Summit panel debates how agencies must change to survive integration (first of three parts).

The theme of the iMedia Brand Summit in Park City, Utah, earlier this month was "The Rise of Integration." Although there were many definitions of integration floating around the thin air of Park City, there was general agreement that it means agencies are going to have to refocus and perhaps restructure to make it work and to meet the changing expectations of brand marketers.

This panel, moderated by Stuart Sanders, founder of the Sanders Consulting Group, included: Rob Norman, CEO of Mediaedge:cia; David Verklin, CEO of Carat North America; Steven Feuling, CEO of Starcom; and Russel Wohlwerth, principal of SelectResources International. Here is the transcript of their discussion.

Sanders: First question for Rob -- let's start at 50,000 feet -- are clients putting more money into advertising this year? Is spending up?

Norman: I guess we're looking at growth in a couple of ways: the organic growth from our clients… although I did note in the journal that our particular organization grew by about 20 percent yesterday, which is going to be difficult to do again next week after WPP acquired Gray. I shall speak to Martin and see what we can do for next week's trick. But generally speaking, I think we are seeing greater investment. And the really good news is it's coming off the back of MPD.

My experience is mostly European, as you can imagine from where I do my work. But we've been through a period of intensive cost cutting in our client companies. And that's been the way they've been shoring up their bottom line in their earnings. But now time is moving on. They've got to find a different way. You can only close the factory once. And what we're seeing is substantial development, new products coming to market. New products coming to market mean advertising has to drive consumer uptake. So yeah, we're seeing very positive shifts.

Sanders: Boy, it's really unfair to have to compete against an English accent, isn't it David?

Verklin: Yeah, it is.

Sanders: Are you seeing more interest in interactive? Is spending going here?

Verklin: First of all, for some of you, just a quick thank you. I spoke at this Summit two years ago and it's an absolute thrill to be back. I think about where we were in the industry two years ago. And I came here and spoke. And we talked about how the on-line medium was frustrated because it was getting a smaller share, 10 percent, remember? 10 percent of the usage was on on-line and only two percent of the spending. That was two years ago. Look at what we're talking about now. Look at how things have changed in 24 months. The answer is… absolutely. The on-line spending is increasing dramatically on virtually all of our clients.

Carat Interactive is having a spectacular run. It's one of the hottest growing and fastest growing units in our company, and in the industry. And you're definitely seeing a shift towards on-line and I'm more than happy to talk to you about where the money's coming from.

Sanders: Good, let's ask Steven that. Where is the money from?

Feuling: I don't think there's any specific rule in terms of where the money is coming from. I think you have to look at it from a category perspective, as well as from a specific advertiser perspective. Some of the more information driven kinds of categories which had relied on print had relied on things like newspaper and magazine, obviously in the past. I think those are… they're starting to switch a little bit more, obviously, aggressively into on-line. But, then again, you're looking at people like the auto industry who specifically stated that they're taking dollars out of television and moving them into on-line. So again, I think there's no one rule; there's no one recipe in terms of where it's coming from. But it's definitely come.

Sanders: For the whole panel: How are each of you handling the interactive space? The first part of that question is: Is it all under one roof, with your regular mass media operation? Is it in a separate department or a separate company, or what? Rob, why don't you start?

Norman: It's a bit of all of that really. It lives very much under the same roof, from a geographic point of view. The way we organize our businesses are to create the best possible interaction between our interactive folks. Now, our general media folks, if you like. But what we have done is we have kept them as a discrete group because we want to hothouse the expertise. And don't want to just dissipate their expertise. And we see it as a real sense of renovation. We see it as a real sense of a development of the whole way we think about that business. And so we have clusters of people around the world. But their job is to drive the whole business forward and to join in that whole decision making process. So the answer to your question is they're together, but they're separate for other reasons.

Sanders: David?

Verklin: We use a similar model. We would call it "the global center of excellence with physical integration." So our strategy is that we've created a business to carry interactive. Many of you know we use a roll up strategy; we buy a lot of companies, two or three companies every year, to roll them up and integrated them within the Carat Interactive business. Yet, Carat Interactive is integrated into every one of our offices and the people are actually interspersed within the off-line group. So we have a center of excellence, Carat Interactive, one company, one P&L. We use both start-ups as well as acquisitions to build volume, as well as win new business. But the people, the Carat Interactive staff, are physically integrated into every one of our offices.

Sanders: Steven?

Feuling: I think we're all the same, but a little bit different, in that, we actually approach it where we do have an umbrella organization called Starcom IP, which is based at headquarters and reports directly into the CEO. But then on a client-by-client basis we have different levels of integration. Some clients the IP group is absolutely 100 percent integrated into the client and essentially reports right through the Media Director. And other clients, at the other extreme, they're still more kind of special project, and then would report directly into the IP function. So again, umbrella organization, but integrated, and the percent of the integration depends really on the client.

Sanders: Russell, you thought you would miss all this, didn't you?

Wohlwerth: I did.

Sanders: Okay. You see both general agencies pitch for business, and you see the media companies -- like up here -- the media agencies pitch for business also. Is there a difference in the way that they each one approach the new business challenge? Or they both treat new business pretty much the same way?

Wohlwerth: Huge difference. A lot of people think of me, by the way, as a divorce lawyer, but I like to consider myself a voyeur, a profession voyeur, because I have the best job in the world. What I do is I watch marketers interact with their communications agencies. And I see laughter and tears and everything in between. And I've got to tell you, my observations of the last 12 to 18 months are the media firms really kick ass in the new business area. They have a clarity of thought. They're all about the business case.

