There’s little doubt of Martin Sorrell’s influence within the advertising industry. But he has as much – if not more – clout in the global political and business community. He’s an unofficial advisor to China, a regular at Davos, where this year he berated governments for their lack of social policies, and his views on the global economy have proven to be accurate predictors of its future health.
Sorrell runs WPP from a little two-storey backstreet building in Farm Street, London, where we meet for the first segment of our interview. It is surprisingly low-key, and appears to be more suited to a small agency office than the multinational headquarters of one of the world’s largest marketing communications companies.
He talks passionately about data and technology, and the future of media. Perhaps more difficult is sorting out the people side of the business. Retention of staff is an issue, he warns, stressing the ad industry needs to do a better job in reaching out to talent.
Sorrell, however, is constantly on the go. Half way through our meeting, apologising profusely, he rushes into a car, and we continue our conversation as he drives to his next appointment. It is a few weeks later when we finally conclude our interview during his trip to Phuket in Thailand for WPP’s Stream conference.
Atifa Silk What parts of the world are you most bullish on? Are you still enthusiastic about the opportunities in the N11 markets?
Martin Sorrell There are issues surrounding China in terms of cost, and we’ve seen that not just last year, but also in the last two to three years. I remember one of our clients saying they were looking at their investment in Asia and had decided not to locate in China because of the cost.
Instead, they were looking at Bangladesh and Vietnam. But, for now at least, you have to think of the N11 as the N10 because we need to exclude Iran. Markets like Bangladesh, Vietnam and Pakistan with 185 million young people (that’s bigger than Russia with 145 million) in addition to the BRICS are becoming much more prominent.
Then there’s CIVETS (Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa). The irony of what has happened in Egypt is that over the last few years we have seen economic progress in the country . We’ve seen North Africa become more important. That is why I think the issues of inflation and unemployment (particularly youth unemployment) are what really need to be addressed. If you look at the reasons behind what has recently happened in Tunisia and Egypt, you will see that it has to do with inflation, particularly inflation of food prices, and youth unemployment.
Atifa Silk What’s your outlook for Asia?
Martin Sorrell Asia is in good shape. Last year, with associates, which are companies we own 20 per cent to 49 per cent, we were up to about US$3.5 billion in Asia, which is way ahead of everybody else. The budgets for this year are now well over $4 billion. We’ve got 40,000 people, and next year we think we will be up to about 42,000. China and India grew at about 13 or 14 per cent, with both markets surging later in the year. This year, we will see a rebalancing of growth and new media will be stronger.
Atifa Silk What is likely to be the economic impact of the recent disaster in Japan?
Martin Sorrell It’s difficult to see anything good come from this terrible situation, but it might bring some economic stimulus and political cooperation to solve Japan’s economic troubles (which have been going on for 20 years or so). Despite being the heaviest indebted mature economy, most of the debt is domestic, although the yen continues to strengthen, which is a puzzle and makes exports more difficult.
Atifa Silk Do you see acquisitions continuing to play a role to helping WPP expand in Asia’s emerging markets?
Martin Sorrell The facts don’t support your question. We now have almost a $1 billion dollar operation in China. In Vietnam, we’re almost $60 million (including associates). Indonesia is now over $60 million, and India is about $450 million. If I look at all those operations, it is the organic growth that is driving them, not the acquisitions. The biggest acquisitions we can make in any of these markets are probably $10 million to $15 million. No bigger.
If you’re talking about China or India, the two biggest markets, in the context of your question, what we really have to do there is continue to grow organically. When we win a $1 billion account in China, as we did recently, that is the biggest element of growth. Acquisitions are important, organic growth is even more important. As you and I both know, organic growth is better.
Atifa Silk Is it time to reflect on your purchases? How do you feel about selling back businesses you have acquired?
Martin Sorrell I hear that one of our competitors is divesting. I think if you have a problem with a services business, the worst that you can do is put up a ‘for sale’ sign on it. The instant you put a sale sign over a services business you immediately reduce its value by 20 per cent to 30 per cent. Obviously, there are the challenges of new media or new markets or consumer insights or data, which is about the adoption of technology (and where we differ with our competition on the importance of that). But, if you’ve got a problem with the business you change the management.
The areas that we operate in are not in hyper growth, but they are reasonable. If we grow at mid to single digits, excluding acquisitions, so if we grow at five and we add another three per cent from acquisitions, so top line is growing at 8 on a businesses which analysts are forecasting $16 billion of revenue, it’s not the largest business in the world. But it’s not the smallest either - and totally respectable.
