Gokul Krishnamurthy
Oct 08, 2013

‘Our deal pipeline is far bigger now than it’s ever been’

‘Complete autonomy doesn’t work anymore’ reasons Sir Martin Sorrell, WPP’s chief executive, in a Q&A with Campaign India

‘Our deal pipeline is far bigger now than it’s ever been’

Good results announced for the first half of the year. And good to see you on LinkedIn, where you spoke of four focus areas in your first article: new markets, new media, data investment and ‘horizontality’. Let’s start with new markets (and growth markets). The UK is showing growth...

The UK is not a new market, but for us, it is behaving more like one. It has actually been the fastest growing. The way we break our business down is as North America, UK, Western Continental Europe, Asia, Latin America, Africa, Middle East and Central and Eastern Europe. Among these, the UK was the strongest in the first half.

I think the UK has got stronger and the Government’s policy is being vindicated.  It’s a tough policy – it’s based on austerity. It’s not pleasant; it causes high levels of unemployment. But some people say you have to have tough medicine in order to get better.

And the UK has been good for us not just in the last six months, but over the last two or three years. We’ve grown our market share significantly in the UK.

India, China: How do you view these markets going forward?

If you asked me how I would rank the BRICs at the moment, I would rank Russia first, China second, Brazil third and India fourth.

I just flit in and out, and so this is inevitably superficial, but I think the pessimism in India is overdone. You can’t expect things to be on a line going up all the time. The secular underpinning for India remains very positive. But there are going to be cyclical oscillations around that secular growth. Nobody complained when the rupee was strong and the economy was growing fast - since the early ’90s, when the right decisions were made from a leadership point of view. You have to stick with it. You can’t jump ship at the slightest sort of storm warning. There has to be a period of adjustment.

Having said that, if I was to get worried about things, the worrying thing is that this is not a pre-election stasis - people are worried that post elections, this will continue. In many countries, you get ‘pre-electionitis’. The people I talk to and whose opinions I value, who have historically proven to be accurate, are worried about what happens after the elections.

What are WPP’s key markets for expansion, geographically?

Asia (all except Japan, Australia and New Zealand, which are the more mature markets in Asia); Latin America; Central and Eastern Europe; Africa; and the Middle East - not in that order.

And when I ranked those four countries (BRIC) as I did, that doesn’t mean it alters our investment philosophy. Our investment is full-bore on all of them.

Coming to digital. Acquisitions still seem to be a growth driver - from Kenya to Hong Kong...

And there will be one announced in India this morning (12 September).

If you look at the first half, the growth has been half organic and half acquisition – it’s roughly 3 per cent each with currency adding another 1 per cent, adding up to 7.5 to 8 per cent growth.

In a post POG (Publicis Omnicom Group) world, I would say we do more, faster. The strategy remains the same – new markets, new media, digital investment management and horizontality.

If new markets are 30 per cent of our business, there’s a natural growth because those markets grow faster. So after five years, without any acquisition, they should account for 35 per cent. If acquisitions add another 1 per cent a year, we’re talking about 40 per cent.

Digital accounts for 34 per cent today. With organic growth it should reach 39 per cent and acquisitions will take us well into the 40s.

And because the focus is on new media and new markets, the faster growth markets would tend to do better because we would make more digital acquisitions - I would guess – in fast growth markets.

How profitable is digital?

We don’t break out digital profitability. It’s the same as the group average, or better. It’s probably more so because firstly, it’s based on time. Secondly, it’s because of the complexity of what we do. Because it’s more labour intensive, we do better.

TRAI has put out a set of recommendations, for guidelines to be followed on TV ratings agencies, yesterday. How does government regulation of TV measurement agencies work?

I think it would be unique. There is no other country where that has happened – I don’t think anywhere else in the world, it works on that basis. Even in China.

On these recommendations, we haven’t yet absorbed what’s been said. We’ll take a close look at it.

Some elements of the business, like public relations – how critical are they to the whole and what role do they play, given that it’s not the numbers?

They are critical. As digital has become more important, branding and differentiation through non-traditional channels, has become more important.

Our public relations business didn’t do as well as the rest of the business in the first half. They had a very good year last year and the year before. That’s a bit of a puzzle to understand, when you think of the growth of digital, because digital has made PR more important – not less important.

To me, Twitter is a PR medium and it is data. We can understand the mood of the nation by analysing Twitter feeds. Or we can demonstrate that people engage with live TV programmes - or magazines - more effectively, by looking at Tweets.

Why is public relations weaker relative to the rest of the business? I think the reason is that in places like the US and Western Europe, where there is pressure on discretionary spending by clients, they cut spends. When you get specialisations (like healthcare PR), you do better. We’ve seen it in the research area, where clients have cut back (on discretionary spending in mature markets). 

Public relations is just about 10 per cent of our business, and that is going to become more important over time. Because all the non-traditional media give you big branding opportunities. Search is advertising; Facebook, to my mind, is branding. It’s about content.

How has horizontality sunk into the system? There was news of some appointments...

We’ve got 40 client leaders across a third of our business. And then by country, we’ve got Ranjan Kapur here in India. We’ve also got a dozen (regional) country appointments. I’d like to do one in every country (we are in) but that’ll be difficult to do at 110.

Clients want the best people working on the business. Some of them worry about the brands working on the business but ultimately they want the best people working on the business. They don’t care where they come from. In fact, if we could harness people even outside our organisation, which we do for clients like Ford, we would do that.

On digital, there is a deluge of agencies...