Where creative firms tend to get stuck and mired down in the creative execution issues. And they just don't come off as strong. And what clients are looking for today, I submit is, they're looking for creativity, but they're looking for creativity not in a sense of a creative execution. They're looking for creative ways to go to business. Mini, BMW Films, etc., that's what clients are really looking for.

Sanders: Is the strategic initiative, Rob, shifting therefore from the brand advertising agencies more to the media agencies?

Norman: That's a difficult one because when you use the word "brand" in that, the general ad agencies, the creative agencies, still have a very big role to play. I think one of the key shifts that we're observing the world is so part of is that our businesses -- the three of us in the agency side that sit up here -- serve the corporation just as much as we serve the brand. And what we're trying to do very often and are tasked to do by our customers is to actually say well look, we have to make a profit, we have to make a return on investment for our shareholders this year and every year.

How do we look at our portfolio and look at which parts of our portfolio are going to be most responsive to marketing communications? And you get an interesting situation. You could imagine a conversation between a firm like ours and a Nestle, for example, where you could say if you spend $50,000,000 more on Purina and $20,000,000 less on Stouffer's Lean Cuisine, the net return, the real internal growth of the Nestle Company will be "X" rather than "Y." And I suspect that firms like ours are becoming quite influential and are asked quite a lot of questions like that which as you would describe in general, advertising agencies are not getting asked so much anymore.

Sanders: They probably aren't even part of that discussion. Is this a transformational shift that we're talking about here, something that is sort of once in a lifetime occurrence?

Verklin: Transformational? It's tectonic. It's massive. It's total.

Sanders: How big?

Verklin: I mean it's huge. Look at what's happened. We were the dorks. The media people were the nerds. We were the back of the bus. It was you know, I mean I've done this to you before: How many of you in the media business used to see this all the time? My whole life this is what I saw at a presentation. I mean you're the master in new business. I mean, this was all I ever saw. The last 15 minutes of a new business presentation was the media guy. You were always the last to go. You were always the one with the least amount of time. And now look what's happened. You know? The whole world is turned upside down.

In the past five years we've seen the emergence of the media services industry. This has been a revolution. It's been a massive change. And we're all privileged -- I think… I know I feel absolutely privileged to a part of the change that has taken place here, Stuart. It's unbelievable. So I mean, is it a change? I mean, who would have ever dreamed that you know the media department of an ad agency would end up becoming a freestanding business and become really one of the most valuable parts of the agency holding company? It's extraordinary.

Sanders: Russell, your clients, what are the implications for advertisers who are still using general agencies to set their media parameters? Are they out of step with the future?

Wohlwerth: I'd say the agencies, I'm really sad to report that for the most part -- there are some exceptions -- are really out of step with what's going on out there. I easily I see maybe 2,000 sets of materials for agencies each year and there's a real similar theme. And they all start out with "we're not a traditional ad agency." And then I take a look at the reel and everything is traditional. So it's best not to start off a relationship based on a lie. And unfortunately, I think most of the agencies just cannot get out of their own way… so clearly out of step.

Sanders: Steven, let's bow down to 30,000 feet on the marketing chess board.  Here we are at a media conference and the title is, "The New ROI: The Rise of Integration." Is what we're talking about really a new thing? Don Schultz probably invented the word "marketing integration" in the early 60s. His school, where you went, Northwestern, was the first to offer a degree in marketing integration back in the early 90s. What about integration? Is it hot? Is it new? Has it been around? Is it back in focus?

Feuling: Well, first of all, I did go to Northwestern and I think the one thing -- I didn't have Professor Schultz as an instructor, but -- there was one thing that I walked away from that school… which was, always stay incredibly focused on your consumer. If you listen to your consumer, you will be successful. To me integration is essentially just flowing from that.

Is it hot now? I think what's hot now is the fact that the consumer engagement relationship is so different than it used to be. In the old world order it was really all about you know, inventory on television and radio and print, et cetera. Now consumers have control. It's all about engagement. When I launched a product we found 71 different touch points for that consumer in one day. It's that kind of a world now.

So is the consumer forcing integration? Absolutely. Is it hot? Yes. But I would argue that smart advertisers have always been focused around their consumers, and that if you call it integration, call it just good marketing. But being focused on your consumer is the hot topic and obviously where everyone needs to be focused now.

Sanders: Jaffe said that integration was sort of like 6th graders talking about sex, they're all talking about it but no one is getting anything. David, what are you seeing in integration from a medial standpoint? Is anything really new going on here?

Verklin: I think there's a lot. Yeah, I think there's a lot new in integration, and some interesting new spaces that are being developed. I think the terminology is one of the issues that we have to struggle with: What is integration? In some cases it's making sure to focus on the consumer. Other cases it's presenting one voice. The concept has been around for a long time. But I think that a couple of spaces that are interesting… I think the whole brand experience space is a really interesting next battleground of integration where we're creating physical environments where brands can have human interaction with customers.

We've created a division of our company, Carat Brand Experience that's just built in the middle of the building an exhibit for Honeywell on the mall in Washington, D.C. Or you know we're managing client sales meetings, and Chevron dealer meetings, and trying to make sure that the brand is anthropomorphic, that the brand is being able to physically have characteristics and touch the customers.

I think the next battleground in integration is going to be in the brand experience space. In direct marketing we're seeing enormous focusing in integration and the collision between the off-line and the DR worlds. And then the third space where we're obviously seeing integration is something that I think Starcom and Carat are extremely proud to be the pioneering communications planning with our friends at Procter & Gamble.

Tomorrow: How client behavior drives integration.