Atifa Silk Is this a strategy that’s set in stone?
Martin Sorrell You should never set things in stone, but disposals are not on the agenda. New markets, new media and consumer insight is our mantra. That focus remains as true today. I don’t think our American-based competition is as aware as our European-based competition — Publicis and Havas - of the growth opportunities outside of the US. That’s changing because there’s more pressure in the worldwide economy and balance because of China’s growth and ascendency, as well as that of Brazil’s and indeed Russia’s. Our strategy still applies. The difference in the last couple of years has been that we’ve focused more on data, which is now a third of the business, and it’s more about application and technology. It’s not easy and frankly much more challenging intellectually to figure out what’s going to happen. What is the new Facebook or the new Twitter? How do you work effectively with Facebook?
Atifa Silk What’s your strategy for investing in technology companies?
Martin Sorrell We’ve got a three-pronged strategy: one, get our legacy companies more and more up to speed; two, get our new technology companies more involved; then last but not least make wise investments where we think is important.
We want our legacy businesses to be better, and to become more technology-orientated. Second, we want to ensure our digital leaders, like Wunderman, OgilvyOne, G2, Agenda, and Possible, continue to grow and expand. Third, WPP Digital will invest either significantly or at smaller levels with an Omniture or Buddy Media, and in areas like video and gaming where we think there are big opportunities.
Atifa Silk In your view, has the industry has done enough to innovate or even keep up with developments in technology?
Martin Sorrell I don’t think we have done enough on the pipe work and I don’t think we have done enough on process improvement, off-shoring and outsourcing as our clients have. I don’t think we have done enough in attempting to understand technology. There is too much of this voguish emphasis on creativity. And it is difficult. It’s not so much server farms or hiring Phds from MIT. It’s more about applying the technology to what happens, and I don’t think there has been enough of that. It’s about technology and content.
Atifa Silk WPP saw a come back in traditional media last year. Will this trend continue?
Martin Sorrell Traditional media came under greater pressure in the Western markets from new media, PC, mobile, and social networking than it did in the faster growing markets of Asia. That’s the great thing about Asia - traditional media has not been under as great pressure as we’ve seen elsewhere.
There’s a feeling in America and the Western economies that online - new media - was more about price and deal last year. Offline was more about brands and building brands, and therefore there was more investment in that area. This is the critical factor because people are so frightened of making commitments - particularly post Lehman. I’m not just talking about consumers in the West, but also corporates. Corporate behaviour has changed. What happened last year was that instead of increasing fixed expenses, like building a new plant or taking on new people, companies either took on temporary labour (we see the temporary labour companies doing extremely well) or they decided not to invest in capacity and increased investment in the brand.
That was a bit of a phenomenon last year. People felt that they could grow by investing in the brand, and not by increasing capacity and having problems with over-capacity.
Atifa Silk Has the sentiment among client CEOs improved this year?
Martin Sorrell CEOs are a little circumspect, having gone through Lehman in September 2008, a time when people were literally worried whether they were going to go out of business. They’re worried about efficiency, effectiveness and liquidity. There’s a natural conservatism. And there’s fear. The average life of a CEO is about 3.6 years in America, and boards are worried about making a bad decision. They are nervous, and they are fearful. I think clients therefore tend to be more conservative. But I take that as a good sign as we are seeing some upwards revisions of company profits. Corporations don’t want another crisis like a Toyota, BP or Goldman Sachs. So people are naturally cautious.
Atifa Silk What is the key to building strong, long-term client-agency relationships?
Martin Sorrell Trust. Trust us.
Atifa Silk What’s your view on clients experimenting with non-agency models?
Martin Sorrell I don’t think any client has ever had everything they need from agencies. Clients will always experiment. The issue for us is how can we experiment with them? So, if [Unilever’s CMO] Keith Weed wants to have non-agency models, we’ll create one to satisfy that desire. It can be what we have done with Santo or CHI, or what we did with Jan and Leo [and their launch of Johannes Leonardo] in New York. We set them up and they are working with three of the world’s top 10 brands after a couple of years. If you’ve got bright clients they will want to experiment with everything. And I’m sorry to bore you with numbers, but I don’t think they indicate this [use of non-agency structures] is a trend yet. If it becomes an important trend in the industry, we want to pick up on it.
