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Think BR: Is Omnicom losing its way?

The ascendancy of WPP onto the winner's profit podium, flanked by Omnicom and Publicis, raises an interesting question of how Omnicom let it happen, writes Bob Willott.

Bob Willott, editor of Marketing Services Financial Intelligence

Bob Willott, editor of Marketing Services Financial Intelligence

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 No-one would question Omnicom’s solid management style and steady progress over many years, but in the recent past it somehow seems to have been too internally focussed while others garnered a bigger market share.

By comparison with WPP or Publicis, Omnicom has taken a more conservative approach to acquisitions, preferring instead to squeeze profits out of its existing assets and to make relatively modest acquisitions where necessary to fill gaps in its armoury.

Omnicom is well known for its reluctance to pay premium prices for seemingly ordinary companies looking for a buyer. And among the global giants, it is probably not alone in that.

WPP on the profit podium (profit attributable to Ord shareholders in $m)

Meanwhile, as the shape of the marketing agency sector has been changing, Omnicom has appeared nervous about taking bold investment risks.

Perhaps it is still feeling the pain of its dotcom experience. Omnicom was at the forefront of the digital revolution when it was in its early stages.  

It backed a basketful of new agencies - Razorfish, Agency.com and Organic among them - but caught a nasty cold when the initial bubble burst.

Radical financial engineering was used to take the worst effects off the Omnicom balance sheet and the company found itself under attack from potential class actions (albeit ones that were unsuccessful). 

Is that why Omnicom seems to be fighting shy of embarking on adventurous business investments any more?

Of course, Omnicom was not alone in getting caught up in the initial dotcom boom, but it was probably the most deeply influenced by the consequences when the bubble burst.

Interpublic burned its fingers a little by investing in IconMedialabs (now part of LBi International). WPP backed stand-alone digital agencies like Good Technology that made limited progress. 

Only recently has it been recognised that traditional agency disciplines need digital expertise embedded in them, rather than offered as a supplementary skill set.  

That’s not to say that there is no scope for investing in profitable specialised digital businesses - particularly those that exploit a deep understanding of how digital technology can work effectively to enhance marketing programmes. 

Publicis and WPP are benefitting from learning that lesson.

The challenge facing Omnicom is to show that it has a strategy that will embrace and apply evolving skills and technology in a manner that not only ensures that its established networks get the best out of them, but also provides the scale of new profit streams necessary to restore the company’s reputation as the best performing group in the world.

Bob Willott, editor of Marketing Services Financial Intelligence


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