Upward and outward for international growth

This article originally appeared on Campaign US.

There we were on an Indian summer’s day at the Goodwood Revival, effortlessly beating Johnny Hornby’s CHI on the cricket pitch for the third time in a row (echoes of WPP’s winning streak at Cannes), when Claire Beale shattered the calm.

"Would you write a piece about what’s on your mind for Campaign’s US debut?"

I was delighted to accept; it’s about time that Haymarket took the bold but intelligent step of launching the title in the States. And, by the way, Campaign is not owned by Charles Saatchi – as many of our American cousins thought some time ago.

So, what is on my mind? Well, very short-term (I hope), it’s the strength of the pound sterling, which has an adverse impact on our numbers. The threat of Scottish independence (or, more accurately, separation – as President Obama’s pollster Joel Benenson cautioned me) did weaken sterling, but the wise decision by the canny Scots, given the costs of separation, has pushed it back up a little – at least for the moment.

What do I worry about or, more constructively, focus on longer term? As ever, it’s our strategic mantra of new markets, new media, data investment management and "horizontality." You may have heard this before. If so, I apologize: we are nothing if not clear and consistent. 

And we’re making progress, literally every day – as you will have seen and heard recently with announcements on Indigenous Media, AppNexus, Haworth, Polestar, Teein and others.

The geographic bit – new markets – is relatively easy to figure out. Myanmar, with its 60 million people, became politically acceptable in 2012. Within a year we had launched our clients’ global brands there and started working with local companies – and profitably, too. 

The same could apply to Cuba (not impossible, just look at the recent USA v Cuba boxing matches in Havana and New Hampshire) or Iran (some political progress being made and another 60 million sophisticated consumers) but probably not, for the foreseeable future, North Korea. 

We had feared that our 111th country would be an independent Scotland but in fact it was Mongolia. Y&R became the first international agency network to operate from the country earlier this month. 

The data bit is also pretty straightforward to grasp, as is the growing importance of what we call "horizontality": getting our people to collaborate across company, functional and national boundaries, as clients demand the best people to work on their account, irrespective of where they come from. 

Our 40-plus client leaders, covering $6 billion of revenues (or one-third of our business) and 35,000 people, and our 20 or so regional and country managers covering 50 or so countries, are in the vanguard of making that happen.

As always, though, execution is more difficult than formulating strategy. How do we organise ourselves to deliver – even more effectively – our unique data capabilities and superior, differentiated, integrated offering?

One of the ways is to bring our media and data investment management and database capabilities closer together. The first step, which we’ve already taken, is to abandon the old-fashioned view of them as entirely distinct disciplines ("media planning and buying" and "research"). Structured correctly they can complement, support and enrich one another. Together, they represent almost $9 billion of our $19 billion or so revenues. It’s a great opportunity for our clients and WPP

The toughest bit of our strategy, however, is digital. Although we’ve made great progress (our digital revenues have grown from virtually nothing in 2000 to 36 percent, against a market average of 20 percent), it’s healthy to stay paranoid.

Even Nikesh Arora, before he left Google for Masayoshi Son’s SoftBank, said at our Stream un-conference in Cannes that Google’s biggest competitive threat was not Facebook or Twitter or Apple or Amazon, but the yet-to-be-launched disruptive start-up in a garage in Silicon Valley, Bangalore, Beijing or São Paolo.

So it is with us. True, we’re still concerned that the new media companies (despite what they say, they are not technology companies) like Google and Facebook may eat our lunch by going direct to clients, but the real threat is the unknown one lurking in that garage.

The best way to prepare for these unpredictable challenges is to constantly deepen and broaden the application of technology within our business. Xaxis and its partnership with AppNexus is a good example, as are WPP’s content partnerships with Imagina, MRC, Fullscreen, Vice and Indigenous Media, amongst others.

Perhaps overriding all these strategic opportunities, however, is our concern that in a slower-growth world, the qualitative disciplines of marketing have lost corporate power and influence to the quantitative disciplines of finance and procurement.

Clients’ quarterly numbers are often being achieved by a one-eyed focus on cost-cutting, without the balance provided by a corresponding focus on innovation, R&D and brand-building. The left brain is overpowering the right (what irony that it takes a beancounter like me to point this out).

These chickens will come home to roost. As Jeremy Bullmore wrote years ago, while the potential for top-line growth is limitless (at least until you achieve 100 percent market share), the scope for cost-cutting is finite. Eventually, it comes to a very hard stop.

It may be that clients are starting to realize this: The recent boomlet in merger and acquisition activity could signal the exhaustion of immediate cost-cutting opportunities and a need to find other opportunities through further consolidation.

This is the biggest issue that our industry faces. We have to be relentless in highlighting not only the folly of this exclusive right-brain focus but also the rich rewards to be earned by building the value of brands through the application of calculated creativity. The only limit here is the limit of the imagination.

The worst manifestation of the prevailing quantitative bias is the choice of agencies on the basis of payment terms. As various agency heads have said, we are not banks.

Equally disturbing is the demand that agencies assume unlimited intellectual property liability. In essence, we are being asked to underwrite uninsurable risk. Just as we are not banks, we are not insurance companies either.

These approaches may achieve short-term cost objectives or yield short-term incentives, but they won’t build brands over the longer-term. They have also resulted in further consolidation in our industry, as the smaller- and medium-sized agencies are being squeezed out of existence.

We have to engage with our clients to articulate more effectively the long-term value of what we do and to move the debate to the creative strengths of our people – whether they are in advertising, media, data, public relations, public affairs, branding and identity, healthcare or digital.

Unless we do, we will be forever dogged by a focus on our costs, while the likes of Google and Facebook, with little or no transparency (remind me again how those algorithms work?), continue to enjoy operating margins at Himalayan heights.

This article originally appeared on Campaign US.