The Myth Of Synergy

Marcom practitioners, even the very best ones, face certain pressures, which, though not unique, are more acute than in most other businesses.

Agency/client relationships are never permanent, and even the best work wears out. As a result, practitioners constantly sell, resell and defend their ideas in order to win new assignments and keep the ones they have. The contracts between practitioners and clients merely memorialize certain business practices, such as billing procedure and confidentiality; they cannot compel a client to continue using a practitioner’s services, nor can they guarantee that the work will be acceptable to the client.

This makes the marcom industry seem insubstantial, almost flighty. That’s a misconception, but it persists and is enough to scare some investors away from agency stocks: “How can I buy into this business when the clients just come and go?” It also explains why there is so much ego; a well-developed sense of self-worth is required for survival in the face of the constant challenges.

Over time, though, the truly successful shops reveal themselves. They forge strong client relationships, win a disproportionate share of new-business pitches, attract and retain the best professional talent. Some companies just come up better and stronger than their peers, however you measure it. And some agency-company shares have performed quite well in the market over time.

There’s an idea out there that a marcom holding company with star-performing components can enhance its financial performance if the subsidiaries work together closely and cross-sell each other’s specialties. The idea has been around for more than 20 years, and it may actually be valid. But though it’s a common promise in business plans and MBA theses, it’s rare in actual practice. The marcom jungle is not a great place to hunt for synergy.

Twenty-plus years of failure should be enough to make us suspicious about the idea’s validity. Why, though, does something that looks so compelling on paper poop out in practice?

Smart marcommers know that their livelihoods hinge on maintaining strong relationships with the key client decision makers. These relationships create at least the opportunity for a well-embedded practitioner to introduce a co-subsidiary to his or her clients.

But the risk/reward ratio discourages such a step. Let’s say the newcomer “fails.” It will reflect poorly on the referring practitioner and might jeopardize the all-important relationship. More subtly, let’s say the newcomer succeeds. That may result in more of a client’s finite marketing budget shifting toward the new discipline and away from the referring practitioner’s. A few successes like that can put you out of business. So there are at least two ways for a referring practitioner to lose and no foolproof way to win. There is undeniably an ego factor at work, too. “If I help someone else look good, does that make me look less good?”

These inhibitions are compounded when a holding-company subsidiary is still in its earnout. It’s ironic that holding companies make acquisitions to add to the service menu they show clients, yet the deals themselves can work against the multicourse sale. Acquisition agreements often make it very difficult for a parent company to compel an acquired unit to do anything that might interfere with the subsidiary’s ability to maximize its own profits—and, hence, its earnout—regardless of the profit implications at the parent- company level.

Will this ever change? Maybe. But the push to change will likely come from clients, not agencies. Indeed, a few big clients have sought an aggregation of marcom services from one or another holding company; it keeps costs down, since the holding companies bid aggressively for these rare plums. Selling on price is a tactic with its own special dangers; still, done right, the holding company can benefit. First, it generally costs less to provide one more service to a client already on the roster than to a new one—thus, the profits on a multiservice account can be “normal,” even if the resulting revenue is a little low. Second, the more services a client buys from one seller, the harder it would be to disengage, although any client can be lost if you screw up enough.

Marcom history and second-grade arithmetic teach us that making one plus one equal three is tough. Be happy if the answer is even close to two.