How agencies in developing markets could hang on to their margins.

It’s difficult for those of us grinding away in the recession-ridden Western marketing communications sector to imagine what things would be like if the organisations we worked for operated on a margin of 25%+, but belive me, there are agencies in developing markets for whom numbers like this are all in a day’s work.  That is, of course, why they get bought up by the global networks.  The big deal, though, is that despite these massive margins, many are still struggling to see that money in the bank.  So, where does it all go?

Asking around I’ve developed a league of the top five profit drains in these marcoms companies and I guess they don’t differ from the list I would get in London were it not for the systems and practices in place in western agencies.

  1. Mistakes by agency personnel that lead to expensive corrections, re-prints and the like.
  2. Refunds to clients for mistakes and missed deadlines.
  3. Unauthorised purchases – stuff ordered for jobs that were never started, media that was bought without written client authority.
  4. Accounting errors.
  5. Stuff that client has asked for for “private use” without expecting to pay for it.

All of this comes about because of an absence of foolproof systems.  I heard last week of quite a large Chinese agency network that until recently had absolutely no management technology.   They did have a system and, like many in these countries it was amazing what it facilitated considering everything was done on small slips of paper that were stuck with Sellotape to desks, walls … you name it – not even Post-Its!  It was, apparently, like living in a snow-drift!  Apart from anything else though, it enabled all kinds of avoidance and manipulation by employees at all levels ands as a result the place was a money drain.  The agency in question turned out to be one of the few forward-thinkers who recognised the wisdom, while they could afford it and had the time, of installing the hardware and the systems that enabled it to bank (almost) all of its massive profit.

Normally if you talk to the owner of such an agency about recession even in these times, when you would think that everybody was feeling the pinch, you’d probably find his attention drifts away.  Try and persuade him that the reality of a 5% margin is just around the corner and he’ll likely wander off to buy a Jag or something!  So, a big hand for enlightened agency owners in developing markets.  May your profits be large and untapped!

Much of my work in Central Europe in the last few years has been with agencies like this, although sadly, the heady high-margin days are well gone there now.  I’ve seen a golden goose operating at a 30% margin get bought up by our biggest global network, who promptly cooked it.  I know how it works, but its tough trying to persuade an Indian entrepreneur with a fat cigar that his shiny and profitable ad agency is going to be less than a memory in twelve months time unless he replaces his paper and abacus with some processes and systems, he just can’t visualise fighting for margin or indeed how rapidly this reality can advance.  Sometimes you get half-way to persuading these guys that something has to be done, but your best intentions are scuppered when he introduces his brother the computer programmer, who is put to work on solving the problem and spends the remainder of his natural life developing a programme that does about a tenth of the job.  Worse-still maybe, they opt for an off-the-peg software solution, and there are many, install it on half their network and discover after six months that it isn’t up to the job – I have seen such a case this morning in fact.

The only way to tackle this issues is with a suite of processes and an information application that is installed on every computer on the network and is unavoidable for anybody doing anything in the agency.  There are solutions that can be installed like this, but they are usually accounting packages or production management software that has been adapted and extended.  However, I just discovered one that is designed and developed by advertising people for advertising people to work just this way and I can’t believe why everyone isn’t using it.

I’m going to keep it to myself for now while I test it out, but meanwhile, I’m interested to hear of any others that you may know of that might compete.  Add a comment or drop me a line and I’ll swap you for the name of the one I have found.

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