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The Corporation: Strategies
Omnicom: An Empire of Happy Fiefdoms
Its hands-off way with its ad businesses is paying off
Curiously, the man who runs the world's largest advertising network is shy about taking the spotlight. There are no photos of John D. Wren--or any other executives--in the annual report for Omnicom Group Inc. After almost four years at the helm, Wren has yet to address such prestigious gatherings as the annual meeting of the American Association of Advertising Agencies. They have asked, and he has turned them down. "We don't promote Omnicom," he says. "We promote our brands." Even when Wren's eyes dart to a TV screen in his office, it's not to critique an ad, such as the funky "Whassup?" spots that DDB Worldwide, an Omnicom agency, created for Budweiser. Rather, Wren has been distracted by the Omnicom stock price flashing across the screen.
It's easy to see why. Investors fell in love with Omnicom last year, bidding its stock price up 72%. Wall Street applauded each time Wren added to his loose federation of agencies, Internet firms, and niche-marketing outfits, reaching as far afield as Scirex Corp., a pharmaceutical researcher, and Cone Inc., which promotes such causes as human rights and cancer prevention. Omnicom was among the first to see the potential of dot-com advertising and to understand that the growth of traditional advertising was being overtaken by nontraditional marketers. And the company's hands-off approach to its diverse units made it the industry's acquirer of choice. The strategy paid off in a rich mix of services--and a growth rate that's the envy of Madison Avenue.
Wren, 47, shows no signs of closing his wallet. In March, he snapped up Washington Speakers Bureau Inc., which books celebrities on the lecture circuit, as well as acquiring a stake in recruitsoft.com, which sells online hiring systems. Now he wants to make a bigger push into marketing and niche services, make more Net investments, and expand overseas. Last year, nontraditional marketing accounted for more than half of Omnicom's $5.1 billion in revenue, which increased 20% from 1998. Net income grew an average 27% for the past three years, to $362.9 million in '99.CREATIVE TYPES. In an age when a growing number of clients want seamless marketing and advertising services, Wren is increasingly concerned with finding ways to get the Omnicom family to work together. In February, he took the first steps toward streamlining the U.S. media-buying operations of the three ad-agency networks. But Wren knows he has to move cautiously. This is an empire of creative types who didn't sign on to have a layer of oversight imposed on them. "The people who work here are entrepreneurs. They don't like bureaucracy, and they like to move fast," says Thomas L. Harrison, chairman and CEO of Omnicom's Diversified Agency Services unit, who sold Wren his health-care marketing company in 1992. "It's a strength for Omnicom to maintain its distance," adds Allen Rosenshine, chairman and CEO of BBDO Worldwide, one of Omnicom's big ad agencies, along with DDB and TBWA Worldwide.
Besides, investors would also balk at any move that was perceived as reining in the company's nimble culture. The stock trades around 92 today, off from its all-time high of 107 7/16 last December--but up about 250% from three years ago. "They've done by far the best job in the industry," says John Richardson, a portfolio manager at Munder Capital Management in Birmingham, Mich., which owns 1.2 million shares.
Ironically, Omnicom was formed in 1986 to avoid a merger, when DDB Needham and BBDO Worldwide combined to ward off the acquisitive Saatchi & Saatchi. But under Rosenshine, its first CEO, the new company became known as an active but selective acquirer. That strategy was continued under Bruce Crawford, who took over from Rosenshine and remains chairman today, and Wren, who became CEO in 1997. Today, Wren estimates that he has turned down 12 Net companies for every deal he has done. "It's the old GE/Jack Welch desire," he says. "We don't want to have the fifth and sixth player in our portfolio."
The success of Omnicom's Web portfolio is probably the biggest reason why its stock took off last year. The company's early, $150 million investments in public and private companies such as Agency.com, Razorfish, Organic, Latitude 90, and Red Sky Interactive, which sell or design Net ads, are now worth more than $2.5 billion. Omnicom has an investment company, Communicade, devoted solely to spotting sexy Net plays."I WANT A STAKE." A former management consultant who once ran a chain of roller-hockey rinks on the side, Wren often jumps in as chief recruiter. Ten months after he started Agency.com in early 1995, co-founder Chan Suh got a phone call from a big communications holding company he had only barely heard of. Soon after, Wren and two senior Omnicom execs paid a personal visit. At Agency.com's cramped office above a loading dock, Wren cut to the chase. Suh recalls: "We spoke about philosophical things, then John said, `I want a stake in your business."'
What followed was cash--a $12 million investment that proved to be worth almost half a billion when the company went public recently--but also market intelligence and advice about handling growth, Suh says. That speed and hand-holding has enabled Omnicom to outrace other ad outfits to the Internet, says Karen Ficker, managing director at ING Barings: "Wren was early in moving from the offline to the online world, and he went there in a big way."
With an ever-widening mix of specialty companies, Wren hopes to increasingly sell Omnicom as an integrated supplier of one-stop advertising and marketing services. Last year, Mercedes-Benz, which had used Omnicom's Rapp Collins Worldwide for its direct-marketing business, offered to give Omnicom its ad business as well if the company could handle all of its marketing needs. A team of executives from Rapp Collins, promotion giant Alcone Marketing Group, and other Omnicom units came together to win the business.
Omnicom took another step toward integration when it created a separate U.S. unit, called OMD USA to pool the media services of its three ad-agency networks. With one organization to buy media time for all of its clients, Omnicom has more leverage with vendors.
But Wren is unlikely to push integration much further. Besides mandating quarterly meetings and networking seminars that bring top execs together, he rarely takes steps to force team play. That's how the heads of the far-flung units like it. But the downside is that Omnicom doesn't offer clients anything like the exhaustive study of 8,000 brands that Britain's WPP Group makes available to member companies. That hands-off approach has some competitors scratching their heads. "They're like a conglomerate of all these isolated parts," says an exec at a rival. "You have to wonder why Omnicom itself exists if it's not adding value to its parts."
Omnicom insists that integration is happening almost by osmosis. The company points out that last year, 85 of its top 100 ad clients used three or more Omnicom companies, up from 12 in '93. "I don't believe for a second that there's ever been a client that hired Omnicom," says Wren. "They've hired our individual companies." Omnicom wants to keep hauling in the money without any of the hype.By Diane Brady in New YorkReturn to top