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.
OGILVY: EXITING EXECS AND WORRIED CLIENTS
Gallows humor is the order of the day at Ogilvy & Mather Worldwide Inc. "Want to rent some space?" asks Graham Phillips, who is trying to unload four floors of his spacious new Manhattan headquarters. The excess acreage is costing Ogilvy $4 million a year at a time when the agency's chairman can't even afford such hoary traditions as David Ogilvy's annual $100-to-$300 Christmas bonus to agency employees. "The pain is awful," sighs Phillips. "I look at myself every day in the mirror and say: `Why me?' "
Coming from an adman, such a cri de coeur is shocking. Advertising people usually cling to the belief that any problem can be cured by a big account win or a splashy new ad campaign. At Ogilvy, however, few executives predict a quick fix. Client budget cuts have driven agency revenues down 5% to 10% in the first half of 1991 compared with the same period last year, according to industry analysts. And there are even more ominous clouds on the horizon. The agency may lose longtime client American Express Co., whose $60 million account is one of its mainstays.
AmEx recently asked two rival agencies to come up with new ideas to market its green card. That's a big blow to Ogilvy, whose "Membership has its privileges" campaign helped craft a gilt-edged image for American Express. Now, AmEx is under siege from bank cards and new credit-card purveyors such as American Telephone & Telegraph Co. And the company wonders if its image is out of tune with the sober 1990s.
In a way, Ogilvy's problems mirror those of its client. Two years ago, O&M was the class act of the business: Red carpeting lined its hallways, and its staffers enjoyed equally plush treatment. Then, in May, 1989, British financier Martin Sorrell plunked down $860 million for the agency. Since then, Sorrell's WPP Group has imposed strict financial discipline, leading to staffing cuts of almost 10% at the once paternalistic agency. "We're coming to grips with the end of an old culture and the beginning of a new one," says Bill Hamilton, creative director of Ogilvy New York.
SORE POINT. The recession has made the transition all the more painful. Virtually all of Ogilvy's clients--from Duracell to Joseph E. Seagram & Sons--have reduced their ad budgets. Eastern Air Lines--and its $45 million account--disappeared altogether. What's more, the perception of turmoil at Ogilvy has prompted several clients to consider yanking their accounts. In February, Hamilton says he barely prevented Hardee's Food Systems Inc. from pulling its $80 million account.
As Ogilvy has lurched from crisis to crisis, morale has plummeted. Several senior executives have departed in recent weeks, and one former employee says staffers spend much of their time trading rumors about who's going to walk out next. Ogilvy executives say compensation has become a particularly sore point. WPP's tight financial controls, they say, have prevented it from promising hefty long-term bonuses, such as stock options, to key staffers.
The most visible departure was Gorden S. Bowen, the top creative exec on the American Express account, who left last month to head the Coca-Cola Co. account at McCann-Erickson Worldwide. Bowen's loss has jarred Ogilvy's big client: "Any time you lose a talented person on your account, that's a concern," says an AmEx spokeswoman. Sorrell says WPP still pays out large bonuses.
The agency also chafes at Sorrell's ambitious profit targets. He wants Ogilvy to achieve pretax operating margins of 12%. In 1990, Ogilvy's margin was 10.8%. That discrepancy has led to protracted bickering over costs between Phillips and Sorrell. "It's endless, and it's demoralizing to all the employees," says one former senior executive. Sorrell acknowledges that it will take longer to reach his target because of the recession.
AIR LIFT. To be sure, Ogilvy's malaise hasn't spread throughout its far-flung agency network. While revenue is off in the U. S., Britain, Brazil, and Australia, Ogilvy's other foreign offices have remained strong. And the flagship New York office got a lift on July 23, when Northwest Airlines Inc. promised it the account for the East Coast shuttle it's negotiating to buy from Donald Trump.
To boost the office further, the agency recently named Rochelle Lazarus to head Ogilvy New York. Lazarus, who ran Ogilvy's successful direct-marketing unit, wants to "restore self-confidence." For now, though, she'll spend most of her time trying to salvage the American Express account, which she worked on for 11 years. Lazarus must convince AmEx that Ogilvy can refashion its image. If she can pull that off, Ogilvy will be in better shape to refashion its own.
OGILVY & MATHER 1990 worldwide billings: $4.56 billion Current U.S. billings: $1.6 billion (est.) Key account moves: Lost Eastern Air Lines ($45 million); won Kraft General Foods' Maxwell House Coffees ($80 million), Northwest Airlines shuttle ($8 million); retained Hardee's ($80 million); may lose American Express ($60 million) DATA: COMPANY REPORTS, ADVERTISING AGE, ADWEEK