Bold call: The holdco era is over. The operating company age is here — for real this time

If all this sounds familiar it’s because agency CEOs have been preaching the gospel of operating models for years. Some have inched closer to the ideal, but none have quite nailed the landing — yet. That’s why all eyes are on Omnicom’s planned acquisition of IPG. Should it all go through, it’ll be another test of whether agency leaders can finally break free from the holding company playbook — or just rewrite it.

But it would be a mistake to pin those struggles solely on poor leadership. If anything, holding company CEOs are making the best of a tough hand. They’re running publicly traded companies with earnings targets to hit, shareholders to appease and dividends to protect. Blowing up one agency model to build another from scratch isn’t just risky, it’s potentially catastrophic.

That’s why every move from the top is under scrutiny. Right now, the industry is hanging on John Wren and Philippe Krakowsky’s every word. And based on the meeting mentioned earlier, they know exactly what tune to play.

The expected promises were all there: integrated teams seamlessly blending creative, media and data. Reassurances that agency brands would remain intact, giving clients flexibility rather than forcing consolidation. And predictably, both CEOs insisted job cuts would hit back-office roles, not client-facing teams, all in the name of better “alignment” of people, processes and platforms. They also made the requisite nods to AI, tighter creative media collaboration and striking the elusive balance between efficiency and creativity.

Now, they just have to deliver. Which is easier said than done when there are so many organizational holdco dynamics working against this change. Becoming an operating company doesn’t mean breaking down silos. It means prying people away from their fiefdoms and upending the tribalism that gives agencies their identities. Take that too far, and it’s not just job titles on the chopping block, it’s the glue that makes agencies feel like more than just another corporate machine. Even Taco Tuesdays aren’t safe.

And no amount of corporate spin can plaster over the deeper cultural fault lines. Not everyone at Omnicom or IPG will buy into the merger of worlds, nor will they all thrive in it. The Powerpoints, platitudes and company happy hours won’t cut it. Some wounds run too deep. Call it the consolidation tax — paid in demotivation and dysfunction.

Dentsu learned this the hard way. Merging acquired agencies like 360i and Merkle was anything but seamless, as former execs from both have told Digiday over the years. The structure was clunky, the processes disjointed — efficiency was nowhere to be found. But, to be fair, it wasn’t much better elsewhere.

“The typical holdco story of having buying power, market clout and the best people is becoming increasingly fragmented and therefore harder for them to use to convince marketers they’re the best businesses to work with,” said Eric Perko, founder of Apollo Partners, a full-service independent media agency and consulting firm.

That’s not to say the challenge is insurmountable — far from it, actually. Publicis Groupe has managed to pull it off, but not without the kind of behind-the-scenes operational muscle that rarely makes it into press releases. The real magic isn’t in the messaging, it’s the machinery — the systems and processes that make advertising work harder for advertisers, from the way they plug into The Trade Desk to the way they handle accounting. Shifting from a holding company to an operating company rewires all of that with consequences that ripple far beyond an org chart.

“Ultimately, this isn’t just about navigating organizational dynamics, system upheavals and cultural shifts or finding the best way to structure around clients, it’s about doing so with grace, momentum and excitement,” said Jared Belsky, co-founder and CEO of Acadia.

The market capitalization of the holdcos make that abundantly clear. Publicis is $27.09 billion and WPP is $10.46 billion. Both have essentially followed the same playbook: growth in tech, clarity on strategy, stronger leadership and more deal-making. And yet, their fortunes couldn’t be more different. In the operating company era, execution moves markets more than narratives do.

That’s because the holdco era was never really about operations, it was about financial engineering. These groups weren’t built around clients and employees so much as they were built around arbitrage, inorganic growth and cost-cutting to prop up EBITDA. And for a while, it worked — Wall Street and private equity ate it up. Now, not so much. The multiples favor the operating company model. Just look at Accenture and IBM.

Needless to say, there’s a lot riding on this for holdco bosses. That pressure isn’t new, but it’s more relentless than ever. Their challenges are mounting, their shortcomings more glaring. A botched pivot doesn’t stall progress, it compounds the very issues they’re trying to solve. Not least because the pool of advertisers willing to pay for the holdco is small. Sure, Fortune 500 CMOs still see value in a scale proposition. But that’s not where the real growth is. It’s in the businesses operating outside that rarefied air — the ones agency bosses are chasing for their cumulative value.

“If you’re the CMO of one of those large advertisers then you can go to a holding company and know that you’re going to get the best principal media inventory or get them to agree to 180 day payment terms or more,” said John Harris, CEO and president of Worldwide Partners, a global network of owner-led, marketing services agencies. “But the reality of it is that this group of CMOs represent the marketing minority. The holdco model isn’t right for the majority of marketers, who aren’t going to get the best teams or principle-based inventory because they’ve gone to the largest ones.”