Leo Burnett's Slow Mo' Makeover
For the first mile or so of his Sunday morning jogs, Leo Burnett Chief Executive William T. Lynch barely hangs on as Kelsey, his yellow labrador, drags him along by the leash. By mile three, though, Kelsey's tongue is hanging out and her brown eyes are pleading for mercy while her master pulls ahead. "I look over and say, `I got you again.' She just can't pace herself," the lanky ad man explains.
Lynch relies on the same kind of long-distance thinking at the office, where he runs the nation's largest independent ad agency. The privately held Chicago shop, where Lynch has spent his entire career, has become an icon by maintaining a folksy Midwestern image that would embarrass hipper agencies. In a business where loyalties shift as fast as the latest consumer craze, 30% of Leo Burnett Co.'s heavyweight clients have been on the roster for 30 years or more. Same goes for its employees: "Burnetters" often stay for life. Fads such as adland's merger mania of the late 1980s never seem to interest the folks at 35 West Wacker Drive, the 50-story office tower where Burnett concentrates all its U.S. operations. And the campaigns endure--from Tony the Tiger and the Marlboro Man, both of which first appeared more than 40 years ago, to the lonely Maytag repairman and the friendly skies of United.
Just one problem: Old formulas don't fit the ad game these days. Clients pushing for instant results are demanding more, paying less, and dumping agencies more quickly than ever. Suddenly, Burnett, which has prided itself on the strength of its client relationships, finds some of its most important accounts in turmoil: Reebok and Miller are second-guessing Burnett's work; McDonald's has carved off key assignments for rival agencies; and tobacco ads for Philip Morris are in jeopardy from government regulation. Worst of all, its 30-year relationship with United Air Lines Inc. hangs by a thread, with the carrier expected to reassign the $100 million account any day.
A RIGID CULTURE. That has forced the soft-spoken Lynch to become an unlikely agent of change at a 61-year-old shop known for its entrenched bureaucracy. With a grim portrait of legendary founder Leo Burnett scowling down from his office wall, the 53-year-old Lynch has accelerated international expansion, stepped up a once plodding new-business effort, and retooled his staff's creative approach. "The environment is tough," Lynch says. "It's not going back to the way it was. You have to adjust and try to get ahead."
Even so, some rivals and former Burnett execs say the reforms aren't coming fast enough. For too long, they say, fat times and a rigid culture masked the need for assertive management at Burnett. Lynch may be moving in the right direction, but the methodical pace he is setting could relegate his agency to a future of playing catch-up with more aggressive shops. While it remains a powerhouse--global billings approach $6 billion--Burnett will pay a price in higher costs and client woes for its legacy of "comfortable arrogance," suggests Alan Pilkington, chairman of Burnett rival DDB Needham in Chicago. "It's not a lean fighting machine," he contends.
Partly, that's because it doesn't have to be--at least not yet. As a private company it doesn't have to answer to outside investors. Most of Burnett's biggest competitors have long since forsaken that luxury. Seeking funds for growth, many have organized into global networks within publicly traded holding companies. Even independent-minded Young & Rubicam took a step in that direction this summer, selling a minority stake to San Francisco buyout firm Hellman & Friedman.
With top agency stocks trading at rich price-earnings multiples, a stock offering by Burnett, with its blue-chip clients and strong track record, would "truly be a gold mine," says Donald E. Rutz, a senior partner at competing agency Bozell Worldwide Inc. "There would be a run on that stock." The ability to issue shares would also give Burnett a strong currency for buying other agencies. But don't look for Burnett to cash in anytime soon. Lynch believes that meeting Wall Street's demands for double-digit annual growth would distract senior management from client service. There would be pressure to acquire another big U.S. agency--and that's not in the cards. "It wouldn't be Burnett," Lynch sniffs.
BUYING PIECEMEAL. He has shown he can make some structural changes, though. Burnett's online advertising unit is about to be spun off as a separate profit center, and other services, such as specialized research and ethnic marketing, may follow. Although common elsewhere, forcing clients to buy such services piecemeal would have been heresy at Burnett just a few years ago.
Some of Lynch's measured changes are beginning to pay off. Although it was slow to expand globally, Burnett now serves 67 countries, up 40% in three years. As client loyalties have eroded, its once sluggish efforts to win new business have picked up momentum. Since Lynch became CEO in 1993, Burnett has attracted 11 major new accounts, including Amoco, Coca-Cola, and the New York Stock Exchange. The agency won over Walt Disney Co. two years ago in part by completing a six-month research project in 90 days. Soon, the firm could be shopping for another major airline to make United sorry if it ends up dumping Burnett.
The agency had better get used to the faster pace. Miller, Reebok, and Oldsmobile are all demanding fresh approaches in the face of lackluster sales. Even secure clients have problems: Kellogg Co. is fighting a penny-pinching price war in the U.S. breakfast-cereal market that's pressuring ad budgets. And Burnett's crown jewel, Philip Morris Cos., faces legislation aimed at all but eliminating U.S. tobacco ads.
BITING ITS TONGUE. Other long-term clients have started slicing up their accounts--shifting ad dollars to other agencies and pitting Burnett against rivals. McDonald's Corp., for instance, which added Needham to its agency roster in 1991, this spring picked Minneapolis-based Fallon McElligott Inc., known as a hot creative shop, for its rollout of Arch Deluxe sandwiches. Burnett has managed to hang tough at McDonald's in part because of a strong tradition of sublimating the agency's ego to that of the client. When press accounts this summer made a Burnett error in media-spending projections sound as though $20 million in cash had disappeared, the agency bit its tongue as McDonald's made the agency squirm. Exceptional ads have cemented the relationship, too, including one TV spot showing a baby's expression change from happy to sad as its windup swing brings the Golden Arches in and out of view. The upshot? McDonald's executives say Burnett is still part of the family. "The relationship is quite good," says McDonald's USA Chairman Jack M. Greenberg.
At heart, the future of Burnett, which has been criticized for lacking cutting-edge ideas, depends on making great ads. And naturally, Lynch has a plan aimed at just that. After a nine-month internal review dubbed Global 2000, Lynch reorganized his staff from separate departments into cross-functional teams for each brand. And he put creative under the leadership of Michael Conrad, who is reworking an onerous internal ad-review process to encourage imaginative efforts. Lynch's measured changes are meant to shore up the agency for the long haul. But as the ad industry evolves--and as clients demand faster results--Lynch could find that while he has trained a first-class endurance runner, the race is turning into a 100-yard dash.