Tony Miller calls it a "delicious irony." On Sept. 2, the chairman of Lintas New York announced that his giant ad agency would create a new shop to cater to one client: IBM Personal Computer Co. As it happens, the new agency will have offices in the same building as Chiat/Day Inc., the fabled creative shop that made none other than Apple Computer Inc. synonymous with audacious advertising.
Apple, though, eventually outgrew and fired Chiat. And Lintas now faces a similarly grim fate with IBM: The company has put its PC account up for review. What's more, one of the prime contenders for the domestic portion of the $80 million account is--guess who?--Chiat. Well, maybe it's not such a delicious irony after all.
Nevertheless, Miller hopes the new shop will convince his wayward client that Lintas is capable of real change. And Lintas is not alone. DDB Needham Worldwide Inc. and McCann-Erickson Worldwide also have recently spun off satellite shops (table). They argue that it's a smart way for a big agency to offer the nimbleness and personal service of a small shop.
Critics say spin-offs are a gimmick. Most of the new shops must still rely on the parent agency for important functions, such as market research and media buying. And coining a new name is not the same thing as building an ad agency from scratch. Madison Avenue, they say, has forever sold products by pouring old wine into new bottles. Now, it is simply selling itself the same way.
No question, advertisers are increasingly put off by the scale and anonymity of big agencies. Years after the mergers of the 1980s, many find that ad executives focus more on their far-flung empires than on their clients. Agency "managers have become preoccupied with the problems of running multinational companies," says Bruce Crawford, chief executive of Omnicom Group Inc. When clients get into trouble, they tend to zero in on this lack of involvement as an excuse to switch agencies.
Even IBM insiders say Lintas did a respectable job of promoting the company, with slogans such as the current "Human by design." But with $1.7 billion in billings, Lintas is handicapped by its sheer size. As PC Co. has become a more free-standing and entrepreneurial unit, it has grown restless--and Lintas has come to look as stodgy as Big Blue. "They're much less formal than the IBM of old," says Miller of his client. He wants his satellite shop, which has the odd name of L2, to mirror this change.
Lintas also couldn't help noticing that one of the other finalists in the IBM review is a spin-off: Merkley Newman Harty, which Omnicom carved out of one of its subsidiary agencies last April. With only eight clients and $55 million in billings, Merkley could offer PC Co. the lavish attention it craves. That's the appeal of a small agency, says IBM spokeswoman Liz Arends: "To keep the account, they'll work a lot harder."
Spin-offs aren't an entirely new concept. Saatchi & Saatchi Advertising Worldwide created a separate agency to handle Toyota Motor Corp.'s Lexus luxury-car division back in 1987. The agency, called Team One, now has a dozen other clients and billings of nearly $200 million. What makes the more recent shops different is that most were created in response to tensions between agencies and clients.
DDB Needham Worldwide Inc., for example, has promoted Volkswagen since 1959 with such legendary slogans as "Think small." But lately VW sales in the U.S. have skidded, from 141,381 units in 1987 to 75,872 last year. Dealers began howling for the agency's scalp. "A staleness set in," says Stanley Greene, president of Trend Motors, a dealer in Rockaway, N.J.
Andy Berlin, the ambitious president of DDB's New York office, scrambled to assuage Volkswagen. He dumped the agency's whimsical four-year-old slogan, Fahrvergn gen, in favor of "The most loved cars in the world." And he put new creative executives on the account. None of it mollified the dealers. "Volkswagen wanted a new agency," says DDB Chairman Keith L. Reinhard. So finally, he gave it one, starting a separate agency with Berlin as chairman to handle the $75 million VW account.
DUAL ROLE. DDB executives insist the new agency, called Berlin Wright Cameron, is not merely a cosmetic change. For one thing, Berlin and his partners will have equity stakes. Also, the agency will have separate offices, although insiders say DDB may still buy commercial time for Volkswagen.
Reinhard may have taken his cue from McCann-Erickson, which tried a similar strategy with GMC Trucks in 1991. Like Volkswagen, the General Motors Corp. division had grown restive with its agency. Many GMC dealers felt McCann was devoting more energy to GM's Buick Motor Div. GM began giving marketing assignments to outside agencies. So McCann set up a separate agency in Troy, Mich., called Strategic Advertising Services, for the sole purpose of working on GMC Trucks.
With 80 employees, McCann/SAS resembles a traditional shop, with its own creative, media, and account departments. But it also can draw gn the parent agency, say, by taking advantage of its clout as a media buyer. One untraditional move: McCann recruited GMC marketing executive Candace Robbins to run SAS, and she remains an employee of both client and agency. Such an arrangement, say McCann executives, avoids the diverging agendas that can sunder client relationships: "There is no longer any 'them' or 'us.' There is only 'us,'" says McCann Vice-Chairman Sean K. Fitzpatrick, who oversees SAS.
Togetherness has its rewards. Sales of GMC Trucks rose from 303,534 units in 1991 to 359,365 last year, after dropping sharply the previous year. Although the economy clearly helped, Robbins says GMC was also buoyed by more focused advertising. Fitzpatrick is so enthusiastic about the spin-off idea that he tried a similar gambit to grab GM's Oldsmobile account earlier this year. After a lengthy review, Olds decided to stick with incumbent Leo Burnett Co.
Agency spin-offs can also be a way to hold onto restless staffers. Colleagues say Berlin was chafing at the bureaucratic constraints of DDB Needham. Giving him his own shop was a way for the agency to keep a talented employee who insiders say might otherwise have bolted. Similarly, forming Merkley Newman Harty was one way Omnicom enticed Parry Merkley, a highly regarded creative executive, to come over from rival Ogilvy & Mather Worldwide Inc. Merkley says he was weary of a big agency, as were his partners, Jane D. Newman and Steve Harty.
PROUD PARENTS. Spin-off shops have plenty of critics. Some say agencies are diluting their talent pool by siphoning off stars for one client. Others think these shops allow agencies to paper over problems that got them into trouble with clients in the first place. Says marketing consultant William M. Weilbacher: "I think it represents some fancy footwork on the part of the agencies."
The offsprings' proud parents claim they had little choice. DDB Needham and McCann would probably have lost their clients without such a move. Lintas may still lose IBM. But with PC Co. singing the virtues of independence from Big Blue, Lintas probably figures: In advertising as in life, imitation is the highest form of flattery.
AGENCY OFFSPRING Key spin-offs of large advertising companies Parent agency Spin-off Year founded Key account SAATCHI & SAATCHI Team One 1987 Lexus (Toyota) McCANN-ERICKSON McCann/SAS 1991 GMC Trucks LINTAS L2 1993 IBM PC Co. OMNICOM GROUP Merkley Newman Harty 1993 WordPerfect DDB NEEDHAM Berlin Wright Cameron 1993 Volkswagen DATA: BUSINESS WEEK