Ad agencies share services to cut expenses

Ad agencies JWT, Ogilvy and Grey International have more than a parent in common. In India, at least, executives from these agencies fly the same airline, stay in the same hotel chains or send documents through the same courier company.

As the Rs 16,000 crore (Rs 160 billion) advertising business continues to battle shrinking commissions and hence margins, the industry is discovering the virtues of shared services. Picking up from global cues, various advertising networks like WPP, Publicis, Omnicom and IPG have started sharing common services across group agencies within the network.

Sometime back, Publicis set up a common resources unit with its headquarters in Mumbai to handle backend functions for all the group agencies like Leo Burnett, Publicis India, Saatchi & Saatchi and Zenith Optimedia.

Another network, Interpublic Group has already linked its group agencies Lowe (formerly Lintas), FCB Ulka and McCann Erickson to take advantage of a unified travel services and avail better travel fares. The network is in the process of repeating this effort in the hospitality sector and procuring stationery for agency offices.

The WPP group that includes the cream of Indian ad agencies like Ogilvy and JWT (previously called HTA) among others in its network, claims to be the first advertising network to have given shared services a serious look a couple of years ago.

Even as WPP group agencies compete externally for a larger share of client businesses, they kiss and make up in the backend when it comes to managing expenses. The savings through this initiative go straight to the bottom line.

Ranjan Kapur, country manager, WPP India, said the WPP network takes care of the airline travel, hospitality and even courier requirements of its group agencies, by entering into exclusive deals with airlines, hotel chains and other service providers. Group agencies use only the empanelled airline, hotel or courier for their operations in return for a better bulk discount rate.

Kapur said the benefits have been significant but refused to give out financial details on savings. He, however, said in certain cost heads like courier services for instance, the network has been able to shave costs by as much as 70 per cent. "We can claim to have the best rates in the industry," he said.

Similarly, the Interpublic Group has already moved to a common negotiated rate for airfares across group agencies.

Nagesh Alai, executive director & group CFO, FCB Ulka said "The common airfare rate has resulted in a 5-7 per cent reduction in costs. We are now working at implementing this in other areas like hotel rates and stationery among others."

The Omnicom agencies -- RKSwamy BBDO, TBWA and DDB -- do not have any similar arrangement. Sundar Swamy, CEO, RK Swamy BBDO, said there was no plan to having any kind of shared service or resource base. However ad industry insiders say that the Omnicom group is in the midst of launching its shared services initiative.

Internationally, most networks have a system in place through which they negotiate for better deals on software and real estate.