Atifa Silk How do you feel about people leaving to set up small shops? What does it take for you to consider backing a start up?
Martin Sorrell It happens all of the time. The question is, are they are good enough? We are committed to the big agency networks. But if talent can be put together in any way, shape or form then we will do it. I don’t think that the tide is with the small players, particularly in the last couple of years. For good or evil, the tide is with the bigger battalions.
Now, people reading this might think I would naturally say that. There’s something in that. On the other hand, you have to see that we are creating structures, particularly new market-driven structures, new media-driven structures and technologically-driven structures that embrace the concepts you are talking about. For instance, we do think the team model with Ford and our other clients is becoming more and more important.
We now have team leaders on 24 of our top 30 clients, which make up a third of our business. At the end of the day, in every edition of Campaign there’s a new set of people that say they have a new seamless model, which is not traditionally orientated but really grasps the new reality. That’s BS actually. It’s about the people. So, if the people are good and they know what they are doing, it will work. At the end of the day clients want the best people working on their business. That’s it.
Atifa Silk How does the WPP team model work effectively for clients?
Martin Sorrell The crucial determinant of the WPP team model (or rather, the team model - whether it’s WPP’s or not) and whether the model works or not, is the client CEO and the client CMO. The client CEO has to have a simple and strong vision, and an interest in marketing; the client CEO has to be someone who wants to be involved in marketing and someone who empowers the CMO to get it done; and obviously the CMO has to share that vision. So the critical issue is client strategy and structure. The best examples of this are what we’ve seen at Ford with Alan Mulalley and Jim Farley; and what we saw from the 1990s at IBM with Lou Gerstner and Abby Kohnstamm, and more recently with Sam Palmisano and Jon Iwata. So to answer your question, it’s really about client strategy and structure.
Atifa Silk Holding companies have experimented with various approaches to digital. WPP has now launched Possible. What advantages does this model bring?
Martin Sorrell We have three digital implementation strategies. The first is to encourage our legacy businesses to change the engines on the airplane as they’re flying. That means that a JWT, for example, or an Ogilvy or a Grey or a Young & Rubicam or a Hill & Knowlton or Burson-Marsteller, they have to make digital the heart of everything they do. Or suffuse everything they do. That’s the first thing.
Second is to ensure our digital leaders, like Wunderman or OgilvyOne or VML, continue to grow and expand. WPP have the only two global digital agencies - Wunderman with over $900 million of revenue, and OgilvyOne with over $800 million dollars of revenue.
We want to make sure that Possible Worldwide and VML grow to a similar scale from the $100 million base that they’ve already established. And our other agencies, digital agencies such as G2 with about $300 million of revenue do so similarly. The third strand is what I call the WPP Digital strand, which is making sure that we invest almost as a VC outfit in the technologies that are the most exciting and apply those technologies across our business as aggressively as possible.
Atifa Silk How will Possible overcome the challenges in integrating its disparate units, which have their own cultures and chiefs?
Martin Sorrell I think the best way is for the four leaders of Possible Worldwide to agree on the strategy and the structure. And that’s what they’ve done. Believe it or not, this strategy and this structure came from them.
It’s taken about a year - a year and a half - to mature. It’s the four leaders of the businesses that decided it would the best way to go forward. Each of them have their own distinctive competencies and geographies. Bridge in Cincinnati, Schematic in New York, Blue in Singapore, Asia and China, and Quasar in India. I think it’s interesting that all four thought this would be the best way to go. So it’s really come from bottom up, not top down.
Atifa Silk Mobile is finally emerging as a powerful medium. What potential does it hold for the advertising industry?
Martin Sorrell Mobile and location-based marketing, as others insist on calling it, are absolutely critical. The trouble is we need to get more traction. We’re starting to see that - not as fast as I’d like to see it - but it’s coming. And I think it’s coming, in a sense, for negative reasons.
We warned at the GSM conference in Barcelona many years ago that unless the operating networks and the handset providers got together, somebody else might eat their lunch. Certainly Google has now threatened to do that with Android, which has now overtaken RIM. It must be one of the fastest growing implementations that we’ve seen. Also, obviously the growth of smartphones. The iPads and tablets have put the pressure on. And mobile is now starting to emerge as a very powerful medium and it is starting to gain traction.
Atifa Silk You’ve described apps as the “Holy Grail” for advertisers. How can agencies take advantage of the boom in apps?
