Thursday, 9 July 2009

P&G's Working Hard to Kill the Dinosaur Agencies!

Comment to Creativity Online article: "Industry Reacts to P&G Preferred Vendor Proposal"

In their on-going drive to please shareholders, globalized conglomerates, led by P&G, are forgetting the most simple driver of really fundamental innovation in the realm of business: large profits. All these companies got started with large profit margins on a few innovative products, even if they were relatively mundane by today's standards ("Ivory bar soap -- 99 & 44/100ths% pure, so pure it floats!"). As their profits have been whittled down over the decades and shareholder pressure to institute processes like the Procurement Dept. and the CFO, they've begun trying to force all the suppliers they work with to adopt their own business model and first reveal their profit margins, then force them to whittle these margins down.
This process began with the ad agencies and production companies back in the mid-90's and is simply accelerating, even as we see the results have virtually killed the ad agency industry by fragmenting it into smaller 'speciality' shops, each of them trying to leverage new technology and media as a way to generate huge margins (web design firms were enjoying 90% margins in the early days). The point is, and is raised in the article above, that the really creative people will follow the money.
CMO's are now "disappointed" with the quality of the creativity they're seeing in marketing recruits. Why? Because the really brilliant creative thinkers all migrated from the agency/marketing world to the financial services sector over the past 10 years as compensation sank in the former. Top production companies make miracles happen in video advertising because they have the opportunity to make large margins sometimes (because it's a high risk business, more often they either break-even or take a loss). 

The business model change that P&G is leading in forcing through is only going to accelerate the decline of marketing as we knew it -- the really creative folks out there will continue to find new ways to lead the industry with high margin concepts, but P&G may well find that, by tying themselves to making devastating financial changes to proven effective business models, they are only self-righteously strangling the golden goose that they rode to their current heights of success.  

“It turns out the rule ‘Large and disciplined organizations win’ needs to be appended: ‘ games that change slowly’. No one knew until change reached sufficient speed.” VC Paul Graham, WIRED, June '09

There is fundamental change happening under their feet that even extremely smug firms like P&G don't 'get' yet. They speak to it, but it is not in their DNA and an ice age is here, as I've touched upon repeatedly. 

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