There is a deluge, but they’re small. Some are good; and some are not so good. What you are seeing is a consolidation because they get to a certain scale and they can’t go any further. They want databases of clients and relationships. For a smaller company which doesn’t have an established brand, it is very difficult to break in.

We’ve done 49 acquisitions – what we’re announcing today will be the 50th this year (Ogilvy India – PennyWise).

And it’s obviously not the last of the acquisitions...

We’re trying to do as many as we can. Because we’ve upped our target post POG to 40 to 45 per cent (in five years from digital).

It’s a Darwinian process. There are people starting and developing agencies all the time. You have clients changing spending patterns, shifting relationships.

There are five areas (in digital): search, display, video, social and mobile. Mobile is changing so rapidly. There is bound to be increasing opportunity. Our deal pipeline is enormous. And it’s far bigger now than it’s ever been.

Any weak areas in India – for WPP – that need addressing?

You should look to continually improve on what you do - paranoia works. But, we do have a very good business here.

I should come here more often because I go away feeling really good. It’s always energising to come and talk to the people here. They always take an intellectual approach,  not in a fuddy-duddy way but in a practical way. They’re very good in implementation. They think it through meticulously and they’re really good at what they do. It’s a very good example of what you can do in our industry, which is applicable worldwide.

To answer your question, I want to do everything we do better. There’s no reason to be complacent or arrogant. We need to be hungry, aggressive and thoughtful about the way the business is changing, how the clients, the people, the Government and the NGOs are thinking. 

Indian domestic (market) weakness in a way means that Indian companies are going to develop their business abroad. They’re going to become bigger exporters. They’re going to make more acquisitions outside. Who would have predicted what Tata has done with Jaguar Land Rover, what Sunil Mittal has done with Airtel, or what Anand Mahindra has done with Mahindra? It’s incredible.

Looking back, how did you as a leader pick the leaders for this market?

I don’t think there is a great science to it. They sort of self-selected themselves. The way you form opinions about people is through direct and indirect contact - it’s the impressions that you form over a period of time. And... we all make mistakes.

Another great thing about our business in India is the focus on training. They think about training very intensively. Unfortunately, around the world, the way you get good talent is by stealing them, not by training them. The amazing thing about the fellowship program we’ve been running for 13 or 14 years is that nobody’s copied it. That tells you a lot about the industry - it thrives on stealing from one another, which is not how it will thrive in the long term. It will just destroy itself if it carries on that way. If you continuously bring people from the outside, you hollow out the organisation.

The reason why people have grown domestically in WPP in India, is also because the economy is growing. It’s much more difficult to grow in a flat or declining environment. And also, the further you are from head office, the better you do (laughs).

What would you rank as the most intuitive, gut-led business decision you’ve made?

All of it is, actually (but I hate the word gut).

A lot of it becomes... instinctive. And if you want to move quickly, which I think you have to, you can’t sit and wait. The thing that kills most companies is lack of decisions. If I delay a decision, it’s because I don’t know the answer, or I think I don’t know the answer, or I am worried about the potential result.

When it comes to making changes inside organisations, you always make changes too late - especially when it comes to removing somebody. It’s just human nature. It’s very rare that you find people who move quickly enough. And the bigger the organisations, the more they delay.
If you have longevity, sometimes that can be good; and sometimes it can be bad.

On the subject of acquisitions - how are the valuations playing out now in India?

India has been destroyed by one transaction – Mudra (acquisition by Omnicom). Brazil was destroyed by the Neogama, Talent and DPZ acquisitions – three acquisitions that Publicis made, none of which I think have been particularly successful, but changed valuation metrics to unrealistic.

I would say Dentsu’s acquisition of Taproot and Webchutney would be in the same category – totally unrealistic (valuation), badly structured, and will end up in trouble. They’re good outfits, but it can’t last.

Do you see scope for more agency brands in WPP, besides in digital? And how does that help horizontality?

When you create new brands, you create new energy. If I look at Maxus in the context of GroupM, it has been extremely successful. An outstanding start and now Vikram (Sakhuja) runs it from India. There’s talk about a fifth brand inside GroupM. I do see scope for that.

You have to be increasingly networked and you have to pull it all together.

Life is not about black and white; it’s about shades of grey. The 21st century is for messy minds – not for neat and tidy minds. It’s a complex matrix, and increasingly complex. I understand that the primary loyalty should be to the vertical, but there is an increasing secondary loyalty or priority – and the gap between the primary and secondary is getting less and less. And it’s not just about media agencies - it’s across everything.

We are our own worst enemy because we motivate people and tend to incentivise people around the vertical. For all our leaders, 30 per cent of their incentives are based on qualitative criteria, one of which would be horizontality. It could be flexed to all 30 per cent being for horizontality or 10 per cent, depending on how they think about things. If they’re not being co-operative enough, you can up the weighting to try and incentivise them.

I am not saying that quantitative incentives are the key – actually, time is the key. Ten years ago, we had leaders of verticals who would shut their minds to any co-operation. Ten years on, it’s very different. That doesn’t mean it’s perfect now or it’s where it should be. But it means that it’s very different.

The old Omnicom seduction of an acquisition would be ‘Join Omnicom and we will leave you alone’. Complete autonomy doesn’t work anymore. 

What it’s all about now, is getting leverage – not in a scale or financial sense, but leverage in terms of knowledge. Every one of the 170,000 people in WPP, in 110 countries, can make a contribution.

The article appeared in the issue of Campaign India dated 20 September, 2013

Source:
Campaign India

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