Martin Sorrell I’m not sure that I did actually describe it as the “Holy Grail”. We were talking about something else - location-based marketing. But, agencies can certainly take advantage of it in terms of design and implementation and tying search and tying display advertising to applications. The explosion in applications in terms of scale and growth is very considerable.
Agencies have got big opportunities to apply them in the context of the campaigns they devise and in that of their creative executions. So all in all, another major string to the agencies’ bow in the context of new media.
Atifa Silk Talent is a pressing issue. How do you make advertising profitable for people in your organisation who have other choices?
Martin Sorrell You are probably looking at things with Asian eyes. When economies are growing at 8 to 10 per cent, the world is a very different place to economies that are growing at 2 or 3 per cent. So while I’m not sure that I would agree with the basic premise, I would say that there’s one thing that’s really quite lamentable in our industry: we don’t recruit like investment banking or consulting.
We’ve run our Fellowship scheme for 11 or 12 years now. It used to be called the Thomas Cook Tour because you did three different jobs in three hemispheres with three functions at agencies.
The appalling thing about it is that it hasn’t been copied.
What’s really counter-productive in our industry is that if you win a piece of business, the way you staff up is either internally or you steal the talent from elsewhere. That’s true in the consulting and investment banking business too. But it’s not as prevalent. The challenge for us as an industry in the long term is how do we attract the right people to come into the business. How do we compensate them effectively because obviously there is the attraction of investment banking and consulting. What’s interesting is that the turnover rates in investment banking and consulting are greater than ours. That makes me feel a little bit better about life. But they are still very high. In our industry you compete with the competition. You compete with clients because if you have somebody good, they will try and take them. That said, many of our people don’t like the idea of being in one sector - they like the diversity that we offer. And, we are a bit of left brain and right brain, whereas banking and consulting tends not to be emotional or creative.
It is always a challenge to attract the right people, incentivise them, motivate them, and keep them. It is disturbing that with the economic recovery, with people feeling better about things, the churn rates have increased and they are higher now.
Atifa Silk What is your view of talent in Asia? Most of the agencies in the region continue to be led by expats. What will it take for local talent to rise to the top?
Martin Sorrell That’s a very unfair and inaccurate view. If you look at our operations we certainly are not led everywhere by expats. Our view, as you well know, is that for our businesses to be strong they have to be led by nationals. That is increasingly the case in China. That is increasingly the case in India, and in most of our Asian operations. Sometimes it is true that Western-based multinationals like to deal with ex-Western-based expats. But generally that is not the case. Your question seems to exhibit some frustration. I just think it’s not borne out by events. Our view is quite clearly that for our businesses to be successful, or to continue to be successful, we have to make sure they’re run by national talent.
Atifa Silk Do you find the business more challenging today?
Martin Sorrell We’re talking about a fairly diverse and geographically functional business, and I think it’s a very exciting business. It’s as great fun as it’s ever been, and much more interesting because of its geographic diversity and because of the challenges of new technology and the importance of data and the application of technology to our business. It’s never been like this before, and we’ve had to deal with some big challenges. Three or four years ago it was the G-word. Is Google going to destroy you? And the answer so far has been that it’s been a frenemy - a friendlier frenemy now than it was a year or so ago, although there are still challenges. Once we got through the G-word, or the G-challenge at least for the short term, we were confronted with the R-word. The Lehman catastrophe or the ‘too big to fail’ was threatening to destroy the business as well.
Atifa Silk You spend more time in Asia than all the other holding company chiefs put together. Do you think that’s made a difference to the success of your agencies?
Martin Sorrell I don’t know if my presence makes any difference. I just like coming here to Asia. I’m in Phuket now for Stream Asia. Although it was a 25-hour plane journey to get here, it’s enjoyable. Everybody smiles. They’re very enthusiastic, bright, clever, resourceful and interesting. We have a really good time. It’s nice to come to a part of the world where people smile instead of scowl.
The US-based agencies are blessed with a 300 million-people market. They’ve always had the biggest market in the world on their doorstep, so their need to expand to other parts of the world was not as great as when you start a wire basket manufacturer in the UK 25 years ago. Having said that, I must say the Americans probably would prefer to be playing golf in Long Island on the weekend, instead of being in Phuket with our clients, media owners and colleagues at Stream. I know where I would rather be.
This article was originally published in the April issue of Campaign Asia-Pacific.