Dear Commercial Acuman...

Dear Commercial Acuman...
What can I expect from 2016 and what should I be doing? - Agency CEO

“More of the same” is probably the most insightful answer; it’s also what WPP’s Martin Sorrell expects for 2016, too. A recent straw poll of key IPA FDs and CEOs shows that revenue is a key driver (no surprises there) with most people expecting 2016 to be the same or better than 2015, and that managing staff costs remains an issue (ditto).

In the case of staff costs, these will continue to be driven by two cyclical factors; an improving economy translates into higher employment levels generally and therefore increased staff costs.

Secondly, lower recruitment during the recession means that there is now a shortage of staff with between three and six years’ experience – again leading to more-acute salary inflation at these levels.

Intriguingly, industry CEOs and CFOs did not cite staff cost pressures as a key feature of 2015 – perhaps it has just become part of the fabric of everyday agency management – but, rather they highlighted on key external trends:

  • Tech: digital, data and fragmentation (for more specifically on tech, read Tom Goodwin's predictions)
  • Clients: procurement, volatility and demands (of all sorts)
  • Industry shifts: production de-coupling and smart production

The general feeling for 2016 seems to be optimism; whilst 45% of respondents feel that 2016 will be slightly better than 2015 for the industry generally, a much higher figure (74%) expect the year to be better specifically for their agency.

Do they have cause for this optimism - or will 29% of them be proven wrong? Perhaps only time will truly tell but the implication is that they have used the opportunity of a benign 2015 to put measures in place to take advantage of what 2016 brings.

Recent research from Chartered Accountants, the ICAEW suggests that the key focus for UK plc generally is the state of the UK economy, rather than the bigger-but-further-off issues like geopolitical instability and the Chinese economy. This differs from the Chancellor’s view, but there may well be political reasons behind that.

In the near-abroad, Europe provides both the good news (a boost from Euro 2016 in June) and the less-good (increased uncertainty given the EU referendum).

They key learnings from a review of 2015 are that to thrive in 2016, you will need to do the following:

  • Remain relevant to your clients’ business; this means understanding how the client’s business works at least as well as knowing how advertising works.
  • Cope with the pace of change; the only new thing about the current pace of change is that it is increasing. Agility, flexibility, constant innovation and nimbleness are key.
  •  Deal with the constant squeeze between client demands and salary inflation; this comes back neatly to the first point about remaining relevant to clients and providing value. A focus on value should also translate into agency business models and pricing strategies – life will not get any easier for those who continue to plough the furrow of cost-plus pricing models.

As an industry, our role is to create value for our clients; we need to start quantifying that value and taking a share of it as our remuneration, in the same way that recruitment, financial services, estate agents and management consultants do.

In this context, good agency financial management is a hygiene factor; agency staff need to be proficient in finance admin and working capital management. But these are thresholds, not game changers; consultative selling and negotiating skills, project management and innovative pricing strategies are the levers to realising value.

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