J. Walter Thompson and Ogilvy & Mather share a common owner, Britain's WPP Group PLC, and it is turning out to be one demanding parent. WPP is saddled with $600 million in debt after acquiring the agencies in 1987 and 1989, respectively. Although WPP restructured the debt in April, investors have forced down its New York-traded stock from 21 to 4 in the past year, and the company has been plagued by rumors of a coming cash crunch. Now, as an ad recession pummels profits, WPP is demanding that both shops cut costs. At Ogilvy, the strain has hurt morale and threatened some big accounts. Thompson has already cut costs to the bone, but the pressure is unrelenting. Here's how both shops are weathering the storm.
JWT: FRAYING CARPETS AND FRAYED NERVES
If J. Walter Thompson Co.'s executives sympathize with their embattled colleagues at Ogilvy, it's because they went through similar agony just four years ago. Thompson's costs were bloated, clients were starting to leave, and staffers wondered whether JWT would ever regain its prestige. To top it off, Martin Sorrell swooped in and acquired the 127-year-old agency in Madison Avenue's first hostile takeover.
Now, as the recession batters Thompson, its managers are drawing on the difficult lessons they learned while whipping their agency into shape after the WPP acquisition. "What's important is that all of our key players have gone through something much heavier than the recession," declares James B. Patterson, JWT's No. 1 creative executive.
WPP's tight financial controls have already worked big changes on the agency's free-spending ways. Thompson's chairman used to command a dazzling view of an interior atrium from a plush office that staffers dubbed the "glass palace." Burton J. Manning, the current CEO, runs Thompson from a functional office, while employees talk about raising money to replace the agency's frayed beige carpeting.
BALANCING ACT. Despite all the economies, the agency is struggling as reduced spending by clients such as Bell Atlantic Corp. cuts into margins. Analysts estimate JWT's revenue dropped about 2% in the first half of 1991 compared with last year. Thompson's 1990 pretax profit margin of 10.1% fell short of WPP's goal of 11%.
Now, with most of the draconian cuts already made, Manning is balancing his austerity program with a need to keep up employee morale and maintain the quality of JWT's advertising. He acknowledges that's no mean feat: "In the agency business, there's a point after which cost-cutting damages the fabric." So he has cut accounting and legal staffs rather than the creative or account teams. These departments helped Manning pull off JWT's recovery after the takeover by luring new business and producing slick ads for clients such as Lowenbrau beer.
Thompson's work for clients such as Listerine remains strong. But its new-business efforts have mostly stalled. Worse, the agency's Los Angeles office has been hit by a devastating string of account losses (table), while its Chicago agency has been mired in a slump. Patterson says he was unhappy with the leadership at the office, which now has a new general manager and creative director. He says clients lost confidence in Los Angeles after it resigned the Bally's Health & Tennis account when it couldn't agree on compensation.
That's why Thompson exulted last month when Northwest Airlines Inc. awarded it the bulk of its $90 million account. Along with Ogilvy and two other agencies, Thompson will create a unified global campaign for Northwest. That means, for example, that Thompson could find itself producing commercials based on an Ogilvy strategy. Christopher Clouser, Northwest's advertising chief, says he discussed the unorthodox arrangement with Sorrell, who assured him that both shops could make it work.
TOP-HEAVY? Clouser also says he will pay close attention to changes in staffing at Thompson, which, like Ogilvy, has lost several executives in the past month. One industry headhunter says Thompson's staffers are frustrated by the agency's top-heavy management.
But Thompson isn't suffering the sort of talent drain that afflicts Ogilvy. Executives familiar with both say that's because Thompson isn't feeling quite as much budget pressure. They credit Manning's leadership and forceful style in negotiating profit targets with WPP. "The philosophy on their side is `demand the outrageous,' " explains Manning. "On our side, it is `give the least.' "
Manning's in-your-face style hasn't shielded JWT from the recession. But by learning how to maneuver inside a penurious holding company, he has persuaded Thompson's battle-scarred veterans that there is life after a takeover.
J. WALTER THOMPSON 1990 worldwide billings: $4.62 billion Current U.S. billings: $1.9 billion (est.) Key account moves: Lost Twentieth Century-Fox Film ($35 million) and Vons supermarkets ($20 million); resigned Bally's Health & Tennis ($60 million); won most of Northwest Airlines' account ($80 million) DATA: COMPANY REPORTS, ADVERTISING AGE, ADWEEK