CVS Health's CMO says that holding companies risk being disrupted

The ad agency holding company model needs to modernize, CVS Health's CMO Norman de Greve told Business Insider in a recent interview.

“Holding companies need to go from an amalgamation of warring armies to integrated companies,” he said. “They don't need separate brand names and all this overhead.”

He also said while consulting firms understand marketer's challenges well, they lag in creative skills.

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CVS Health's Norman de Greve has been trying to reposition the biggest US pharmacy chain in terms of stores into a consumer healthcare company by doing things like ditching tobacco; selling an inexpensive epinephrine auto-injector in the middle an EpiPen shortage; and acquiring health insurer Aetna.

As CVS Health evolves, its ad agency needs are changing, and traditional agencies don't cut it anymore, de Greve told Business Insider in a recent interview.

CVS Health continues to rely on ad agencies including IPG's UM, Omnicom's BBDO, Publicis's Digitas, and smaller shops like Standard Black. But it has set the bar higher and pledged not to work with any agencies that also work with tobacco companies.

Holding companies are 'an amalgamation of warring armies'

Holding companies formed in the 1980s to achieve economies of scale by selling marketing services to a variety of clients. But big clients like Procter & Gamble and Unilever have pulled back on ad spending, brands are taking more of their marketing in-house, and Facebook and Google are increasingly dominating digital advertising — squeezing holding companies.

De Greve said the holding company model was built with a private equity mindset, which isn't what clients need.

“There are so many agencies, and they're feeling the pressure, not just from pricing because we [marketers] can choose from a lot of people, but from talent, because talent can go anywhere, so their value proposition is a little unclear,” de Greve said.

Read More: S4's Sir Martin Sorrell is calling time on the ad agency holding company model, and thinks that big players like WPP and Publicis should go private

De Greve said clients want a single point of contact at an agency who understands their business and can help drive it.

“Holding companies need to go from an amalgamation of warring armies to integrated companies,” he said. “They don't need separate brand names and all this overhead.”

Consulting firms threaten ad agencies

Holding companies are trying to revamp their businesses. WPP is simplifying its networks and combining creative, digital, and media teams, while others are acquiring data companies like Epsilon and Acxiom.

Read More: 'S4 is too small, too narrow, and too yesterday': Why this Publicis exec thinks ad holding giants will prevail despite competition from consultancies and upstarts

But they are not moving fast enough, said de Greve.

He shared two contrasting examples of meetings with a consulting firm and holding company. While the consulting firm identified a problem, presented a solution and its cost, the holding company asked de Greve to present a problem, then said it would ask its experts across the world to solve it.

“Which of these meetings do you think I'm going to remember？” said de Greve. “Solving your [the holding company's] dysfunction isn't something that has a value proposition for me. The consultancies will pull in disciplines from your firm, but there's always a core team of one to four people that just know our business really well.”

He also acknowledged that while firms like Accenture Interactive, Deloitte Digital, and IBM iX were bulking up on creative expertise by buying agencies, they still had their work cut out for them.

“Managing creative is a very hard thing to do,” he said.