recent downturn, many of those shops suffered far more than the ad agencies.
That leaves IPG with an unwieldy, structure -- it bought more than 300 properties in five years -- that is almost unmanageable. "There was no real vision of the role of Interpublic," says an IPG agency head. "It was just a roll-up." The $6.2 billion company isn't likely to shrink back down to just a handful of agencies anytime soon. But the sooner Bell gets around to selling his losers, consolidating the rest into far fewer "brands," and turning them loose to pursue their own clients, the better.
It's easy to see why Bell still believes in the holding-company model. After all, he ran a pretty good version of one while CEO of True North Communications, though that was a much smaller operation. In 2001, IPG gobbled up True North for $2.3 billion. The deal added global network Foote, Cone & Belding, to IPG's stable, which already included McCann-Erickson Worldwide and dozens of smaller agencies. IPG had spent the previous three years buying up everything from public-relations and sports-marketing outfits to package-design and brand consultancies. It even added an auto-racing circuit, Octagon Motor Sports, which is now bleeding cash.
Because it paid boom-era prices to assemble its empire, IPG built up a crushing $2.9 billion in debt. Throw in the recent ad recession, and IPG had what Bell calls "a perfect storm." The company lost $534.5 million in 2001. It managed a $99.5 million profit last year, but its share price has tumbled 70% in the past year -- from 34 to 10. CEO Bell took over on Feb. 28, when his predecessor, John J. Dooner Jr., was sent back to run McCann.
That brush with disaster should have been enough to persuade a new CEO to unravel this mess. Instead, Bell sees IPG's problems as those of execution, not structure. "In the recent past, we've not necessarily been practicing the model well, but the model is not broken," he insists. Instead of looking for a new strategy, he has focused on pruning debt, successfully pitching an $800 million convertible-debt issue last month. He may raise a further $500 million or so if he close a deal for research unit NFO WorldGroup.
That will give him some breathing space to address the longer-term issues. He's about to unveil a suite of governance initiatives aimed at preventing a recurrence of the accounting abuses that forced IPG to restate $181 million in income over a five-year period, mainly because McCann-Erickson WorldGroup misallocated expenses. He is combining some operations of two ailing units, ad agency Lowe & Partners Worldwide and direct marketer DraftWorldwide. Bell also plans to create a new position, chief collaboration officer, and to offer managers greater rewards for steering business to fellow IPG units.
The problem is, even many of Bell's own operating managers aren't buying his synergies scenario. They say the only way they can succeed in their creative businesses is by operating independently, forming fluid relationships as needed with clients, production partners, and media. That leaves no room for forced collaboration, they say.
Many have also concluded that the wide cultural gap between the advertising and nonadvertising units is unbridgeable. Nonadvertising shops feel they waste precious time being hauled into pitches as window dressing for agencies whose unspoken priority is to sell expensive TV commercials. And ad agencies barely suppress their disdain for holding-company siblings. Clients have their own ideas. They overwhelmingly believe that their job is to select the best talent in each discipline, regardless of what outfit owns it.
Bell truly believes those clients can be turned around. He points to Bank of America Corp. (BAC
), which last fall placed nearly all of its marketing business with IPG -- 16 different units in all. BofA's chief marketing officer, Catherine P. Bessant, says she's thrilled that the bank now can communicate with customers in a consistent voice. But even Bessant doesn't expect many marketers to go so far with consolidation. "It's not for the faint of heart," she says. "We're probably the first company of our size and scope that went after [integration] since IBM." IBM made its move to consolidate its marketing activities at Ogilvy & Mather way back in 1994. At some point, Bell may have to face the idea that for all his enthusiasm and incentives, this is one product that just won't sell.
Khermouch covers marketing from New York.
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